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Published: November 2017      

Facing the storms head-on

Significant headwinds are affecting South Africa’s economic performance and trading prospects.

The scandals surrounding President Jacob Zuma’s relationship with the Gupta family and their businesses, a second recession since 2009, and a mining industry that needs urgent reform, make the next few years extremely challenging for South Africa. Then there is the need for better infrastructure, particularly in the transport sector.

The issues surrounding the Guptas are the most serious at the current time, as they are affecting South Africa’s governance, image on the international stage, and investor sentiment in the country.

A large number of international and national companies, including parastatal entities such as Transnet and Eskom, have been affected by the illicit practices, contracting and kickbacks that have allegedly taken place. Some companies have even been forced to leave the country.

Several contracts signed by executives of Transnet in recent years appear to have involved intermediaries, agencies and companies associated with the Guptas, with several deals under investigation (see box story, p32).

The various controversies are unfortunate, as the government’s National Development Plan, which was launched in 2014 and places a strong emphasis on improving the country’s transport network, has achieved several successes. A part of this plan is the so-called Operation Phakisa Oceans Economy (OPOE) programme, which, in the words of Zuma, aims to “unlock the country’s ocean economy”.

OPOE’s potential

Addressing a recent event in Durban, Zuma said: “From our own [the government’s] analysis‚ the total ocean sector contributes approximately 4.4% to South Africa’s GDP‚ with the largest contribution coming from the value chains.”

Since 2014, OPOE has attracted private-sector investments worth almost ZAR25B (US$1.76B), received approximately ZAR15B from state sources, and created 6,500 jobs.

Meanwhile, this year saw the Department of Transport finalise its Comprehensive Maritime Transport Policy (CMTP) for South Africa.

In particular, CMTP will address:

  • South Africa’s high transport costs.
  • The lack of an established merchant fleet.
  • The nation’s relatively weak import and export trades.
  • The creation of employment opportunities throughout the sector.

A priority of the CMTP is to reform the 2002 Commercial Ports Policy Bill, which it believes does not encourage investment in the sector or support ports’ growing role in boosting economic activity. In this regard, measures are likely to be introduced that will monitor the competitiveness of the country’s ports, evaluate private-sector participation, and assess land use and planning frameworks.

CMTP is designed to help put in place policies that will create the necessary infrastructure and facilities to handle much larger ships efficiently, and contribute to more effective logistics chains.This should lower transport costs for importers and exporters based in the country.

Transnet, the state-controlled ports, rail freight, logistics and pipelines company, is certainly modernising and expanding its ports. Recent years have seen significant investment in cargo handling facilities in Cape Town, Ngqura and Durban.

In the latter port, several projects are ongoing, but the company’s transformational “Durban dig-out” plan, located on the site of the old airport, is on hold, with any start date now unlikely before 2030. The first phase of the new Durban port, which is ultimately envisaged to accommodate 16 container berths, five wharves for handling car-carrying vessels, and four liquid bulk terminals, was due by 2020.

The current focus is to improve Durban’s existing footprint, and to raise its box handling capacity by at least 1.7M TEU a year. This involves:

  • Rehabilitation of six berths at Maydon Wharf, including dredging alongside to 14m, and expanding the terminal’s storage areas for containers. The work will also enable higher volumes of ro-ro, breakbulk and project cargo to be processed.
  •  Extending the length and deepening the water depths alongside berths 203, 204 and 205 at Durban Container Terminal (DCT) from 12.8m to 16.5m to allow three super post-Panamax ships of 14,000 TEU and 350m in length to be docked simultaneously, regardless of the tide.
  • Adding new equipment at DCT, including 23 new straddle carriers. The machines are all due to be operational by the end of 2017.

Elsewhere, Transnet is undertaking improvement and expansion programmes in:

  • Cape Town - expanding the yard area at Cape Town Container Terminal, and increasing its annual throughput capacity from 900,000 TEU to 1.4M TEU by 2020. Plans are also afoot to improve the port’s maritime access to allow bigger ships to call, and its rail facilities so that more cargo can arrive and leave by train.
  • Ngqura - development of a liquid bulk terminal, mainly to handle petroleum products. The new facility is being developed and will be operated by Oiltanking Grindrod Calulo Holdings. The 150,000 m3 capacity facility is scheduled to open in late 2019, and it will allow a tank farm to be decommissioned in East London, and for that site to be developed by Transnet for what it describes as “cleaner commercial activities”.
  • The river port of East London - rehabilitation and refurbishment of the 83m sheet-pile wharf adjacent to the Elizabeth dry dock. Over ZAR320M is being spent on this project, which is expected to be completed in 2021. In the pre-feasibility stage, there are plans to widen and deepen the port’s access channel, with Transnet currently reviewing initial design and simulation models for such an exercise.

Throughput growth

The new investments are proving generally positive, when it comes to traffic volumes, with the number of containers handled at the country’s main ports increasing by 8.7% to 3.56M TEU in the first nine months of 2017 (see table, p32). The fastest growth occurred in the port of Ngqura, where volumes rose by almost a third in the period. The port benefitted from increasing activity in the adjacent Coega Industrial Zone, which continues to attract new tenants and investor interest.

Despite Transnet’s investments, South Africa’s ports are among the most inefficient and least productive in the world. Consequently, they are also among the world’s most expensive, and this affects South Africa’s global trading competitiveness, and makes goods more expensive for businesses and the country’s citizens. Transnet’s own data reveal the problems faced in the South Africa’s key terminals. In H1 of FY 2016-17, Transnet Port Terminals reported that average moves per ship working hour (SWH) declined across most of its facilities. The exception was Durban’s Pier 1 Container Terminal, where the average of 47 moves was up by a modest 4.5% on the same period in fiscal year 2015-16. Moreover, it can take 30 hours before a vessel can berth at the terminal.

