Ports Reform: Devil in the Details

In theory, our ports could be transformed. However, there are many questions that investors will ask before they commit – and those will largely be about control, says Chris Hattingh.

StatsSA recently announced that, by the end of Q2 2021, the economy had experienced its fourth consecutive quarter of growth: 1,2% in Q2. Taken within the broader context of the damage wrought by over a decade of misguided policies, and then Covid-19 lockdowns, South Africa needs a much higher growth rate over a sustained period – in the region of 5 to 10%. That kind of growth will not simply come out of nowhere."Structural reform" has been the buzzword in South Africa for the last two years. But rhetoric and talk shops are not enough to unlock the kind of radical, pro-transformational growth that the country needs.

Reforms Must Come With a Change in Control

What matters the most regarding reform is the type of reform that is implemented: reforms that do not actually roll back the control that the state has over virtually all aspects of business activity and everyday life, that do not give entrepreneurs more breathing room, are largely meaningless. Nowhere is this truer than in the vital sectors of trade, shipping and rail.

Regarding plans by Transnet – the owner and operator of the state-owned port – to seek R100 billion in private investment to expand its facilities in Durban and Ngqura (Coega), Transnet chair Popo Molefe sent out a clear message to private investors, because the state-owned entity (SOE) has neither the funds nor the expertise to fix itself:

"Once we bring in the private sector they bring to bear on the operational side of the infrastructural projects, such as our port terminals, their skills, expertise and experience, and the most modern technology that we need but cannot afford. We have issued the request for information [RFI]. The business model for infrastructure investment will arise out of how they respond."

Before we get too excited about radical reforms, though, the focus should be on the fact that Molefe said no decision has been taken on whether private investors will be allowed to control the projects they invest in. Given the South African government's track record of fiscal irresponsibility and mismanagement of SOEs – to the cost of private sector activity and the very citizens whom these entities are supposed to serve – will any local or foreign investors want to sink money and expertise into Transnet projects over which they ultimately have no control?

What About Political Interference?

Much like the mere contemplation of expropriation without compensation has discouraged new investment in South Africa, so too will the spectre of arbitrary, knee-jerk political interference hang over any possible investment in ports. And while we should put pressure on government to get the ball rolling and to stick to any new business models that are drawn up, we must also ensure that bigger corporates and investors don't use their influence to unduly skew any final decisions in their favour.

South African has ridden a commodities boom over the past six months but this will not last forever. A short-term, externally caused upsurge cannot paper over long-term ideological and practical shortcomings in an economy and business environment. The sooner government provides certainty that investments will be allowed and not interfered with, the sooner South Africa's ports and railway network can be improved – along with all the job opportunities such improvements would bring.

Dismal Ranking for SA Ports

The 2021 World Bank and IHS Markit global Container Port Performance Index ranked South Africa's ports at the very bottom. Out of 351 facilities, the Index ranked Cape Town at 347th, Port Elizabeth at 348th, Durban at 349th, and Ngqura at 315th. Unfortunately, Transnet is expected to finalise and approve bids in port investment by June 2022 only – the country simply cannot afford to wait that long.

Delays at ports do not only impact exporters and importers – everyone down the various supply chains to consumers suffers. Port delays and inefficiencies are a form of non-tariff trade barrier (NTB), which act to increase the cost of transporting goods and services across the world. Other forms of NTBs are corruption, or delays in permit-granting. NTBs might not be directly caused by government legislation or policies, but many of these are within government's power and ambit to alleviate as much as possible.

Potential Investment Awaits

There is much interest and need in the South African economy, and many local and foreign investors will jump at opportunities to invest. Such investment would benefit both the investors as well as people who can then work at those businesses or on their projects.

But government should not take it for granted that investment will simply happen on its own. Misguided policies have hurt the economy over many years, to the point where we now have an unemployment rate of more than 44%.

If government were to implement the correct reforms – such as encouraging private sector investment in ports and rail – and remove as many barriers as possible, capital will flow into those sectors again.

This article was first published on FOCUS on 20 October 2021.

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