Transnet following in Eskom’s footsteps

The crises engulfing Transnet are nearly a carbon copy of what happened at Eskom, with the utility becoming synonymous with mismanagement, corruption, collapsing infrastructure, and criminal syndicates. 

This feedback from Standard Bank’s chief economist, Goolam Ballim, when he outlined the severe domestic constraints on South Africa’s economy in 2024. 

While Ballim thinks South Africa has turned the corner concerning load-shedding, he expects more attention to be paid to Transnet in 2024 as it becomes a more binding constraint on the economy. 

There is a debate as to whether the impact of the collapse of South Africa’s rail infrastructure and port backlogs will have a larger negative impact on the economy than Eskom. 

Ballim estimates that Transnet’s issues alone will cost South Africa up to 1% of potential GDP growth, with load-shedding having a slightly larger negative impact. 

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 by the GAIN Group. 

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.

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.

“Transnet is quite simply Eskom 2.0 for South Africa in terms of its impact and the scale of the crisis,” Ballim said. 

Rail freight in South Africa has declined 35% in the last decade, while road freight has more than doubled as companies try to reduce their reliance on the ailing utility. 

This has led to mining companies in South Africa being unable to export their commodities via local ports. 

While it is possible to turn to ports outside of South Africa, such as Maputo, it is a costly exercise and economically unviable due to the decline in commodity prices. 

The impact of Transnet’s collapse on such a crucial industry can be seen in the graph below, courtesy of Ballim and Standard Bank. 

This graph shows Transnet’s stated targets for the export of commodities such as coal, iron ore, and general freight compared to its actual performance from 2017 onwards. Both its targets and actual throughput are declining.