Customers are extremely unhappy and frustrated with the situation. “Last season, the wheels fell off the bus at Durban Container Terminal, but, this year, not only did the wheels fall off, but the bus fell overboard,” said Mitchell Brook, logistics development manager at the Citrus Growers Association of Southern Africa (CGA).

“A multi-pronged set of issues related to industrial action, equipment failure and poor planning led to very poor productivity, and this resulted in truck congestion at the terminal gates, and vessel delays, causing disruptions to schedules.”

Envying Spain

Brook compared recent performances in Durban with those in Algeciras, Spain, claiming that, whereas a typical 6,000 TEU capacity vessel could be turned around in 36 hours in the Spanish port, in Durban it could take up to five days.

Describing the catastrophic events of the past season, Brooke wrote in a recent CGA news bulletin: “A number of vessels diverted from Durban to the Ngqura Container Terminal (NCT), but that facility soon became constrained with an overrun of [reefer] boxes, which had to be rerouted back to Durban on feeder vessels, and NCT prohibited the acceptance of reefers on short notice.”

He continued: “The main issue was not only the severity of disruptions to [our members’] landside logistics, but the disruption to vessel schedules, which meant citrus consignments, by and large, missed weekly deliveries to receivers. They leverage such situations, to penalise exporters and reduce price agreements. So, all the way along the chain, the producers end up footing the bill, with the main culprits [Transnet] not having any consequence.”

In the 2017 citrus shipping season, which has just ended, some 122M cartons of fruit were exported from South Africa, with Brooke estimating that traffic of 130M cartons is “just around the corner”.

He stressed: “We simply cannot have the ports being a barrier to trade in this fashion, when the stakes are this high.” For that matter, neither can the South African economy.

The country’s rail network also needs to be improved, and its carrying capacity expanded, especially when it comes to intermodal rail yards. There is substantial potential in moving fruit by rail to the main ports, but terminals with adequate power and electrical slots for reefer containers to be stored are often quite limited.

Trading prospects

While Transnet and private operators are investing in infrastructure, and this is extremely positive, issues surrounding governance, working practices and productivity levels are clearly denting the country’s economic and trading potential.

Transnet, however, is taking a much broader focus, and is keen to embrace new technologies, such as artificial intelligence and concepts like the blockchain and Big Data, and to be fully prepared for the challenges that will come from the ‘fourth industrial revolution’.

Siyabonga Gama, CEO of Transnet, explained: “Disruptive innovation is here. It is creating new markets and displacing established ones. We [Transnet] do not have a choice but to catch up. To be the Transnet of tomorrow, we need to embrace technology, and lead the logistics sector in filling the gaps in the supply chain solution. From pit to port, we should be able to use the available technology in order to optimise our services to our customers.”

He added: “We are on the cusp of a technology revolution and on the brink of greatness, and we cannot do this without engaging our customers at every level of change or shape that Transnet is taking.”

Swaziland rail link

The construction of the 150 km Swaziland Rail Link (SRL) connecting Lothair (Mpumalanga, South Africa) with Sidvokodvo in Swaziland) is moving ahead. It also includes revamping the line between Sidvokodvo and South Africa’s largest coal port at Richards Bay.

Feasibility studies on the project have been completed, with Transnet Freight Rail (TFR) and Swaziland Railway engaged in ground preparation and resettlement works. In addition, TFR has commenced upgrade work on smaller branch lines, including those between Ermelo and Lothair and Golela and Nsese, which will support the new link. However, as a public-private partnership project, investors still have to be secured. The new cross-border rail line will be able to accommodate rolling stock with weights of up to 26t per axle, and trains with up to 200 wagons, approximately 2.5 km in length. The track’s signalling system and its configuration will enable 12 trains a day to be operated. It will more than double the carrying capacity of Swaziland Railway’s existing Komatipoort-Golela line, which can also handle 12 trains a day, but with only 81 wagons each.

The line will enable more general cargo to be carried by rail. This fully supports both train-operators’ plans to shift cargo from road to rail. It will also provide valuable back-up capacity to TFR’s established Coal Line, which is one of the company’s most important assets.

Guptas ‘steered Transnet contracts’

It seems that orders placed by Transnet for cranes, trains and even accounting systems have all come under the influence of the Gupta family, and that millions of rand have been siphoned off in the contracting and delivery processes. Not only has this meant Transnet paying far higher prices for much-needed equipment and software, but, in those cases where local businesses were also expected to benefit and many new jobs created, this has not happened.

In the case of the port cranes, the issue centres around seven super post-Panamax STS cranes that were ordered from ZPMC, and delivered to Transnet Port Terminals for its Durban Pier 2 facility in 2012 and 2013 (see “Durban scandal”, World-Cargo News October 2017, p43).

The inquiry into Transnet’s deal with China South Rail (CSR) for the supply of 359 locomotives reveals that the Tequestra Group, a Gupta family-controlled company, was used as an advisor. Allegedly, Tequestra was paid ZAR10M in fees for every ZAR50M that Transnet spent on the locomotives. Moreover, no locomotives have been manufactured in South Africa, despite this being a crucial element in the contract with CSR.

Meanwhile, contracts that Transnet have signed with Germany-based software giant SAP appear to have been influenced by the latter company’s payments of ZAR94M to entities linked with the Guptas. These payments allegedly resulted in leads and assistance also being given to conclude deals with power company Eskom....


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