Making tracks: how opening SA’s rail network could unlock economic growth
02 October 2019 | Web Article Number: ME201916538
OPENING South Africa’s rail infrastructure to private companies would see significant investments in the sector – and unlock massive economic benefits and upstream job creation across a range of industries, says the chief executive of Africa’s largest private rail operator.
That’s according to Traxtion CEO James Holley, who said any move to grant private companies access to South Africa’s core rail network would be potentially transformational for industries like agriculture, heavy industry and mining, and would position rail as an enabling sector for general economic growth.
Introducing private operators to South Africa’s mainline rail network is one of the proposals contained in a recently released National Treasury discussion document which outlines steps that could drive economic transformation and address unemployment. It is also included in the Draft White Paper on National Rail Policy.
“We have a huge opportunity to position rail as an enabler of real economic growth in our country. South Africa is home to 75% of Africa’s installed rail infrastructure, but because it’s currently only being used by one company, there is significant excess capacity in the network. Multiple operators would generate additional revenues for Transnet that could be invested back to build our rail network into a source of global competitive advantage,” said Holley.
He added that the rail industry had the ability to create upstream jobs by enabling industry (like smelters, steel mills, manufacturing and agri-processing) and mining (new coal, manganese and iron ore mines, amongst others) to become internationally competitive. Similarly, rail corridors into Africa would create cost-effective gateways to take South African goods into these markets.
“The question is not how many jobs the rail industry will create. It’s to what extent that currently constrained rail capacity and pricing is limiting investment and job creation in other industries.”
The rail industry is extremely capital intensive, Holley said. A potential investment of $1bn would cover 175 locomotives, the required rolling stock and associated investments in supporting infrastructure. “And that’s just 175 locomotives. To put that in perspective, Transnet currently has a fleet of more than 2 500 active locomotives. $1bn would just be the first steps into what’s needed.”
Holley said that opening the rail infrastructure to private operators should have no adverse effect on Transnet, which would retain its dominant position in key cargo flows, including coal, iron ore and manganese. However, the additional access fees earned by Transnet through providing rail access to private rail companies would strengthen Transnet’s financial position considerably.
“The opportunity for us is to source incremental volumes currently moved by road to rail or by unlocking new upstream investments. This would not diminish Transnet’s existing flows at all, but would bring significant additional flows, like containerised cargos, agricultural and forestry products and hazardous chemicals, to rail.”
Holley said it had been estimated that less than 30% of container traffic in South Africa is moved by rail, compared to 70% or more in most first world economies.
He believes South Africa’s strong regulatory regime – through the South African Railway Safety Regulator – make the country well-equipped to deal with new rail operators.
“For an open rail infrastructure to work, you firstly have to ensure operators are all competent and safe. Secondly, you have to ensure the terms of access are equitable – not only from a pricing point of view, but also the allocation of slots on the infrastructure, as you see in the airline industry,” he said.
“Fortunately, there are numerous international learnings and benchmarks around this, so we would not have to reinvent the wheel. Many of our SADC neighbours – like Mozambique, Tanzania, Zambia – have already rolled out open access.”