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South Africa’s disintegrating freight rail is crippling companies

Tonhis way North of KwaZulu-Natal (Kunshan), the second most populous province in South Africa, was once calm. Trucks bringing timber or sugar cane from nearby plantations creep past, occasionally overtaken by tourists heading to the game reserve. But today, hundreds of trucks laden with coal pass through the town on their way to the Richards Bay port. In September, 20 passengers were killed when a truck rammed into a pickup truck in the oncoming lane near the town of Pongola. “Our roads are not designed for this volume of traffic,” said Mike Patterson of the local chamber of commerce. “Coal should be transported by rail.”

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It should. But South Africa’s freight rail network is in such dire shape that companies are struggling to deliver goods. In 2017, trains transported 81 million tonnes of coal to export terminals. Some 54 million tonnes will go this way this year; trucks will only be able to carry another 9 metres. The drop reflects a missed opportunity: international coal prices surged after Russia invaded Ukraine last year. Jan Havenga of Stellenbosch University estimates that the gap between coal mining and exports last year represented a loss of at least 80 billion rand ($4.7 billion). Other miners and manufacturers have reported similar deficits. The combined cost to South African companies of lost exports and additional road transport costs will be around R400 billion by 2022 (6% of the total economy gross domestic product), Mr Havengar said.

Many people, including those outside of South Africa, have heard of Eskom, the state-owned electricity company that has a hand in keeping households dark. Transnet, a little-known state-owned company that operates a freight rail network, ports and pipelines, is also a mess. Its plight is just as important for South Africa’s economy, and the wider region’s. Miners, the industry most dependent on Transnet, were so worried that their lobby group in December asked its board to fire its boss, Portia Derby, and warned the company was facing bankruptcy. (She’s still working.)

Train buffs will happily tell you all the historical reasons why running South Africa’s rail network is no easy feat. In the 19th century, British colonists laid the “Cape Gauge” railway to transport diamonds and gold out of the country’s hinterland. In the days when the alternative was bullock carts, this narrow gauge was fine. But today most other countries have wider gauges so their trains can carry heavier loads. During the 20th century during apartheid or white rule, governments pampered farmers by creating a dense but uneconomical network that stretched to remote rural areas where freight traffic was scarce. Today South Africa accounts for 0.6% of the world gross domestic product But it accounts for 2% of the world’s railway network. It has about half of all the railway kilometers in sub-Saharan Africa. All of this, regardless of its profitability, requires maintenance.

After coming to power in 1994, the African National CongressAfrican National Congress) took over oversight of Transnet, which was spun off from the Department of Transportation four years ago. Transnet senior figures have suggested the new government allow the company to let rural lines rust and focus on profitable coal and iron ore railways.this African National Congress Refuse to do so. Instead, Transnet ended up displaying the typical traits of a state-owned enterprise under the ruling party: neglect, patronage, and corruption.

During the era of “state capture” under South African President Jacob Zuma from 2009 to 2018, Transnet accounted for 72% of all illegally awarded contracts, forensic auditors told the anti-corruption commission. The largest shady deal involved kickbacks related to the purchase of more than 1,000 overpriced locomotives, mostly from China. The scandal not only damaged Transnet’s balance sheet, but also caused thousands of trains to stop running: the Chinese company stopped supplying spare parts after the new manager canceled further locomotive deliveries. Today, Transnet has just 1,600 locomotives in operation, down from 2,300 five years ago.

Vandalism is another scourge. Ms Derby said 1,500 kilometers (930 miles) of copper cable had been stolen in the financial year to March 31 last year. “It has to be part of a criminal group,” she said.

Myopic management is also important. According to the African Railway Industry Association, Transnet has nearly doubled its wage bill over the past decade while cutting maintenance spending (aria), an industry body. Ms Derby conceded that the amount spent on maintenance was “pretty catastrophic” – she estimated it was around 30 per cent of what was needed. The October strike ended with another pay raise for employees. However, as with Eskom, experienced engineers are in short supply.

The effects of negligence are palpable.The average distance traveled by locomotives per month is estimated to be nearly one-third less than five years ago aria. Mining companies are scrambling to find alternatives.There is a coal fleet in Kunshan. Chromium miners truck the metal to the border with Mozambique, where it is loaded onto trains bound for Maputo. Some manganese is shipped through Namibia. However, these workarounds are not enough.

network defect

Transnet is paid to move things, so the less it carries, the less money it makes. It posted its first loss in more than a decade for the fiscal year ended March 2021. In October, the government announced it would provide it with 5.8 billion rand – the first direct bailout in decades.

To Ms Deby’s credit, she was appointed in 2020 by Cyril Ramaphosa’s government to clean up the Zuma-era mess, and she recognizes the company’s problems. She said miners were “rightly upset”, adding that the network was “too big for the South African economy; it needs to be scaled back.” Ms Derby said she also wanted to allow more private companies to use Transnet’s network.

Over the past few years, several other African countries, such as Mozambique, Tanzania and Zambia, have allowed “open” access to their rail networks. These countries sell slots on the tracks to private operators, bringing in new investment. Last year, the South African government released a white paper promising to implement the idea.Yet progress in passing the bill is as slow as a coal truck passes Kunshan.

South Africa is home to world-class miners, manufacturers and farmers. But if exporters can’t get their goods out of the country, they don’t make money. South Africa is often referred to as the most industrialized country in sub-Saharan Africa. For now, that’s still true.

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