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Transnet – sprinter with a ball and chain?Rail infrastructure development received a vital shot in the form of a US$400-million senior loan approved on 23 June by the African Development Bank (AfDB) in favour of Transnet’s Capital Investment Programme. The logistics and transport group’s R93.4-billion, five-year investment programme is intended to increase capital investments in vital infrastructure such as ports, pipelines and rail. With regard to rail in particular, the aim is to reverse the decline of South Africa’s rail infrastructure – recapitalising, rehabilitating and expanding the capacity of this infrastructure as well as its equipment.
The role of rail freight in the transport and logistics sector has come under increasing negative scrutiny recently, with Transnet – as the only choice of rail operator available – failing to provide a satisfactory service, forcing freight onto South Africa’s overburdened roads and driving up the costs of transport and logistics.
This failing is not unique to Transnet in Africa, with antiquated and decrepit infrastructure and rolling stock implicated in the chronic, costly delays endemic to transport and logistics throughout the continent. Nor is it a uniquely African problem, with India’s senescent rail system recently in the spotlight for largely the same reasons.
It would seem that a healthy and efficient rail system is an indispensable requirement for developing economies to pick up speed. This insight would appear to account for Transport Minister S’bu Ndebele’s enthusiastic comments regarding Chinese rail on the occasion of his visit to China earlier this year.
Now, however, according to an AfDB source, the successful turnaround of Transnet, spearheaded by former chief executive officer Maria Ramos, paved the way for the parastatal’s present growth strategy known as “The Quantum Leap”. Volume, capacity and customer service are the pillars of this approach, with the investment programme expected to have a significant impact on infrastructure and service reliability, scope and integration – thereby increasing Transnet’s regional footprint.
A successful investment programme would have a multiplier effect on the regional economy: easing congestion, increasing capacity, creating employment and reducing the cost of doing business to increase the competitiveness of South Africa.
Furthermore, Transnet acting CEO Chris Wells was recently reported by Engineering News as saying that Transnet has been investigating opportunities elsewhere in Africa. Particularly attractive potential partnership opportunities are presented by the ports of Luanda and Maputo.
Further options under consideration include increasing freight volumes along the most important Southern African Development Community (SADC) transport corridors, as well as creating a transshipment hub for southern Africa at the Eastern Cape’s deepwater port, Ngqura.
Transnet was further considering ways to increase volumes on key SADC corridors and Wells also mooted the creation of a southern Africa transshipment hub at Ngqura.
Given the scope of these ambitions, the AfDB’s US$400m may seem a drop in the ocean. Although Transnet had previously secured R4 billion in concessional funding from development finance and export credit agencies (sources include Agence Française de Développement, Finnvera, Atradius, the Japan Bank for International Cooperation and AFLAC Incorporated), it is still a long way short of target.
The deficit is said to be made up by a five-year plan to raise approximately R41.1bn, of which some R35bn is to stem from debt capital markets, while internally generated funds would account for some R73.1bn. Transnet plans to raise some R17.2bn in 2010/11. A Global Medium Term Note Programme, listed in London and untouched by the hands of investors to date, is expected to bring in R5.5bn.
A spanner in the works
Does this plan not sound a little too good to be true in the light of the recent crippling wage strikes by transport unions – South African Transport and Allied Workers’ Union and United Transport and Allied Trade Union?
As Transnet’s projects increase in scale and complexity, the temptation for unions to flex their muscles is unlikely to diminish. On the contrary, the more the transport and logistics group shifts from liability to asset status, the more likely the unions are to maximise their leverage in ways appropriate to their narrow goals, but economically counterproductive in the greater scheme of things.
Part of the reason for this opportunism may well be due to a mistaken focus on increasing wages as a means of redressing inequality when the emphasis should fall on creating employment to redress the economic exclusion of the approximately six million South Africans currently unemployed. Such was the view expressed by Professor Ricardo Hausmann of Harvard University.
Speaking at the Gordon Institute of Business on 23 June (the same day that AfDB approved Transnet’s loan), Hausmann addressed the chronic underemployment prevalent in South Africa. In his view, a country with a population of 42 million ought to have 18 to 19 million working people, rather than South Africa’s “paltry” 12 million – only 8 million of whom are formally employed.
“There is a huge difference between the number of people working today and the number of people that could potentially be working. And, if those people were working, this would be a much more inclusive society because those six million to seven million people who are not working are predominantly young, black and female,” Hausmann was quoted as saying.
Prof. Roberto Rigobon of the Massachusetts Institute of Technology echoed Hausmann’s sentiments, claiming that poverty upliftment would be achieved much more effectively through job creation than the status quo of raising wages some 10% a year. “It is still assumed that income distribution can only be solved through wage increases. But in a country where only one-fourth of the population is actually working, inclusion is the best – and the most effective – policy remedy for income distribution and poverty,” he was quoted as saying.
Former Chilean Finance Minister Andres Velasco opined that a “very low participation rate” exacerbated South Africa’s already problematic unemployment. “The number of people working [in South Africa] is just extraordinarily low... I don’t know of another country, especially one of this level of development, where so few people work,” he said, adding that the “politics of the left” amounted to the “politics of wages” rather than the “politics of jobs”.
He concluded that, “the biggest challenge now for central-left thinking on the planet, not only in South Africa, is to move the debate from a debate about wages to a debate about jobs.”
Transnet, being in a position to create jobs and having had a harrowing time of it from the unions’ “ambush marketing”, would applaud this vein of thinking. At the same time, it hardly needs to be pointed out that it runs right against the grain of the policy of the Congress of South African Trade Unions.
This dilemma will have to be resolved – as a matter of policy – before Transnet’s laudable vision can yield its true potential.
Greg Penfold
Sources: AfDB, “Business Report”, “Engineering News”
