Operational implosion at Transnet unhealthy for Covid-recovering SA, says economist

It is an irrefutable fact that Transnet experienced an operational implosion due to a litany of factors, including mismanagement and the Covid-19 pandemic, although recent reports, as well as president Cyril Ramaphosa’s comments, suggest that the state-owned enterprise, which is responsible for rail transport, port management and fuel pipelines, is on the mend.

Economist professor Waldo Krugell from the North-West University’s faculty of economic and management sciences says South Africa is wasting its export opportunities.

“The logistics crises caused by Transnet and the ports have far-reaching negative consequences. Export industries are pleading for a chance to help, but government is unwilling to get out of the way.”

For the past few months especially, there were administrative chaos and shipping queues that spanned days.

“Some of the hallmarks of South Africa’s major ports, from Cape Town through the Eastern Cape to Durban, are backlogs and congestion that has seen tens of thousands of containers not reaching their desired destinations on time.”

The Port of Durban is not only one of the busiest harbours in Africa, but also one of the busiest harbours in the world and it is not coping with its workload. This has meant that cargo is diverted to Maputo, Luanda and Walvis Bay, resulting in South Africa losing invaluable commerce opportunities, Krugell says.

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Negative consequences of ports and undervalued Rand

“The impact of the logistics crises caused by Transnet and the ports have far-reaching negative consequences. The Rand is also undervalued and coupled with the Transnet dilemma, this has a compounding effect on the fortunes of the country.”

Krugell says although the undervaluation of the Rand is mainly due to trading financial assets and investors’ sentiment towards emerging markets and South Africa in particular, it has an impact on the import and export of goods and services.

According to the Big Mac Index, the Rand should trade at around R11.30 per dollar, while more complex models reckon it should instead be around R15 against the dollar, he says. 

“Therefore, in rand terms, we pay more than we should for imported products. This is particularly detrimental when you consider that most of our fuel is imported and also many other industrial inputs.”

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A bit of positive in the negative

Fortunately, he points out, it also cuts the other way.

“Our exporters are R3 per dollar more viable than they would be at the fair value rate. That is an opportunity that we are wasting due to the logistics crisis caused by Transnet and the ports.”

During the course of January, the situation at Cape Town’s container terminal improved slightly, with ships’ waiting times reduced from 9 days to 7.5 days, but the target is actually only one day, Krugell says.

“It is peak export season for the fruit industry and there is still a backlog of exports. Durban’s port handles 60% of South Africa’s container shipping and the problems there were reflected in December’s trade statistics.

“Imports were down 9% month-on-month and exports decreased by 11.5%. Based on these problems, the IMF recently revised South Africa’s growth outlook downwards to 1% for 2024. The worst is that the export industries are pleading for a chance to help address the problems of poor management and little maintenance, but government is unwilling to just get out of the way.”

Krugel says it is an untenable situation government placed itself in and a detrimental one for the health of a country that is still recovering from its Covid sickbed.