Chris Hattingh, executive director of the Centre for Risk Analysis, says Transnet will remain the biggest risk to South Africa’s economy until its monopoly over rail and ports is ended.
“Allowing third-party access gives the impression that things are happening now, things are moving, but in fact you need better terms for the private sector to come in, and you need to remove the monopoly power that Transnet has over rail and the ports,” he says.
The request for information process launched by the department of transport last week that allows private operators access to the network might help Transnet in the short term. But the resulting cash injections won’t move the needle when R200bn is needed to fix the rail infrastructure.
Unless policy and legislative changes are made so the private sector can own the infrastructure, third-party access on some rail corridors will just delay the longer-term decline of the logistics network, Hattingh says.
“Psychologically and ideologically, relinquishing the monopoly it’s always had is not an easy move, and one needs to give credit to the previous administration and this administration and Transnet for sending the signal.”
The trouble is that although Transnet is changing the signals it is not yet flipping the switch, “which just delays any possible recovery”.
“They’re not yet moving far enough in terms of really ending that monopoly.
“We’re seeing the impact of broken rail and ports on mining, agriculture, manufacturing and so on. You just keep digging the hole that we need to get out of so much deeper, and there’s no guarantee that we get out of it.”
Meanwhile, Mozambique and Namibia are investing heavily in rail and particularly ports, and some of the freight and investment that used to come to South Africa has already shifted and will continue to do so “if we don’t move sufficiently quickly and deeply”.
“Those countries don’t have the trade infrastructure stock we have, but the problem for us is that our infrastructure doesn’t function in many instances,” Hattingh says.
It will take Mozambique a while to get to the capacity the port of Durban has, but it is making the right moves.
Given increasing global trade uncertainty and volatility, countries that have fit-for-purpose trade infrastructure are going to benefit from whatever opportunities arise, says Hattingh.
“If we don’t have that, we just leave ourselves more exposed and behind the curve where countries like Namibia and Mozambique will benefit going forward.”
If we don’t get our logistics right, we’re playing with fire
— Chris Hattingh, executive director of the Centre for Risk Analysis
The more effective and competitive South Africa’s ports and rail are, the less exposed it will be to trade tariffs such as those imposed this week by US President Donald Trump.
“A better functioning and more competitive Transnet ensures that manufacturing costs and other input costs are lower for local businesses. When they don’t have to wait for their goods to get through ports, when it’s more efficient and predictable, those costs are lower.
“That in turn benefits domestic manufacturing and construction because South Africa imports so much,” Hattingh says.
Globally, as things become more volatile, supply chains and value chains will shift. As Trump bludgeons traditional US allies such as Canada, Mexico and the EU with ruinous tariffs, companies, manufacturers and investors in those countries are going to try to shift some of their supply and value chains over time.
“For a country like South Africa, given our importance on the global trade route, distance is an issue. But you can help with that by making yourself more attractive if your domestic trade infrastructure functions well.”
Trade volatility will be a major feature globally for at least the next four years if not longer, Hattingh says, and there are always going to be people looking for new investment and trade opportunities.
“South Africa just makes its own case that much stronger if things like the basics of ports, railways, licensing, permitting, border operations and so on function as they should, if not better than they should.”
The global volatility unleashed by Trump is “the sort of rainy day South Africa has not been saving for”, says Hattingh.
Its fiscal policy has left it exposed in terms of its debt burden and domestic infrastructure space where it is difficult for business to operate with uncertainties around Transnet and other state-owned enterprises such as Eskom.
“We need to focus on some of the low-hanging fruit like getting the ports and railways up to standard. The stock is there, the infrastructure is there. We’ve got the most railway stock of any country in Africa. Other countries have to invest a massive amount of capital to get anywhere near to us, so we do have these things in our favour.
“It’s now about very boring work of governance, of getting SOEs like Transnet more open, getting network industries like electricity and logistics more open, holding your boards to account, establishing the right concession models, and so on,” Hattingh says.
“The boat hasn’t completely passed us by, but it’s as if we’re running along the shore trying to hold on to it. Given how things are accelerating globally, if we don’t move a lot quicker it’s really going to become untenable going forward.”
Now that Eskom seems to have achieved some stability in terms of generation, it is Transnet that is the major binding constraint on South Africa’s economic activity, he says.
Largely because of the logistics crisis, sectors such as manufacturing, mining, agriculture and construction are not delivering nearly as much as they should to the economy.
“Their potential is capped, which in turn means the economic potential of South Africa is capped. Link that to our unemployment situation, where you want sectors that are more labour-absorbing to be growing. When they aren’t, that inflames our unemployment crisis, as we’re seeing.”
A large part of this, Hattingh says, is about doing what has to be done to get our logistics moving. That, in turn, is about prioritising economic growth which, as this week’s budget has illustrated, is still not happening.
“Last year our economy grew 0.6% while the population grew 1.3%, meaning it’s effectively growing twice as fast as the economy. That’s not going to make a dent on unemployment and other social issues. So if we don’t get our logistics right, we’re playing with fire.”
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