The performance of Transnet has rapidly deteriorated in the past few years, with declining rail freight resulting in a sharp uptick in road freight as companies reduce their reliance on its services.
Transnet has made headlines in recent years for all the wrong reasons – mismanagement, corruption, collapsing infrastructure, strike action, and criminal syndicates stealing cables.
These factors have reduced the South African rail, port and pipeline company’s ability to deliver services to the country’s businesses and citizens.
As a result, South African companies have begun to cut their reliance on the utility by transporting their goods via road and not its railways.
Many even transport their goods to ports outside of the country, such as Maputo in Mozambique, to avoid the backlogs that plague South Africa’s harbours.
Thus, Transnet’s collapse can be shown in the sharp increase in road freight and dwindling demand for its railway services.
Transnet’s collapse has gone largely under the radar compared to Eskom. The economic impact of South Africa’s rail and port utility has only been quantified recently, and it is far worse than expected.
The collapse of Transnet is set to cost the country R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion in 2023.
This was revealed in a study by the GAIN Group, a boutique consultancy focusing on contract research of freight transport in particular.
The Minerals Council of South Africa estimated that poorly run ports and freight-rail lines may have cost the country R150 billion in exports in 2022.
Some argue that it is as significant as Eskom’s impact and could be even worse than the impact seen as a result of load-shedding.
Standard Bank chief economist Goolam Ballim explained during the bank’s Economy 2024 presentation that Transnet is effectively clogging South Africa’s trade arteries.
As South Africa is a small but very open economy, it is heavily reliant on trade for economic activity, with exports and imports making up over 60% of the country’s annual GDP.
Thus, disruptions to the flow of goods have a significant impact on the economy. Ballim estimates that Transnet’s problems will cost South Africa up to 1% of potential GDP growth in 2024.
The graph below, courtesy of Ballim and Standard Bank, shows how road freight in South Africa has nearly doubled in the past decade while rail freight has declined by 35%.
This is emblematic of Transnet’s collapse and the private sector’s willingness to reduce its reliance on the company’s services.