Transnet has clinched a R5bn loan from the Brics New Development Bank (NDP) to help to fund its recovery plan.
The troubled rail and logistics SOE signed the loan agreement at the NDB’s ninth annual meeting in Cape Town on Friday. According to Transnet, the funding will go towards improving freight rail operations.
Transnet group CEO Michelle Phillips told Business Times after the signing ceremony: “Transnet has been in the news about our recovery plan. And that is what the R5bn will be going towards. We will be allocating it to assist us across various projects, but more specifically getting the network up to standard, so that we can actually move the kind of, and the numbers of, commodities that we want to move for the benefit of the country and our customers.”
Among the targets set in the recovery plan, launched in October last year, is for Transnet to move 170Mt of freight this financial year, compared with 152Mt in financial 2024. The utility is facilitating access to private operators on its network and freight rail operations have been separated from infrastructure management.
Transnet will release its annual financial results for the year ended March 2024 tomorrow.
In its annual financial results for 2023, the rail and ports operator announced a marginal year-on-year increase in total revenue from R68.5bn to R68.9bn. It recorded a decrease in earnings before interest, tax, depreciation and amortisation of 2.1% to R23bn, with the net loss for the year at R5.7bn.
One of the benefits of the loan agreement for Transnet is that the NDB, created in 2015 to mobilise funding for infrastructure and development projects in Brics member states and other emerging market economies, is committed to using local currencies in its funding agreements. This can reduce interest costs on debt.
Speaking at the annual meeting, NDB president Dilma Rousseff said the bank was focused on diversifying funding sources and using a broader currency basket to improve economic resilience against shocks associated with monetary policy decisions.
“The use of local currency is therefore one strategic option. The availability of credit in local currency and currency swaps helps to tackle exposure to exchange rate and interest rate risks.”
Rousseff noted that whatever steps the US Federal Reserve took with interest rates in the interests of US economy affected the rest of the world due to the “hegemony” of the dollar.
“When the US faces inflation monetary policy is used to raise interest rates, creating a lot of trouble for emerging markets and developing economies,” she said. “If the US economy needs, they can use a strong dollar which can provoke a debt soar in emerging markets and developing economies. Volatility is the rule, not the exception.”
She said common goals across global economies such as the just energy transition and developing infrastructure required a huge amount of resources and long-term financing, which emerging economies were unlikely to mobilise without tackling the issue of indebtedness.
“According to World Bank estimates, the ten most-developed economies have a combined debt of around$87-trillion [R1,550-trillion]. Financing such high public debts drains a significant portion of the huge liquidity available in international markets. This liquidity could otherwise be channelled into financing the debt of EMDC [emerging markets and developing economies] and thus the necessary investments to sustained development.”
Minister of finance Enoch Godongwana said while the NDB has made significant progress, much work remained to be done to strengthen it as an institution so it could fulfil its developmental mandate.
The NDB’s activities in developing and emerging markets will assist in addressing the large infrastructure financing gap that has been impeding economic growth and development, particularly in Africa
— Enoch Godongwana
“There is a need to address global challenges such as geopolitical challenges, which impact multilateralism, escalating climate stresses, widening economic and social divides, and challenges we face at a national level.”
The minister said investment in infrastructure was central to achieving the development goals of emerging economies. Infrastructure was an enormous economic multiplier, providing dividends for an economy long after the infrastructure has been built.
“We believe that the NDB’s activities in developing and emerging markets will assist in addressing the large infrastructure financing gap that has been impeding economic growth and development, particularly in Africa.”
Godongwana said that in a slow-growth environment, where fiscal and monetary policy options were limited, public and private role players needed to collaborate to support growth. The NDB provided solutions aimed at derisking infrastructure projects through its financial instruments to attract private capital.
The UAE minister of state for finance, Mohamed Bin Hadi Al Hussaini, said the Gulf nation supported efforts to support and grow the bank’s membership.
Rania Al-Mashat, Egypt’s minister of planning, economic development & international co-operation, said equitable repayment arrangements and country ownership of projects were important aspects of infrastructure funding reform.
Chinese minister of finance Fo’an Lan said geopolitical conflicts have intensified and growth is strained, making the NDB even more crucial for economic development in emerging economies.
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