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17 Jul 2015 13:19
Siyabonga Gama, Transnet acting group chief executive
The South African rail network is one of the largest in the world, but will plans to rebuild and redefine it mean a shift in economic frontiers? In 2005, the United Nations assessed the African rail network at 90 320km, of which South Africa took the dominant share at 60% and 33?291km of rail. In 2012 the World Bank dropped this number by a significant amount, placing South Africa’s rail at 20 500km.
The country’s rail network, a vital part of infrastructure and essential to boosting the economic development of the country, has been growing ever dustier and more derelict, like a lonely siding.
Until now. Transnet has launched an impressive rail recapitalisation programme and has announced it will invest billions of rands into building infrastructure and locomotives.
“Transnet’s Market Demand Strategy is a R330-billion rolling seven-year investment programme, with the objective of expanding the country’s freight railway, ports and pipeline infrastructure and to improve the operational effectiveness of the freight logistics system,” says Siyabonga Gama, Transnet acting group chief executive.
“Transnet Freight Rail (TFR), the biggest of our five operating divisions, has the lion’s share of the investment programme. This will transform Freight Rail into one of the world’s biggest rail freight companies, and rail volumes will increase from the current 210 million tonnes to 350 million tonnes during the period.”
The goal is for TFR to increase its market share of container traffic to 92% from its existing 79%, and this will have a notable impact on reducing the cost of doing business. Studies undertaken by Transnet have found that rail in South Africa is 75% cheaper on average than road transport, but others are not entirely sure they agree.
Sanji Singh, lead analyst at Coface, says: “There is huge potential for the South African rail network and with our extensive length, one that is vast compared with those in Europe, we have a great grounds for investment. However, the rail network needs to be cost-effective and at the moment it is still cheaper to transport by truck. We need to get to the point where the utilisation of rail is high enough to drop the costs.”
As Transnet’s vision becomes a reality, however, there is no denying the value that it will offer to both the consumer and businesses. The radical reduction in road traffic will be safer for commuters and will go a long way towards mitigating the current issues around congestion and carbon emissions.
To date the South African rail system has been plagued with inefficiencies and delays. Commuters have set fire to trains, breakdowns and track theft have been a common problem and the 60-year decay in investment and management has become painfully obvious.
It has sent the cargo to the roads, which has led to increased congestion, road damage, high costs for commuters and freight alike and has had a long-term economic impact.
“If rail works effectively and you are providing options for cargo and shippers, this in turn ensures competitiveness and good pricing,” says Barbara Mommen, chief executive of Maputo Corridor Logistics Initiative. “Our road networks are stressed and stretched because too much rail-friendly cargo is on the road.
“This is certainly true of our corridors and bulk traffic on these road corridors is dangerous. Not only will rail impact on safety and risk factors by reducing freight traffic, but also minimise the damage to the roads caused by excessive bulk traffic.”
“Rail is probably the best and most effective way of shipping large goods on a wholesale basis,” says Wildu du Plessis, managing partner, Baker & McKenzie South Africa. “What we’ve been doing in South Africa is moving huge goods like coal, motor spares and motors on the roads and this has three long-term negative impacts. The first is the cost of the road infrastructure that is carried to the consumer and the manufacturer, the second is the cost of road transport to the exporter and manufacturer and the third cost, the one that few people recognise, is the number of road deaths. To what extent does heavy traffic exacerbate collisions and deaths?”
What’s refreshing is that there truly is change afoot for the country’s rail network. Investment into the seven-year plan stands in the hefty billions and in March 2014, Transnet also announced a R50-billion contract to build 1?064 diesel and electric locomotives. The trains are to be built locally, at the Transnet facilities in Koedoespoort, Pretoria, and the contracts stipulated that production be localised to drive investment, supplier support and job creation as well supporting the growth of small businesses that service the industry.
“Transnet’s road to rail strategy aims to reduce the cost of doing business in South Africa and to create competitive supply chains,” says Gama. “Further growth in the shift of traffic from road to rail requires the development of an intermodal system and Freight Rail will achieve this by partnering with road hauliers and logistics service providers.”
Industry partnerships form a key part of the Transnet redevelopment programme, as they will help to address the imbalances between road and rail and support the local manufacturing sector. The strategy is designed to support growth in South Africa as well as regional growth across Southern Africa.
“South Africa needs to ensure that our rail networks are kept to the highest possible levels to capitalise on the fact that we are the only sub-Saharan state that can move goods freely throughout the country,” says Singh.
“Transnet has clearly identified this and the plan that they have put in place is one we should be excited about as a country. It won’t be achieved overnight, but if we can get our act together and stick to the deadlines and not overspend, we will have a significant rail system of a high standard and investors will be attracted to South Africa rather than our neighbours.”
The economic benefits of a robust rail network are extensive and in the paper International Benchmarking of South Africa’s Infrastructure Performance, Zeljko Bogetic and Johannes W Fedderke highlight the association between infrastructure and growth. In South Africa particularly, further research has shown that infrastructural development (or lack thereof) strongly impacts economic growth. To this end the investment into the rail network is not only essential, but has the potential to support the labouring South African economy.
“Competitiveness and effectiveness will lead to cost-effectiveness in a regional context and this will enable businesses to become more competitive,” says Mommen.
“I believe that the South African government has a huge imperative because of the Tripartite Free Trade Areas and it needs to improve conditions for trading, as well as create conditions under which the huge amount of cargo travelling by road can be reduced, as it is very expensive. Despite the high costs of upgrading or adding to rolling stock, rail should drive the costs of logistics down rather than up, and rail is also greener.”
Transnet’s investment surge is already seeing results for the organisation with the recently released results showing a revenue increase of 6.4%, automotive and container volumes up by 14.3% and cash generated from operations after working capital changes up by 57.4%. Strict contractual conditions and terms have also meant that the investment into infrastructure has boosted job creation and the local small to medium enterprises.
“A country’s competitiveness is determined by the health of its production factors, that is resources, infrastructure, labour and systems. We still have a lot of resources we can tap into, but we must solve the lack of political leadership and the continuing unrest in the labour sector,” says Professor Jan Havenga, head of logistics department at Stellenbosch University. “I believe that the Transnet rail recapitalisation programme will get South Africa back on track. We already see improvements as new equipment is introduced.”
Change is coming: it won’t be overnight or in the category of a miracle cure, but there is enough being done on a sustainable level to show that this could signal a new era in rail for South Africa — commuters and shippers alike.
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