The Africa Report — July-August 2017

Is Transnet still on track?

(results year to 31 March 2016)

R340bn

Transnet expects to spend at least

this much over the next 10 years

in investments.

R27.7bnR27.7bn

Cash generated

from operations 1.7%

Increase in revenue

for the year

Increase in earnings before

interest and taxes, 4.3 times

South Africa’s GDP growth

for the financial year

2.6%

SOURCE:TRANSNET

some of which fall squarely into

the state capture quagmire.

On 9 June the opposition party

EconomicFreedomFighters(EFF)

releasedleakeddocumentsshow-

ing that Transnet lost R17bn in

corrupt overpayments during the

procurementof1,064locomotives.

Atapressconference,leaderJulius

Malema named finance minister

(and former public enterprises

minister) Malusi Gigaba and

Molefe as among those involved.

Untilthen,Transnethadprided

itself on being profitable and able

to raise funding itself without the

backingofgovernmentguarantees.

But investors are now changing

their minds about the company.

In May, Transnet’s R200m bond

auction received just two bids

totalling R40m. In the three auc-

tions that have been held since

thedismissalofrespectedfinance

ministerPravinGordhaninMarch,

whichrockedinvestorconfidence,

Transnet has raised just R55m of

an expected R600m.

FinanceministerGigabawarned

last month that the government’s

planned expenditure may not be

affordable if there is a further de-

cline in gross domestic product

and revenue, although he did

not specify if this was at central

government level or through its

parastatals like Transnet. Yet, in

the alternative universe that is

state-owned entities, one would

be hard pressed to see any of

these remarkable developments

acknowledged in any big way.

PLAYING IT DOWN

This,forexample,isTransnet’sre-

centcursoryresponsetotheEFF’s

claims of procurement irregular-

ities: “Transnet has noted recent

reports around the integrity of its

procurement processes, particu-

larlyonitslocomotiveacquisition

programme, which is the corner-

stone of its infrastructure invest-

ment programme – the Market

DemandStrategy.Weareconfident

that our procurement process-

es have sufficient checks and

balances to guarantee integrity.

Theseincludeoversightatvarious

governancelevels.”Thecompany’s

owndirectorshaveneverthelessset

upaspecialcommittee“toreview

thecompany’sprocesses”andwill

“pronounce once this process is

concluded,” the statement says.

Sifting through Transnet’s

financials and other public doc-

uments, there is very little infor-

mation on the headwinds, and

certainly no concern around the

political storm. There is, however,

some disquietude about general

economic conditions and the

effect of the recent commodi-

ties slump. The message is that

Transnet’s infrastructure devel-

opmentgoals,aimedatpullingup

South Africa’s economy, remain

on track, although there are clear

signs that progress has slowed.

Gamaacknowledgesthedifficult

trading conditions but remains

optimistic aboutTransnet’s infra-

structure development plans. “I

thinkfromaTransnetperspective

in terms of South Africa’s wider

investment and industrialisation

goals, we have [...] a counter-

cyclical investment strategy

that tries to lift the sovereign by

[strengthening]thelogisticsback-

boneofthecountry,”saystheCEO.

These investments, he says,

will stimulate economic growth,

“and in fact, when we have de-

pressed markets, it helps South

Africa [avoid] a depression [and]

continuetocreatesomejobs,albeit

not at the level that we wanted

them to be created, and generally

improve the standard of living.”

SHIFT FROM ROAD TO RAIL

Spending on rail accounts for

about 70% of the company’s in-

vestment strategy, according to

Gama, and Transnet has focused

on “creating new railway lines,

upgrading the existing branch

network, and improving infra-

structure”. The company is trying

toshiftcommoditytransportback

from road to rail. It wants to enter

into new markets “where there

were a lot of commodities that

were being handled by road,” but

where transit was not really a big

player, “especially containersand

automotive”, Gama says.

It was reported as recently as

November that Transnet had set

asideR20bnforacquisitionsinnew

areasincludingfreightforwarding

andshipbrokingandtobuyassets

such as liquid-bulk facilities and

inland terminals. Gama said at

the time that Transnet was even

looking at India and the Middle

East, although its focus would

largelybeontheAfricancontinent.

Transnet is currently active in

neighbouring countries includ-

ing Swaziland, Mozambique,

Zimbabwe, Botswana, Namibia,

Swaziland, Lesotho and the

Democratic Republic of Congo.

The company is looking to en-

ter several new markets soon.

Gama says they will be countries

“where we can have the possi-

bility to invest in infrastructure,

look at port concessions, look at

rail upgrades as well as look at

pipeline opportunities”. Nigeria,

Kenya,Tanzania,Zambia,Senegal,

Togo and Benin are countries the

company is eyeing.

In November Gama said as

much as 25% of revenue could

come from outside South Africa

over the next five to six years. A

few months down the line, this

seems unlikely given current

conditions.

76 DOSSIER| LOGISTICS