Transnet collapse puts R3.1 trillion at risk

The collapse of South Africa’s rail and port utility, Transnet, has placed 68% of the country’s GDP at risk as companies are increasingly unable to import and export goods. 

Stanlib chief economist Kevin Lings revealed this at Morningstar’s Investment Conference 2023. 

Lings emphasised that South Africa’s economic growth is highly correlated with global economic growth as the country has an open economy. 

“The South African economy is a massively open economy, effectively beholden to the world in terms of economic growth,” Lings said. 

South Africa’s imports and exports combined comprise 68% of the country’s GDP, effectively meaning that R3.1 trillion of R4.6 trillion of GDP depends on Transnet. 

Imports are particularly important as the output of South Africa’s productive sectors, such as mining and manufacturing, has been flat over the past 20 years while retail spending has grown massively. 

This means the country highly depends on imports for many of its basic needs. 

Minerals Council of South Africa chief economist Henk Langenhoven expressed similar sentiments to Lings in emphasising the importance of Transnet for the economy. 

Langenhoven said South Africa’s economy is peculiar in that it acts as a landlocked country with most of its GDP situated in the centre of the country in Gauteng. 

The production in Gauteng needs to be transported outwards to other provinces and the coast for export. This makes South Africa heavily reliant on rail infrastructure to transport goods efficiently. 

Langenhoven said over 60% of South Africa’s GDP is generated from imports and exports, making it dependent on Transnet’s infrastructure at the country’s ports and railways to transport it within the country.

In particular, the Durban-Johannesburg container corridor is vital to the economy. This corridor has been operating at only 30% so far this year, resulting in billions of rands lost.  

The problem is compounded by the additional costs companies, particularly miners, pay to avoid Transnet’s rail infrastructure by using trucks to transport their goods. 

Transnet costs South Africa R1 billion a day

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 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.