Transnet: Distributing South Africa’s growth potential

The rate of growth for any nation’s economy is intrinsically linked to its transport infrastructure. In South Africa, the weight of burden lies at the feet of Transnet, an organisation which can trace its roots back to the mid-19th Century.

Today Transnet operates as the largest and most crucial part of the freight logistics chain that delivers goods to each and every South African. Every day Transnet delivers thousands of tons of goods around South Africa, through its pipelines and both to and from its ports. It moves that cargo on to ships for export while it unloads goods from overseas.

“Our vision and mission is to be a focused freight transport company, delivering integrated, efficient, safe, reliable and cost-effective services to promote economic growth in South Africa,” states the corporate website.

“We aim to achieve this goal by increasing our market share, improving productivity and profitability and by providing appropriate capacity to our customers ahead of demand.

“Transnet is fully owned by the South African government but operates as a corporate entity aimed at both supporting and contributing to the country’s freight logistics network. It aims at developing South African industry, reducing the cost of doing business, while at the same time operating efficiently and profitably,” the site continues.

Transnet’s operations are essential split into five operating divisions that complement each other. These are supported by a number of Company-wide specialist functions such as Transnet Projects which underpin the group as a whole.

Transnet is investing R110.6 billion on revitalizing and extending its infrastructure. These plans include widening and deepening ports; building a new pipeline and buying hundreds of new locomotives.

The new Transnet is made up of the following operating divisions:

Transnet freight rail (formerly Spoornet – the freight rail division)

Transnet rail engineering (formerly Transwerk – the rolling stock maintenance business)

Transnet national ports authority (formerly the NPA – fulfils the landlord function for South Africa’s port system)

Transnet port terminals (formerly SAPO – managing port and cargo terminal operations in the nation’s leading ports), and

Transnet pipelines (formerly Petronet – the fuel and gas pipeline business, pumps and manages the storage of petroleum and gas products through its network of high-pressure, long distance pipelines)

Much of South Africa’s industrial heritage was built around railroads that were developed to serve harbours in the Cape and Natal in the 1850s. These gained further momentum following the discovery of diamonds in Kimberly in 1867 and South Africa’s state railway system began when the two pioneer railway systems situated in the Cape and Natal became government property in 1872 and 1877.

The discovery of gold deposits in the north of the country precipitated further rail routes and by 1910 the South African Railways and Harbours administration (SAR&H) had become an important element of government, effectively the foundation for Transnet.

In 1981, the country’s railway, harbour, road transport, aviation and pipeline operations became known as South African Transport Services (SATS). At the same time, the enterprise was restructured into units and divisions, with a strong emphasis on localized management.

By the end of 1989, the goal of managing SATS as a private entity was well within reach, and on 1 April 1990, after 80 years of government and parliamentary control, SATS was given company status. A new, limited liability company, representing a vast transport network, was finally born. Its name was Transnet SOC Ltd.

Of course South Africa has undergone dramatic transformation since 1990 but Transnet’s role remains fundamental to gleaning the best economic advantage for the country.

In May of this year Minister Lynne Brown’s outlined Transnet’s continental initiatives, stating:

“Today, Transnet will introduce you to a glimpse of their operations with what is the called the Transnet Learning Journey that includes a tour of the Port of Durban and visits to the Maritime School of Excellence and Transnet Engineering.

“It is also based on Transnet’s need to diversify revenue sources in response to the economic slowdown in the country and the world.

“The Transnet strategy is based on their mandate to develop and pursue commercial opportunities on the rest of the continent more actively. This must be done with other State-Owned Companies and the private sector.

“This road into the continent started in May 2015 when Transnet adopted its Africa Strategy.

“Your presence is part of Transnet’s outward drive on the continent and to raise awareness about this giant on the southern tip of Africa.

“This port is one of the busiest ports in Africa. Apart from handling cargo, it also handles automobiles and containers.

“The Continent has 15 landlocked countries requiring access to ports than anywhere else.

“If we can address Africa’s logistics infrastructure deficit, we can change the quality of lives of all Africans. And we look to Africa as a key, under-developed market. In 2015, intra-African trade accounted for less than 18 per cent of total continental exports. Among the key factors underpinning these numbers is Africa’s logistics infrastructure deficit.

“According to the Logistics Performance Index of the World Bank, just six of the 46 African countries ranked are in the top two categories, 18 are ranked “partial performers”, and 22 are ranked “logistics unfriendly”.

“Currently Transnet is pursuing opportunities in Senegal, Liberia, Nigeria, Ghana, Togo, Benin, the Democratic Republic of Congo and Kenya.

“These include possible joint ventures include areas such as rail and port opportunities; the development of infrastructure at ports and establishing transport corridors in those countries.

“Transnet is not only committed to develop infrastructure but their presence must also change the socio-economic conditions of those living close to these projects.”

Brown’s words were all the more pertinent as they came less than a month after Standard & Poor’s (S&P’s) Global Ratings had downgraded Transnet’s long-term foreign currency sovereign credit rating from BBB- to BB+, in line with its assessment of the sovereign rating.

S&P’s, however, maintained Transnet’s standalone credit profile at bbb, which the parastatal said reflected its strong financial metrics and adequate liquidity.

CEO Siyabonga Gama said S&P’s affirmation and acknowledgement of the critical role that Transnet plays in South Africa’s economy as a provider of essential infrastructure services was testament of the strong and agile manner in which Transnet management was navigating the tough macroeconomic challenges.

In May Gama reaffirmed the need for continental collaboration, calling on African companies to compete less and collaborate more to “take advantage of the huge marketplace that Africa is becoming.”

This autumn has been a busy time for Transnet and in April the company launched its first ever designed, engineered and manufactured train.

The parastatal said that the new locomotive, which will serve the African continent, is specifically customised to African conditions and is suitable for use on branch lines and in shunting yards.

Speaking at the launch of the Trans Africa Locomotive, President Jacob Zuma said the completion of the locomotive was a significant technological achievement by Transnet and the country.

“We appreciate Transnet’s drive to become the leading provider of logistics services in sub-Saharan Africa,” he said. “We must continue working hard to develop infrastructure that promotes trade among African countries and which make it easier for us to visit one another and also boost economic growth and development.

“The Trans-African Locomotive project has provided an opportunity for Transnet to grow and diversify its business,” he added.

Minister of Public Enterprises Lynne Brown said they were very proud of the Trans African locomotive, adding that it was the first born and bred African locomotive.

“Those of us at the shareholder ministry, together with the Transnet board and Transnet management are continually considering new initiatives and innovations to reshape the core of the Transnet business,” Brown said.