Transnet collapse threatens entire South African economy

The continued deterioration of Transnet’s infrastructure and performance threatens the entire South African economy, which is reliant on the utility to facilitate 68% of its GDP. 

BDO partner Siyabonga Mthembu told 702 that the crisis at Transnet eclipses that of Eskom. 

“Similar to Eskom, what Transnet is going through is basically falling capacity, deferred maintenance, theft, and management issues,” Mthembu said. 

South Africa’s economy is heavily reliant on efficient logistics, as 68% of its GDP comes from imports and exports. 

The 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. 

“If the system is not working, then the current economy based on the movement of goods will basically die. No one will want to import or export goods,” Mthembu said. 

Mthembu said estimates that the country is losing R1 billion a day from Transnet’s collapse are conservative as they do not include 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.”

Some mining companies, such as Anglo American and its subsidiary Kumba Iron Ore, have delayed investment in South Africa due in part to Transnet’s inefficiencies. 

South Africa’s largest iron ore producer, Kumba, said in its interim results presentation that it had lost R6 billion from Transnet inefficiencies alone in the first six months of the year. This is in addition to a R10 billion loss in 2022. 

“An efficient logistics system is fundamental to global trade and South Africa’s weakening economic growth,” Kumba’s CEO Mpumi Zikalala said. 

“Given the uncertainty due to the logistics challenges, the company decided to defer non-critical capital expenditure of R2 billion.”

Anglo American CEO Duncan Wanblad said South Africa is missing out on billions in investments due to the challenging operating environment to 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.

Other impacts of Transnet’s collapse include the strain placed on South Africa’s road infrastructure, with mining companies and fruit exporters turning to trucking to transport goods. 

This results in decreased road safety, increased spending on road infrastructure, and increased costs associated with trucking goods.