R19 billion lifeline for Transnet

The African Development Bank (AfDB) has approved a R18.85 billion ($1 billion) corporate loan to South Africa’s state-owned freight transport and logistics company, Transnet, for its recovery and growth plans.

In a joint statement published on 18 July, the AfDB and Transnet said that the loan, approved on 12 July, “is fully guaranteed by the government of South Africa.”

“It will facilitate the first phase of the company’s R152.8 billion ($8. 1 billion) five-year capital investment plan to improve its existing capacity ahead of expansion for the priority segments throughout the transport value chain,” said Transnet and the AfDB.

Transnet has faced operational woes, mainly in the critical rail and port businesses resulting from underinvestment in infrastructure and equipment, theft and vandalism, subsequent corruption, and external shocks.

Transnet, like other overly indebted state-owned entities, was allocated no bailouts for 2024/2025 as the Treasury continues its “tough love” approach and moves to reduce government debt and stabilise borrowing.

This led the SOE, that is around R130 billion in debt and has a port and railway infrastructure backlog of over R50 billion, seeking alternative forms of funding for their recovery.

“Transnet, the custodian of South Africa’s critical transport and logistics infrastructure, plays an indispensable role in the economy of the country, ensuring a competitive freight system and serving as a gateway to the SADC region,” said AfDB’ss Vice President for Private Sector, Infrastructure and Industrialisation Solomon Quaynor.

“Our partnership will enable Transnet to execute a comprehensive recovery plan, addressing operational inefficiencies, particularly in rail and port sectors… aligned with South Africa’s strategic ‘Roadmap for Freight Logistics System,” added Quaynor.

The need for a roadmap for recovery is sparked from years of woes.

Years of compounding rail inefficiencies at Transnet saw freight volumes decline to 150 million metric tons in financial year 2022/23 from 226 million tons in the 2017/18.

Last year, country’s ports reached a crisis point with extreme congestion, with the South African Association of Freight Forwarders (SAAFF) saying that delays at ports have had direct costs to the South African economy of R98 million ($5.2 million) a day, while the movement of around R7 billion worth of goods had been impeded.

A recovery plan, launched in October 2023, seeks to rehabilitate the infrastructure and accelerate the relaunch of operations, focusing on restoring operational performance and freight volumes.

Transnet has seen increases in railway and port volumes and revenue, yet these gains fall slightly short of its recovery targets.

“It has made progress in some key areas including reforms in governance procurement and financial management,” said the AfDB.

Transnet reported a 1.5% rise in rail volumes to 151.7 million tonnes, a 12.8% increase in revenue to R77.69 billion, and a 2.2% uplift in container throughput to 4.15 million for the fiscal year ending March 31, 2024.

Notably, legislative changes enabling private sector participation have contributed to these improvements.

Transnet is opening its rail network to the private sector, publishing a draft network statement with rules, timelines, procedures, services, charges, and terms for agreements between Transnet Freight Rail and train operating companies.

Transnet expects the commitment of the capital injection through the loan to significantly aid in its stabilisation.

“We appreciate the support demonstrated by the African Development Bank, the loan extended by the bank will make a significant contribution to Transnet’s capital investment plan to stabilise and improve the rail network,” said Michelle Phillips, Group Chief Executive of Transnet.

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