South Africa loses R1 billion a day due to Transnet collapse

The collapse of South Africa’s rail and port utility, Transnet, is set to cost the country R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion. 

This was revealed in a study by the GAIN Group, a boutique consultancy focusing on contract research of freight transport in particular. 

The figure of R353 billion for 2023 is actually less than the R411 billion GAIN estimated Transnet cost the South African economy last year. 

Director at GAIN Professor Jan Havenga expected the utility’s performance to improve markedly this year due to cooperation between Transnet and mining companies. 

However, this improvement did not materialise as the total freight transported by Transnet declined in 2023. 

Transnet on Friday reported a R5.7 billion loss for the year ending March 31, compared with a R5 billion profit in 2022. 

The volumes delivered by its freight rail business dropped 13.6% during the period. Volumes of iron ore and coal transported by Transnet’s freight rail network for export have fallen due to issues like poor management, idle locomotives and cable theft.

According to GAIN, South Africa’s economic growth of 0.5% for 2023 could have been over ten times higher at 5.4% if Transnet operated at full capacity. 

The impact could have been even worse if commodity prices remained close to their 2022 highs. 

The calculated cost to the South African economy includes the failure to achieve potential exports, the impact of inefficient logistics resulting in higher costs, and other indirect impacts from lost revenue on the economy. 

The Minerals Council of South Africa estimated that poorly run ports and freight-rail lines may have cost the country R150 billion rand in exports last year.

For example, Anglo American subsidiary Kumba Iron Ore lost R6 billion from rail underperformance, including derailments and cable theft on Transnet’s iron ore line in the first six months of 2023. 

The company is South Africa’s largest producer and exporter of iron ore, and its exports provide vital revenue for the fiscus. 

The loss of R6 billion in sales is in addition to losses of R10 billion from 2022, which Kumba also attributed to Transnet’s failing infrastructure. 

Kumba’s production increased by 6%, but iron ore railed to port decreased by 3% to 18.4 million tonnes in the first half of 2023. 

Recognising the gravity of this crisis, President Cyril Ramaphosa addressed the situation during this year’s State of the Nation Address. 

The President assured the nation of a comprehensive roadmap to navigate this predicament and acceded to the business sector’s appeal for establishing a National Logistics Crisis Committee (NLCC).

Establishing a presidentially mandated crisis committee should be an effective replacement for the cooperative forums.

In simple terms, Transnet needs to run more trains, optimise ports, and implement the President’s roadmap.

“I am optimistic that these interventions, which are steadily gaining traction, will yield positive results by next year,” Havenga said.

“The deterioration in its operational and financial performance will be stopped,” Public Enterprises Minister Pravin Gordhan said in a statement regarding Transnet’s financial results.

“Nothing will be allowed to get in the way of the effective implementation of a radical plan.”