Reform of logistics sector is critical for SA economy – Absa
|Published
By Happygirl Buthelezi
As we await the national budget for 2024, one of the key pieces of the economic growth puzzle is the logistics sector in our country. It is clear that South African policymakers are going to have to adopt a more collaborative and forward-thinking approach to our national logistics framework in order to get our economy working again.
While the economic impact of load shedding has dominated news headlines for the last couple of years, business has become increasingly more vocal around the state of our rail and port infrastructure and how this is directly impacting economic growth in the country.
With the National Elections on the horizon, there is a challenging dynamic playing out for the government who have favoured centralised control and state-owned-entities (SOEs) over private sector participation in the logistics network.
Historically private sector participation or “privatisation” has been linked to job cuts and any potential privatisation in the national logistics systems is unlikely to sit well with government stakeholders including organised labour.
While one cannot escape the debilitating impact of unemployment in the country, two arguments could be made for a more collaborative approach between the public and private sector when it comes to the national logistics network infrastructure.
The first is that jobs are a direct product of economic growth. When we look at the economic data for the last decade – even taking into consideration the impact of the Covid-19 pandemic – we see that growth in South Africa has been anaemic. This in turn has translated into job losses and a lack of new jobs being created.
To put it in context, various stakeholders estimate that inefficiencies within the railways and ports sector cost South Africa more than R1 billion per day in economic activity, which is the equivalent of 5% of our gross domestic product (GDP) annually.
If we consider that South Africa added over 800 000 formal sector jobs with less than 1% economic growth in 2023 – if we were able to multiply this by a factor of 5, we would add significant jobs in the system.
B-BBEE effected
The second factor, which has perhaps not been fully recognised by government, is the negative impact of poor performing SOEs on black-owned businesses in South Africa. Government has put a lot of focus on Broad-Based-Black Economic Empowerment (B-BBEE) and procurement from black-owned suppliers – as the largest procurer of goods and services from black-owned businesses, government is a significant role-player here. Therefore, poor performance by any SOE impacts black-owned businesses directly.
Across Africa, there has been a reluctance from governments to lose control of infrastructure including rail and ports. However, we must recognise that infrastructure projects are long-term in nature and requires significant capital investment.
If one considers that load shedding has been an issue for more than 16 years and only in 2023 are we starting to expand the investment in electricity generation, storage and distribution networks.
Most of these investments were private sector-led and procurement processes were government-led. Additionally, the R122bn capital investment plan tabled by Transnet as part of its recovery plan is a challenge for a government that has debt accounting for 73% of the national GDP. This highlights why we need urgency in the national logistics network, and why private and public sector collaboration is the most efficient model to bring about much-needed investments and operational capability.
There are exemplary projects on the continent which demonstrate successful public and private sector collaboration on transformative projects. The Maputo Port Development Company (MPDC), jointly owned by the Mozambican government (via its railway entity CFM), Grindrod, DP World, and local firm Mozambique Gestores, stands out as a successful public-private partnership (PPP) in Africa, playing a crucial role in bolstering the Mozambique economy.
In South Africa, projects such as the Gautrain, N4 and N1 toll roads, and privately operated port terminals have showcased the effectiveness of PPPs as a viable means to finance investments in the transportation and logistics infrastructure sector.
To deal with the many challenges faced by the transport and logistics sector in South Africa, President Ramaphosa established The National Logistics Crisis Committee (NLCC) to intensify the focus on delivering interventions across the country’s rail, port and road sectors, but it requires the political will to invest in regulatory reforms that will provide clarity for private sector participation and investment going forward.
On the positive, since the establishment of the NLCC, we have witnessed tremendous progress in the sector. In addition to the recovery plans aimed at improving operations at Transnet, the government has finalised the Freight Logistics Roadmap, which charts the direction for South Africa’s freight logistics system on a longer-term basis. While the industry has welcomed the announcements on introduction of open access to the freight railways, which will allow private rail operators to access rail infrastructure, the implementation aspects of this remain a challenge.
For example, the delayed announcement of network statements which will contain the specifics on open access for South Africa’s freight railways systems demonstrate the complexities involved in implementing some aspects of the Freight Logistics Roadmap.
Another significant government announcement pertains to greater private sector participation in container terminals, which was quickly followed by the selection of an international terminal operator to partner with Transnet at the Durban Pier 2 container terminal, which handles 72% of the Port of Durban’s throughput and 46% of South Africa’s port traffic
We fully support the government's efforts to reform the freight logistics system, aiming to enhance the performance of the country's ports and rail network for accelerated economic growth.
If we wish to introduce private sector and Development Finance funding, we need to create an environment, which is conducive to unlocking funding. A willing funder, a capable supplier and a viable transaction depend on these regulatory reforms to realise the logistics sector performance improvements that the South African economy so desperately needs.
Following his Medium-Term Budget Policy Statement (MTBPS) speech in November 2023, Finance Minister Enoch Godongwana listed energy, crime and logistics infrastructure as some of the major impediments to economic growth in South Africa – we eagerly await the minister’s 2024 Budget and trust that the latter has been adequately provided for.
Happygirl Buthelezi: Director for Growth Capital Solutions and BEE Financing – Absa Corporate and Investment Banking.
BUSINESS REPORT