It’s the only sector that kept pumping into the fiscus much-needed and higher-than-anticipated tax revenues as prices across key commodities have surged.

But coal, one of South Africa’s star performers among commodities in the last two years, clearly demonstrates Transnet’s missed opportunities.

When Finance Minister Enoch Godongwana presents his medium-term budget policy statement later this month, rest assured that he will have good things to say about mining. If he doesn’t say so in words, the budget numbers to support his policy statement will speak for themselves.

That’s because mining has been good for the national budget since 2020. It’s the only sector that kept pumping into the fiscus much-needed and higher-than-anticipated tax revenues as prices across key commodities have surged.

In his 2022 budget speech in February, Godongwana stated that estimated revenue for the 2021/22 was R1.55 trillion – R182 billion higher than the government’s previous projections. “This positive surprise has come mainly from the mining sector due to higher commodity prices,” Godongwana said.

In the 2021, the then finance minister Tito Mboweni used the mining tax windfall to extend the R350-a-month social relief of distress grant and to address the post-July riots funding requirements. In total, Mboweni allocated R38.9 billion made possible by strong mining tax revenues.

The mining sector can still do more for the fiscus, in addition to creating jobs.

However, it has been throttled by two major constraints. The first is red tape. If President Cyril Ramaphosa can succeed in his plan to cut the red tape in mining regulatory approvals, investment floodgates will open.

The president appointed accomplished businessman Sipho Nkosi as his point-man to cut state red tape that discourages investments. The sooner we hear of Nkosi’s successes the better. In an economy hungry for positive news, any progress – big or small – will most certainly count.

The second problem has been the opportunity costs arising out of Transnet’s constrained capacity to export commodities. Transnet has had to deal with self-inflicted as well external threats to its operations.

The way Transnet managed contracts for the supply of 1 064 locomotives was characterised by legal disputes which constrained the company’s ability to serve clients. This was compounded by brief period of cyberattacks, consistent theft and vandalism of infrastructure.

The consequences were dire for Transnet and the economy. The company admitted in its 2022 annual report that it could not benefit from sky-high commodity prices and its revenue earning potential was severely curtailed.

Coal, one of South Africa’s star performers among commodities in the last two years, clearly demonstrates Transnet’s missed opportunities. For the year ending March 2022, Transnet moved 58.1 million tonnes of coal to the export market against a target of 73.2 million tonnes and down from the previous year’s 66. 3 million tonnes.

Correspondingly, Transnet’s coal export revenue declined from R12 billion to R10.4 billion. Listed companies – among them Exxaro, Thungela and ARM – have highlighted opportunity costs due to Transnet’s constraints.

Transnet’s difficulties have forced miners to shift some its export product from rail to roads. And the risks associated with this were immediately noticeable as trucks undermine the quality of road infrastructure and compromise road safety. The rail-to-road shift is also against Transnet’s own strategy.

Notwithstanding these challenges, there appears to be light at the end of Transnet’s tunnel.

The company is working on solutions to the locomotives contractual dispute, the damage to its infrastructure and on the liberalisation of rail by seeking third-party private sector investors.

On August 31, Transnet and CRRC E-Locco, the locomotives supplier, announced that they had reached an “in-principle agreement towards the resolution of all current legal disputes between the two companies, to enable support to enhance Transnet Freight Rail’s ability to serve customer demand on an urgent basis.” This was music in the ears of exporters.

On September 2, the CEOs of Eskom, Transnet, Prasa and Telkom announced more coordinated efforts to tame the scourge of theft and vandalism of rail infrastructure. This coordinated response, alongside government’s mooted plan to ban scrap metal exports, as well as increased arrests and prosecution of saboteurs, will go a long way in restoring South Africa’s export competitiveness.

The state-owned companies have suffered huge financial losses due to vandalism and theft. Of course, the cost to the broader economy remains incalculable as company after company, particularly in the mining sector, has its own story to tell about opportunity costs.

The importance of being ready to take advantage of a favourable commodity market cannot be over-emphasised.

It is fundamental law of economics that commodity prices are cyclical. They blow hot and cold depending on the factors that determine the mood of the world economy. It is therefore important that we should always be ready to take advantage during favourable times.

We must work towards ensuring that we profit from opportunity gains instead of mourning about opportunity costs. Transnet’s plan to invite interested private sector players to invest in the rail economy is therefore crucial.

Competent private sector players can compliment Transnet and help it realise its strategic goals to increase rail capacity and efficiencies.

If Transnet’s leadership executes such plans to serve the South African economy, there is a real possibility that we could see the reversal freight rail decline of five percent that was experienced in the last financial year. In fact, year-on-year increase in commodity volumes on rail can – and must – be achieved.

Transnet is too important for mining, currently the cash cow of the fiscus. So, both private sector investors and the state should do whatever is required to ensure that Transnet succeeds.

This opinion piece was published in News24: https://www.news24.com/fin24/Opinion/opinion-mining-gave-the-fiscus-a-shot-in-the-arm-and-transnet-cant-be-allowed-to-derail-it-20221005