Taxpayers paying billions for Transnet disaster

Over the past year, Transnet has received billions in government guarantees, but with no explicit links to performance improvements, these bailouts present a significant risk to South Africa’s ailing fiscal health.

On Friday, 25 July 2025, the National Treasury approved a R48.6 billion guarantee for Transnet to cover the state-owned enterprise’s (SOE) debt redemptions over the next five years.

In addition, following recent ratings actions, it approved R46.2 billion for the utility to mitigate the risks of such ratings actions on its debt. 

This additional guarantee support for Transnet amounts to R94.8 billion. Including the R51 billion guarantee Transnet received in May 2025, the utility has received R145.8 billion in 2025 to date.

The R51 billion allocation comprised R41.0 billion for Transnet’s funding requirements for 2025/26 to 2026/27, and R10 billion for liquidity management purposes.

The Bureau for Economic Research’s Roy Havemann said it is unclear to what extent these guarantees have been linked to ongoing and essential reform initiatives at Transnet, particularly port and rail reforms.

He said it also represents a significant increase in contingent liabilities for the National Treasury.

The collapse of crucial South African SOEs like Eskom and Transnet has significantly contributed to the country’s struggling financial health.

This is not only because of government bailouts for these utilities, but also due to their effect on business confidence in the country.

This lack of confidence has directly translated into lacklustre investment in the local economy, minimal job creation, and stagnant economic growth.

As a result, South Africa has lagged behind the performance of its emerging market peers and has a much smaller economy than it should.

Transnet, in particular, has been a significant drain on the country’s economy, not only directly through government bailouts but also through lost economic opportunities.

Transnet’s collapse

Transnet’s struggles at its ports and rails have had a severe impact on local companies and the economy. 

The National Treasury estimated that rail inefficiencies cost the South African economy over R400 billion in 2022. 

Meanwhile, the Minerals Council of South Africa reported that mining exports missed their target by R50 billion due to Transnet’s inefficiencies.

Transport Minister Barbara Creecy previously explained that the utility is stuck in a vicious cycle.

Trasnet’s collapse has been ongoing for years, as the utility has struggled to improve its operational and financial problems.

As a result, South African companies have begun to reduce their reliance on the utility by transporting their goods via road rather than by rail and using ports outside the country to export their goods.

This forms the basis of Transnet’s vicious cycle – the operator’s financial struggles mean it cannot afford to invest in improving its rail network, which pushes customers away, decreasing Transnet’s revenue, and further worsening its financial position.

This is similar to the problem now seen at Eskom, despite its improved performance. The power utility’s financial struggles mean it must hike prices above inflation to increase revenue.

However, this pushes customers toward alternatives, putting further strain on Eskom’s income, requiring higher price hikes and continuing the cycle.

Transnet finds now finds itself in a similar position, with rating agency S&P recently sounding the alarm about the utility’s current trajectory. 

S&P recently downgraded its long-term issuer credit ratings on Transnet to B+ from BB-. This was due to the utility’s slow progress in improving its operational and financial performance, and its reliance on state support to meet liquidity needs.

The firm said Transnet is “burning cash” while its operational performance is not improving fast enough to support this expenditure.

Therefore, as seen in the latest bailouts, the government is forced to step in to avoid a further collapse in the utility’s performance and financial health.

This further pressures the government’s already strained fiscus, threatening the Treasury’s plans to run a primary budget surplus and stabilise its debt.

This comes at a time when South Africa is on a positive trajectory, with an improved debt outlook and the country on track to achieve a primary budget surplus.

However, bailouts and guarantees for SOEs threaten this trajectory, especially if they are not linked to expectations for operational improvements.

If these guarantees lead to improved performance at Transnet, the resulting economic boost could partially offset the cost of the bailouts.

However, without this expectation, Transnet is more likely to continue burning cash while reforms continue to stall, setting it up for another future bailout.

The graphs below, courtesy of Old Mutual chief economist Johann Els, show the impact of SOE bailouts on the country’s fiscal trajectory.