Busisiwe Mavuso | Macroeconomic impact of Transnet’s woes as bad as short-term economic losses

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It took regular stage 6 loadshedding in July this year for the government to finally pull the trigger on the full gamut of reforms that are required to fix our energy system. The profound economic damage caused by the Transnet strike, which pushes Transnet’s bailout to nearly R3bn, needs a similar response.

The Economic Regulation of Transport Bill which enables reforms to the country’s transport and logistics market, was tabled only in January 2020 while many of its key elements have been official government policy since 2005. It is still making its way through parliament – the National Assembly has approved it and it’s headed to the National Council of Provinces.

It enables the establishment of a single economic regulator for all transport operators. We need that to develop a competitive, efficient and viable transport industry that contributes to economic growth. Once the legislation is enacted, there must be no delays in setting up the new regulator that will see public entities like the National Public Transport Regulator, Cross-Border Road Transport Agency and Ports Regulator of South Africa to fall under it.

But other reforms in the legislation remain too restrictive while the reform package in its entirety is inadequate given the enormity of the country’s transport logistics problems. It allows third-party access to the rail network but only for two years. Transnet has confirmed that there were applications received from third party operators for the 16 rail slots, but this is only a small step – there are too many restrictions. The African Rail Industry Association cites the two-year restriction as a major concern and says other problematic issues are that slots have been offered on a voetstoots basis; that Transnet has reserved special “grandfather rights” for itself that allow it to continue operating as before; and that only a portion of the network is being offered with no transparency in fee calculation, among other issues. This approach, the association states, offers no long-term prospects for potential investors.

These reforms are small, tentative steps and, although important, what we need are bold actions that once and for all resolve aspects of our dysfunctional rail and ports systems. The logistics sector needs to be fundamentally altered to allow private sector involvement in infrastructure assets, maintenance and movement of goods.

Transnet ports have some of the highest costs and longest lead times, rendering them among the most inefficient of major emerging market ports globally. Durban, for example, is the largest port in sub-Saharan Africa, but remains one of the most expensive in the world and in terms of efficiency falls far behind other global hubs.

We cannot keep kicking this can down the road. Perhaps the economic damage caused by the strike will be a spur to action.

Research by the South African Association of Freight Forwarders (SAAFF) shows that logistics delays to the supply chains directly costs the economy between R100m and R1bn a day. The total economic cost is far higher, it says, with the inactive ports blocking more than R8bn worth of goods each day. Just in the mining sector, the Minerals Council South Africa estimates that the strike, which began on 6 October, cost exporters of iron ore, coal, chrome, ferrochrome and manganese about R815m a day because they’re unable to rail and load their goods onto ships.

With unions having so much power that they can inflict this kind of damage to an already battered economy, the state has little option but to step in because Transnet is bankrupt. That means yet another bailout for Transnet and this one is purely to fund wages which our early estimates put at R1bn. And that’s atop a R2,9bn bailout already pencilled in to address liquidity because it can’t pay its bills. None of that will go towards improving the dysfunctional state of the rails and ports that Transnet runs.

That increases consumption expenditure in the Budget – whereas we need to be funding infrastructure and other areas that are directly aimed at improving our economic efficiencies. This bailout needs to be a short-term measure only. We can’t, year after year, increase our borrowing to fund consumption. We have to remove our state-owned enterprises from this doomsday loop where they repeatedly return to the state for bailouts while the measures to fix them never seem to get implemented or are simply not fit for purpose.

Transnet needs to be transformed into a financially self-sustaining entity or it will keep burdening the fiscus with more and more debt, which not only means less money is available for productive expenditure that would grow the economy and create jobs, but also threatens our sovereign independence because we’ll eventually have to hand that over to the IMF when we go begging for assistance. It’s not too late to avoid that fate, but the window for timeous reforms is fast closing.

*Busisiwe Mavuso (@BusiMavuso2) is the CEO of BLSA. This article first appeared in News24 Business.

 

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