South Africa is heading for an economic disaster due to Transnet’s collapse, which costs the country R1 billion a day in lost economic output and billions more in potential investment.
The loss of R1 billion a day was revealed in a study by the GAIN Group, a boutique consultancy focusing on contract research of freight transport in particular.
This is actually less than the R411 billion GAIN estimated Transnet cost the South African economy last year.
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.
South African mining company profits have halved this year, dropping almost R100 billion because of the blows from lower commodity prices, crippling power cuts, rail network constraints and rising costs.
A PwC analysis of 29 domestic mining companies in its South Africa Mine 2023 report showed that combined net income slumped to R108 billion in their latest financial years from a record R206 billion.
Transnet Freight Rail’s poor performance has been a significant challenge, particularly on the export coal line.
The mining sector’s woes will affect the government, which has benefited from windfall taxes and royalties in the past two years. The sector’s reported tax expense declined by 34%.
Mining continues to play a key role in the economy, with mined materials accounting for around 58% of total exports in the first six months of 2023 at R575 billion.
The Minerals Council of South Africa estimated that Transnet’s inefficiencies cost the country R150 billion in exports last year.
The lifeblood of the economy
South Africa’s railways are “the lifeblood of the economy” as rail is essential for heavy and high-volume cargo, such as coal, minerals, and liquid fuel.
Railway expert and researcher at the Brenthurst Foundation David Williams told eNCA that Transnet had failed its mandate to transport goods around the country.
“The network has been run into the ground. It is not a highly functioning network that can be shared with the private sector,” Williams said. It will take large sums of money and time to rebuild South Africa’s rail capacity.
In particular, the Johannesburg-Durban rail corridor is vital to South Africa’s economy.
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.
While in the 1960s, the Johannesburg-Durban corridor carried around 100 trains a day, it now only carries four to five trains, according to Williams.
Around 60% of South Africa’s GDP, worth R3.8 trillion, is generated from imports and exports, making it dependent on Transnet’s infrastructure at the country’s ports and railways to transport.