Transnet crisis worse than expected

The crisis at Transnet and its effect on the South African economy may be worse than expected and potentially even worse than load-shedding.

This is feedback from BDO audit partner Siyabonga Mthembu, who told Newzroom Afrika that it is very difficult to quantify the impact of Transnet’s deteriorating performance on the economy.

The collapse of South Africa’s rail and port utility 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.

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.

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.

An analysis of 29 domestic mining companies by PwC 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%.

Despite the severe impact of Transnet’s deteriorating performance quantified by the GAIN Group, the Minerals Council, and PwC, Mthembu said the impact is likely far worse.

Mthembu said these estimates do not include the lost potential investment from local and international companies, which is extremely difficult to quantify.

“The reality is international companies will not want to come to South Africa and invest if they know there is a risk they will be unable to export their products or transport it to the end consumer,” Mthembu said.

“The magnitude of this is significant. Some argue that it is significant as the impact that Eskom has and argue that actually, this is even worse than the impact that we see as a result of load-shedding.”

One example of this impact is Anglo American, whose CEO, Duncan Wanblad, said South Africa is missing out on billions in investments due to the challenging operating environment, of which Transnet is a significant contributor.

Wanblad said the country held “extraordinary untapped potential”, but challenges such as load-shedding and logistics bottlenecks affected “the profitability and sustainability of our business”.

These issues also prevent investment in expanding output, particularly from mining companies, as there is uncertainty regarding the country’s economic future.

“We will never know the amount of investment that companies within and outside SA are choosing not to make in SA as a result of our very real challenges,” Wanblad said.

Anglo American hasn’t prioritised exploration in SA for many years because it has been prioritising more accommodative operating environments.

The collapse of Transnet has also forced many companies to turn to trucking to transport their goods and minerals.

This is highly inefficient and costly, raising the prices of goods across the entire economy.

Mthembu warned that things would likely worsen at Transnet, with a leadership vacuum created by the resignation of several executives and maintenance being deferred.

Transnet’s expenditure on maintenance has decreased over the past decade, from R3.4 billion – 12.4% of revenue – in 2012 to a meagre R2.7 billion – 7.1% of revenue – in 2022.