BUSINESS READY TO PARTNER WITH TRANSNET’S NEW EXECUTIVE TEAM

29 February 2024

Business has been partnering government since June 2023 to address the challenges facing our transport and logistics sector, and the resultant effect on economic and job growth. One of the critical matters we have raised has been the imperative to appoint a new CEO at Transnet. The appointment of a permanent executive team at Transnet, announced today by the Minister of Public Enterprises, Mr Pravin Gordhan, will enhance stability in the relationships between Transnet and the business sector, which will lead to an acceleration of progress in implementing the Transnet Recovery Plan (TRP).

“We have, over the past months, seen a much-needed improvement in the relationship between the country’s transport and logistics authorities and those businesses whose existence is dependent on efficient and effective logistics,” said Mxolisi Mgojo, BUSA president and CEO sponsor of Business for South Africa’s (B4SA’s) Transport and Logistics Focal Area. “But this progress, while valuable and necessary, is only the first step in addressing the crisis. Stability is essential to sustain the good work being done.”

The state of the country’s rail networks and ports is costing the economy an estimated R1 billion per day. Approximately R50 billion was lost in the minerals sector alone in 2023. The International Monetary Fund has almost halved its growth outlook for SA in 2024, largely due to Transnet's struggles to effectively administer our ports and freight rail. The total cost to the South African economy in 2023 resulting from Transnet’s inefficiencies was approximately R450 billion, equivalent to 6% of GDP. This results in reduced tax revenue, increased sovereign credit risk, and higher transport costs for commuters (as much as 40% of monthly income for the poorest South Africans).

Volumes transported by rail have declined by a third in the past six years. More than 80% of total freight transportation now takes place on roads, even though road freight is more

expensive, more dangerous, and results in higher emissions, derailing progress on the country’s Nationally Determined Contributions.

South African ports tell a similar story of wasted potential. Only 55% of the capex allowed by the Ports Regulator has been spent over the past decade. The average time taken to export goods from the country’s ports is 92 hours, compared with 12.7 hours in more efficient countries. Cape Town, Durban, and Ngqura are now ranked in the bottom 10 of global ports.

These pervasive, critical inefficiencies are having a daily depressive effect on economic performance, capital investment, and job growth and they are fast eroding South Africa’s

regional competitiveness as well as the country’s economic potential. Ports in Dar Es Salaam, Beira, Maputo, Mombasa, and Walvis Bay are expanding with new private terminals, and railway lines are being built, upgraded, or reopened in Mozambique, Namibia, Tanzania, and Uganda.

To address the crisis, the government-led National Logistics Crisis Committee (the NLCC), has three key objectives: to improve the operational performance of industry supply chains including freight rail and ports; to implement reforms to modernise the freight transport system and restore its efficiency and competitiveness; and to create enabling conditions for the freight transport system to operate effectively.

Mgojo explains: “Business is intimately involved in the process, providing technical expertise, assisting with the implementation of best practices, offering alternative funding mechanisms, and providing access to much-needed resources and skills.”

Since the establishment of the NLCC around eight months ago, the partnership between business and government has made notable progress.

“Though we are not yet close to the realisation of our ultimate objectives, there have been tangible and encouraging advances,” adds Mgojo.

Progress, for example, has been made on the regulatory and policy front, specifically the approval by Cabinet of the Freight Logistics Roadmap and the Rail Private Sector Participation (PSP) framework in December 2023, the establishment of an Interim Infrastructure Manager by Transnet, and the signing of Mutual Cooperation Agreements allowing customers to assist with the procurement of spare parts.

There has also been the approval of a R47 billion guarantee facility for Transnet by the National Treasury, the deployment of technical experts from business into Transnet, and the

implementation of best practices into the SOE’s day-to-day operations.

“We expect that with skilled and experienced executives now permanently appointed in key positions within Transnet, there will be a strong foundation on which to further drive

implementation of the company’s Recovery Plan. We believe that we have a better chance today than we have had in many years to resolve the challenges facing the transport and

logistics sector. There are concrete indications that government, Transnet, business, and labour are jointly committed to resolving the logistics crisis and enabling the sector to contribute to economic growth and job creation in South Africa,” says Cas Coovadia, BUSA CEO. “The open, honest, and critical dialogue that we have seen recently points to the possibility of real progress, so long as a sense of urgency and active collaboration are maintained.”

Coovadia adds: “We have, through the partnership with the government, worked well with Michelle Phillips in the period she played the role of Acting CEO at Transnet. We look forward to