The shining example of what South Africa can do
The story of the turnaround in the performance of South Africa’s electricity sector is an example of the potential of embracing new ways of problem-solving. Such a mindset harbours major opportunities to turn around much of the country’s woes.
This is the view presented by Business Leadership South Africa (BLSA) CEO Busiswe Mavuso.
On 24 August 2024, Eskom announced that South Africa had gone 150 consecutive days without any planned power outages.
This is a dramatic turnaround from over a year ago, when the country was plagued by persistent and record load shedding that disrupted daily life, damaged the economy, and eroded investor confidence.
With the private sector’s inclusion in electricity generation, “billions are being invested in new renewable energy plants, adding significant capacity to the grid,” said Mavuso.
“At the same time, the partnership between business and government has enabled private sector expertise to support Eskom in improving plant performance, all in line with the Energy Action Plan,” she added.
Mavuso said that she found herself pondering the comparison between the electricity story and that of logistics last week during a meeting of the executive of Transnet and the BLSA Council.
Over the past several years, the group has struggled to provide adequate freight rail and port services due to factors like equipment shortages and maintenance backlogs, which resulted from years of underinvestment.
Transnet, encompassing rail, port, and pipeline services in South Africa, is saddled with around R130 billion in debt and has a port and railway infrastructure backlog of over R50 billion, largely emulating from corruption seen at the height of state capture.
Transnet board Chairman Andile Sangqu recently told journalists that the company’s debt repayments were averaging just over R1 billion monthly.
According to a study by the GAIN Group, a boutique consultancy focusing on freight transport contract research, Transnet’s failures are estimated to cost the country R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion.
Needing an urgent turnaround, the government, in collaboration with businesses and unions, formed the National Logistics Crisis Committee (NLCC) in June 2023 as a hopeful response to various crises within South African logistics.
The NLCC’s outlined aims include that of enhancing supply chain operations, modernising freight transport for better efficiency and competitiveness, and adjusting regulations to ensure efficient procurement and sufficient network maintenance funding.
In December 2023, under the Freight Logistics Roadmap overseen by the NLCC, the development of a framework for Private Sector Participation (PSP) was approved, which outlines structural and contractual requirements to enable such participation.
“Transnet’s new management team is making good progress on many fronts (as showcased in an uptick in the volume handled by its railways and ports as well as revenue), particularly when it comes to drawing on the private sector,” said Mavuso.
Transnet is working on several public/private partnerships, including concessions for Richard’s Bay and Durban ports.
“But compared to the electricity sector, which enabled a dramatic increase in investment, the steps on the logistics front are lukewarm,” said Mavuso.
Transnet is working on several private sector partnerships, largely through PSP arrangements in which private investors contribute equity or operating leases.
“These are all well and good, but as the electricity experience shows, if the private sector is empowered to become a producer and supplier itself, rapid progress can be achieved,” said Mavuso.
The BLSA CEO emphasised the logistics sector’s long-standing collaboration with the private sector, notably in toll roads like the N1 and N3, which were public-private partnerships in South Africa.
She said that these partnerships enabled private capital to swiftly enhance economic growth by allowing private entities to build and manage these roads through 30-year concessions.
This approach has also proven itself in international projects, including the Maputo Corridor, connecting Johannesburg to Maputo.
Mavuso suggested that to truly innovate in the rail and ports sector, we should consider ambitious changes like concessioning entire rail corridors or ports, which she believes would foster genuine competition, leading to better and more cost-effective services.
“That would enable the economy to become far more competitive in servicing export markets, driving economic growth and creating jobs and tax revenue, and, as the electricity sector has shown, it can happen fast once the key decisions are made,” said Mavuso.
Last month, Transport Minister Barbara Creecy said her department wants to adopt the same strategies and methods used with Eskom to bring the private sector on board to assist in solving “current and future logistics challenges.”
Creecy revealed that one of her department’s plans is to create a PSP unit after seeing the opportunities that emerged from similar initiatives in the electricity sector (as outlined by Mavuso).
Its primary objective would be to identify suitable areas for private sector participation in rail and ports.
The unit will comprise those “with the necessary skills and expertise in the design, negotiation and contracting of projects so that innovative practices can assist” to assist in solving various woes within the logistics industry, the minister said.
Read: Major shakeup for state-owned companies in South Africa
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