Reserve Bank warns Transnet is a ‘serious constraint’ on economic growth

The South African Reserve Bank has identified Transnet’s ports and rail operational inefficiencies as “serious constraints” on the country’s economic growth.

In his statement following the latest Monetary Policy Committee (MPC) meeting, SARB Governor Lesetja Kganyago said, “The operation of ports and rail has become a serious constraint”.

On the other hand, the Governor said the Reserve Bank expects the country’s energy supply to steadily improve over the next few years.

“Energy and logistical constraints are still binding on economic activity and generally increase costs,” he said.

However, “we expect electricity supply to increase gradually over the medium term, helping to raise our forecast for output growth in 2024, 2025, and 2026.”

The Reserve Bank said the number of days of expected load-shedding is 300 in 2023, 150 days in 2024 and 100 days in 2025.

Previously the bank has estimated that the cost of load-shedding to the economy varies between R0 to R1.2 million for stages 1 and 2 and up to R204 million to R899 million for stages 3 to 6 when continued on a 24-hour basis on weekdays.

This optimism about Eskom’s performance saw the bank marginally lift its GDP growth projection for 2023 to 0.8%.

The Governor said a sustained reduction in load-shedding or greater energy supply from alternative sources would significantly increase growth. 

However, he warned that electricity prices continue to present clear inflation risks and, with logistics constraints, will likely have broader effects on the cost of doing business and the cost of living.

The Governor’s comments come after recent news that a maritime gridlock at South Africa’s ports has kept nearly 100 vessels waiting to dock as Transnet struggles with breakdowns and bad weather.

This backlog results in direct costs of R98 million ($5.2 million) a day when congestion surcharges are added.

FNB Wealth and Investments’ Wayne McCurrie recently said Transnet is a bigger catastrophe than Eskom and is causing severe economic damage to the country.

Speaking to Business Day TV, McCurrie said most South Africans do not realise the extent of the disaster because it does not touch them personally, like Eskom’s load-shedding.

“The average South African don’t realise what a complete and utter catastrophe Transnet is. It is way worse than Eskom,” he said.

McCurrie’s comments align with Krutham managing director Peter Attard Montalto, who also said the crisis at Transnet is more complex than that at Eskom.

Attard Montalto explained that Transnet has quasi-regulatory functions on top of its deteriorating rail and port infrastructure.

Transnet’s finances are in such a mess that it asked the National Treasury to take on R61 billion of its debt.

Attard Montalto said it is not a surprise, as Transnet had already been breaching loan covenants with banks at the beginning of the year.

He said that the Treasury has little choice but to come through in some form and provide support for Transnet.

“If you did not do these bailouts, they would come back to bite you ten times worse later regarding defaults and investors pulling out of the country.”

The problems at Transnet have severe economic consequences for the South African economy as it impacts many of the largest sectors.

Stanlib chief economist Kevin Lings said it placed 68% of the country’s GDP at risk as companies increasingly cannot import and export goods.

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, have been flat over the past 20 years while retail spending has grown massively.

A study by the GAIN Group confirmed the concerns, showing that Transnet’s collapse costs the country R1 billion a day in economic output.