In South Africa, where frequent power outages have captured global attention, a logistics crisis may actually pose a more critical and intricate problem. Although the beleaguered power utility Eskom has left the nation grappling with incessant blackouts, resolving the logistics network’s collapse is a more immediate imperative.
South Africa Logistics Crisis a Greater Predicament Than Load Shedding
Transnet, the state-owned operator of passenger and freight rail, ports, and fuel pipelines, is grappling with escalating problems that threaten South Africa and its neighboring regions in the long term.
This crisis, exacerbated by years of underinvestment, inept management, corruption, crime, and gangsterism, has sent the logistics system off the rails. The situation worsened after the Department of Public Enterprises appointed an inexperienced CEO and board in 2020.
The general freight tonnage at Transnet, according to a turnaround “roadmap” commissioned by Operation Vulindlela, is now operating at about 30% of its 1983 peak. Consequently, the nation has witnessed a surge in the number of heavy trucks, which has increased by 72% since 2007, to transport bulk ore, coal, containerized freight, and vehicles to the ports.
The inefficiency of freight rail in South Africa has severely impacted commodity exporters, particularly the mining sector, which contributes significantly to the country’s economy.
Mining Sector Suffers
The mining sector accounts for 7.5% of South Africa’s GDP and employs nearly half a million people.
The interconnection between the African National Congress, labor unions, and the mining sector makes mining jobs politically sensitive.
Any problems at Transnet can severely affect mines because the rail monopoly transports their products.
An industry report suggests that the mining sector could have created an additional 50,000 jobs and generated an additional ZAR 27 billion ($1.4 billion) in tax revenue in 2021 without logistical constraints.
Transnet’s underperformance cost South Africa’s largest iron producer, Kumba Iron Ore, ZAR 10 billion in earnings for the year ending December 2022.
Moreover, the mining companies Seriti Resources Holdings Ltd. and Glencore Plc have announced job cuts, and Sibanye Stillwater Ltd. is considering restructuring its South African mines, which could affect over 4,000 jobs.
These issues not only impact the mining industry but also affect the South African Treasury, especially concerning its domestic and foreign loans, which are set to mature over the next three years.
The Treasury anticipates a significant budget undershoot, and concerns are rising about the affordability of social interventions such as the Social Relief of Distress Grant. Youth unemployment is at almost 64%, compounding the challenge.
Solutions and Political Hurdles
Operation Vulindlela’s turnaround plan for Transnet involves the Treasury assuming approximately half of Transnet’s ZAR 130 billion debt and injecting an additional ZAR 47 billion for infrastructure renewal.
However, Finance Minister Enoch Godongwana is likely to impose strict conditions and demand comprehensive liberalization of access to the logistics network.
The plan suggests opening freight corridors to private operators, all supervised by an independent regulator in the Department of Transport.
Implementing the plan requires navigating political obstacles, including opposition to the “privatization” of freight rail and the feasibility of the roadmap’s timelines.
It also hinges on the state’s capacity to modernize and regulate the complex logistics network.
While the ANC may face political constraints in implementing a rapid solution to Transnet’s woes before the upcoming elections in 2024, inaction on this pressing matter may be more detrimental than enduring power outages in the long term.
The logistics crisis, despite being a larger problem than initially recognized, is potentially more manageable than the power crisis.
Nonetheless, it demands significant political will and overcoming entrenched anti-capitalist sentiment in the cabinet and the ANC. Addressing the logistics crisis is essential to protect South Africa’s economy and future.