The company that can make or break South Africa
Transnet, the state-owned logistics giant responsible for South Africa’s ports, rail, and pipelines, finds itself at a critical juncture.
While some developments have offered a glimmers of hope, deep-rooted structural problems continue to hamper its performance, casting a shadow over the nation’s economic prospects.
The company reported a R2.2 billion loss in the first half of the 2024/2025 financial year, up from a R1.6 billion loss last year.
Its R136 billion debt burden is exacerbated by rising servicing costs, which have eroded its cash interest cover to 1.9 times, below the 2.5 times required for some loans.
Despite these financial pressures, Transnet saw a 3.2% increase in rail volumes, driving a 6% rise in revenue to R41.5 billion, alongside higher tariffs for rail, port, and pipeline operations.
The company claims progress in stabilising operations, improving financial performance, and addressing infrastructure issues.
However, ongoing operational challenges continue to impede its recovery, especially in terms of revenue and cash generation.
Recently, S&P placed Transnet on credit watch, warning that its cash flow may not improve quickly enough to sustain its debt levels. This puts the company at risk of a credit downgrade, adding further pressure to its recovery efforts.
One of Transnet’s most pressing problems is congestion at its ports and limitations in rail freight capacity, which are stifling trade and costing the economy over R1 billion daily.
Investec Chief Economist, Annabel Bishop, recently highlighted that despite some improvements, “capacity constraints at Transnet overall remain dire,” which is impacting the growth potential of the country
“A greater limitation on competitiveness for South Africa comes from Transnet’s incapacity to fully meet demand, and this has reduced GDP growth by around 3% per annum” said Bishop.
“This is likely to remain the major limitation on GDP growth this year for South Africa, with modest inroads made on capacitating Transnet only expected to add a per cent to growth, as South Africa’s GDP lifts by 1.8% y/y in 2025,” she added.
Reform
Transnet launched a turnaround strategy over a year ago to address mismanagement, theft, and vandalism affecting its rail and port services.
S&P Global Ratings has acknowledged improvements but warns that high debt and past governance issues still limit the company’s operational flexibility and pose risks to its recovery.
Experts at the Bureau of Economic Research at Stellenbosch University stress that a successful turnaround depends on the effective execution of reforms, not just planning.
Key areas for improvement identified by the BER include:
- Infrastructure Investment: Transnet requires significant capital expenditure to modernise its aging infrastructure and expand its capacity. This includes investments in rail networks, port facilities, and equipment upgrades.
- Operational Efficiency: Streamlining operations, optimising resource allocation, and addressing bottlenecks.
- Governance and Management: Strengthening corporate governance, promoting transparency, and addressing past mismanagement are essential for restoring stakeholder confidence and attracting investment.
The BER said that Transnet’s successful transformation relies on a collaborative effort between the government, the private sector, and Transnet’s management.
It calls for the government to provide the necessary policy support and resources, while the private sector can contribute expertise and investment.
This is seen as crucial, particularly given that BER estimates that South Africa must invest R200 billion to revive its frayed railways.
Transnet response
Following its recent results, Transnet said that the Board and management will focus on executing the recovery plan and overcoming operational challenges to ensure sustainable profitability.
Priorities include improving rolling stock availability, rail infrastructure, and enhancing efficiencies in general freight and export coal lines.
Key projects involve replenishing port equipment and acquiring critical spares for maintenance across all terminals.
Cost control, better maintenance planning, employee training, and incentives are also said to be key focus areas.
Transnet added that it is collaborating with the government on logistics sector transformation to ensure long-term sustainability – including pivotal rail concessions that allow for third-party access.
“While significant work remains, particularly in areas including debt management and security, the ongoing reforms and leadership stability provide a strong foundation for continued recovery and long-term sustainability,” added the SOE.
S&P said that “notwithstanding the challenges facing Transnet, we think the company continues to play an instrumental role in South Africa’s transport industry and by extension its economic growth, due to its control of all major logistics infrastructure.”
The ratings agency expects gradual improvement in Transnet’s performance due to reforms and initiatives, but high leverage and debt costs remain a major risk and challenge.
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