DANIËL ELOFF: Half-hearted privatisation is not a step forward

If history is any guide, South Africans should temper their optimism about Transnet’s recent embrace of private partnerships. The state-owned logistics giant has announced its intention to involve private investors in rail and port infrastructure, a move that at first glance appears to be a shift towards welcome economic liberalisation. But if past experience — most notably the botched semi-privatisation of SAA — has taught us anything, it is that half-measures rarely deliver meaningful change. 

Transnet recently announced a series of partnerships aimed at bringing private investment into transport corridors, including the Durban-to-Gauteng rail route and the expansion of port terminals in Richards Bay and Ngqura. Though all SA ports fare poorly in the global Container Port Performance Index (Ngqura at 404, Durban at 398 and Gqeberha at 391), the Transnet port in Cape Town ranks the worst in the world at 405 out of the 405 measured ports. 

What makes this semi-privatisation by Transnet therefore even more peculiar is its inconsistency. While Transnet has identified Durban, Richards Bay and Ngqura as sites for private sector investment, Cape Town harbour has been conspicuously left out. Transnet CEO Michelle Phillips has confirmed that Cape Town will not be part of this round of private participation, despite it being the second-busiest port in the country and clearly the one in the most need of a change of approach. Whatever the reason, excluding Cape Town from these plans only reinforces the concern that this so-called privatisation is more about appearances than substantive change. 

The danger in Transnet’s approach is twofold. First, it risks entrenching the very inefficiencies it seeks to escape by keeping state control largely intact while outsourcing only limited functions. Second, if this hybrid model fails, as SAA’s did, the narrative will inevitably be that privatisation itself was the problem, rather than that the process was never truly allowed to unfold.

SAA warning

SAA’s so-called privatisation in 2021 was, in reality, an exercise in political theatre. The government sold a 51% stake to the Takatso Consortium, but crucially it retained a golden share and influence over operations. The deal was shrouded in secrecy, faced accusations of political favouritism and to this day has not resulted in a fully independent, privately run airline. SAA remains a shadow of its former self, reliant on government bailouts even after its “privatisation” (which speaks for itself regarding the veracity of the privatisation) and unable to compete effectively. 

This is the likely fate of Transnet if it continues down the path of partial cosmetic privatisation. While it may invite private capital to prop up decaying rail and port infrastructure, it is unlikely to relinquish real operational control. If the reforms fail — as they inevitably will under these conditions — the blame will be placed on privatisation itself, rather than on the government’s unwillingness to fully step aside. 

The idea that privatisation is inherently problematic is simply untrue. International examples abound where governments have relinquished control of critical infrastructure, resulting in more efficiency, investment and service quality improvements. While often criticised, the UK’s rail privatisation in the 1990s led to increased passenger numbers, record levels of investment and new operators competing for customers.

Though there were missteps — such as fragmentation in track ownership — the overall improvement in service quality and efficiency was undeniable. Similarly, Japan’s privatisation of its National Railways (JNR) in the 1980s transformed a debt-ridden, inefficient state-run entity into one of the most advanced and profitable rail systems in the world. By splitting JNR into regional private companies, the government introduced competition and innovation, and a reduction in waste.

Corporatised model

Meanwhile, Singapore’s port, unlike Transnet’s state-controlled and inefficient harbours, operates under a corporatised model with full private investment and management. As a result, it has become one of the most efficient ports in the world, handling vast trade volumes with remarkable speed. SA should be looking at these success stories instead of clinging to its failing model of state control with limited private participation. 

The danger of partial privatisation is that it allows the government to retain all the negative elements of state control — bureaucracy, political interference and inefficiency — while expecting private investors to shoulder the burden of funding and operational expertise. This is a recipe for failure and when it inevitably collapses opponents of privatisation will seize on it as proof that markets cannot be trusted to run public infrastructure. 

Yet this argument is deeply flawed. What has failed in SA is not privatisation but the refusal to fully commit to it. True reform means selling off entire businesses, not just leasing out pieces of them for limited periods while keeping the state in the driver's seat. 

Beyond merely being ineffective, half-privatisation creates a more insidious problem: perverse incentives that undermine both the state and private investors. With the government retaining control but expecting private capital to flow in, it has little real motivation to drive efficiency. If operations improve the state can take credit; if they deteriorate, it can blame the private sector — without ever relinquishing its grip. At the same time, private investors — knowing they do not truly own the assets and remain subject to state interference — are incentivised to maximise short-term profits rather than make long-term, transformative investments.

This arrangement fosters rent-seeking rather than genuine competition, ensuring that SA gets the worst of both worlds: continued inefficiency with no clear accountability. Without full ownership and operational independence, private companies will naturally hesitate to commit substantial resources, leading to underwhelming results that will ultimately be used to discredit privatisation itself. 

If Transnet is serious about fixing SA’s logistics crisis it must go further than it plans to. The only way to achieve real efficiency, competitiveness and investment in rail and ports is to privatise them fully, allowing market forces to determine their success rather than political imperatives. 

As long as the state insists on playing a central role in industries it has consistently mismanaged, no amount of private sector involvement will be enough to deliver the reforms the country so desperately needs. True privatisation is not a dirty word — it is a necessary step towards economic recovery and global competitiveness. The only question is whether the government has the courage to take it. 

• Eloff, a writer and nonprofit executive, is legal adviser to the mayor of Cape Town. He writes in his personal capacity.