Energy. Freight. Ports. If there are three things that you take away from reading this, it must be these. They are the key to unlocking massive amounts of growth and potential in the country.
The unbundling of Eskom, the improvement of Transnet’s freight rail performance, and the optimisation of port operations are not just policy choices: they are imperatives for economic growth. These sectors form the backbone of the country’s economic infrastructure, and their efficiency directly impacts the nation’s economic health.
Forget the tax increases. Government needs to get serious about growing the economy, and there is plenty of low-hanging fruit to move on. With a direct focus on these three key sectors, the potential exists to add 2-3 percentage points to our country’s economic growth, effectively expanding the tax base and generating more revenue for the country.
Eskom, South Africa’s state-owned electricity utility, has been plagued by financial and operational crises for over a decade. Eskom’s gross debt securities and borrowings sit at R442 billion. The unbundling of Eskom into separate entities for generation, transmission, and distribution is a crucial step towards improving efficiency and attracting private investment. Eskom’s record of loadshedding has severely hurt the country, both locally and globally. Frequent power outages have been estimated to cost the South African economy between 2-3% of GDP annually. This is massive, and confidence will not be restored merely with the end of loadshedding. Business and investment confidence will take significant time to return if the country can maintain a stable power supply.
The unbundling process aims to introduce competition in the generation sector, allowing independent power producers (IPPs) to participate more actively. This move is expected to enhance energy security by diversifying the energy mix and reducing reliance on Eskom’s aging coal-fired plants. A reliable energy supply is fundamental for economic growth.
Transnet, the state-owned logistics company, operates South Africa’s freight rail network, which is vital for transporting goods across the country and to its ports. However, the network has been hampered by under-investment, aging infrastructure, and operational inefficiencies. In 2015, Transnet reported its highest freight volume at 227 million metric tons. In 2023 it reported its lowest volumes at 149.5 million metric tons. That’s effectively 33% less.
Improving the performance of Transnet’s freight rail is essential for several reasons. Firstly, it reduces the cost of transporting goods, making South African products more competitive in international markets. Efficient rail transport can lower logistics costs, which are a significant barrier to export competitiveness. Secondly, a robust freight rail network can alleviate pressure on the country’s road infrastructure, reducing congestion and maintenance costs. This shift is also environmentally beneficial, as rail transport is more energy-efficient and produces fewer emissions when compared with road transport.
A critical way to achieve this is through public private partnerships and concessions which will optimise the market of freight rail. The current model for Transnet is simply not working, so a key goal of the GNU is to focus on unlocking growth within freight transportation to drive better trade efficiencies.
South Africa’s ports are vital gateways for international trade, handling a significant portion of the country’s exports and imports. However, inefficiencies in port operations, such as delays and high costs, have eroded the competitiveness of South African exporters. The World Bank has highlighted the fact that improving port efficiency can significantly boost export performance.
The Durban port, for example, is one of the busiest in Africa, but has been plagued by congestion and delays. Enhancing port operations through investments in infrastructure, technology, and streamlined processes can reduce turnaround times and lower the cost of doing business. This is particularly important for time-sensitive goods such as agricultural products, which can lose value if delayed. In the 2023 World Bank Container Port Performance Index, Durban was ranked 398th out of 405 global container ports. Close to last.
Efficient ports are essential for integrating South Africa into global value chains. As the global economy becomes increasingly interconnected, the ability to move goods quickly and reliably is a key competitive advantage. By improving port operations, South Africa can attract more international shipping lines, increase trade volumes, and stimulate economic growth.
We must embrace public and private partnerships which allow the country to work with major global players who understand how to operate ports in a competitive environment. And competition is fierce. Namibia is positioning itself by expanding the Port of Walvis Bay, doubling its capacity. Walvis Bay serves as a direct alternative to Durban and could effectively redirect significant amounts of global trade away from the country.
The energy, freight rail, and port sectors are deeply interconnected. Reliable energy supply is crucial for the smooth operation of rail and port facilities. Similarly, efficient rail transport is essential for the movement of goods to and from ports, while well-functioning ports are vital for international trade. Unless we seek to actively unlock and ensure these sectors complement each other, we will forever be trapped in low economic growth. Forget tax increases. Focus on energy, freight and the ports. Grow the economy and grow the tax base.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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