Ensuring SA’s mining sector stays healthy is in the national interest. But that depends on functional logistics too.

When the mining sector sneezes, the South African economy catches a cold. The symptoms are visible in the national budget.

A healthy mining sector translates to a decent contribution to tax revenues, largely because of the sector’s foreign currency earning potential and the payment of royalties to the state.

This means, logically, ensuring that South Africa’s mining sector stays in good health is in the national interest.

The opening statement of the 2024 budget review that Finance Minister Enoch Godongwana presented in parliament sums it up. “Tax revenue performed better than expected in 2021/22 and 2022/23 largely as a result of higher commodity prices,” it says.

In those two financial years, mining taxes gave the government room to maintain some of its expenditure priorities. There was also fiscal space to implement measures to mitigate the effects of the pandemic.

However, it is generally accepted that South Africa didn’t profit fully – and we still aren’t – because of logistics constraints to mining exports. We can only imagine what the government could have achieved in tax collections had we fully exploited the good commodity prices and emptied stockpiles from the mines.

The Minerals Council of South Africa estimates the opportunity costs were R35 billion in 2021 and R50 billion in 2022.

Transnet, which constrained rail exports, sadly missed opportunities because it earns income per ton railed and shipped in the case of its port operations. Rail volumes on its two cash-cow commodities – iron ore and coal – have declined over the last six years. Iron ore declined from 58. 5Mt in 2017/18 to 51Mt in 2022/23. Coal declined from 77Mtn to 48Mt over the same period. The urgent reversal of the decline, as the company itself has promised, is important.

Commodity prices have since softened in the last year and a half, threatening jobs in the absence of rail capacity. The 2024 Budget Review includes Transnet in the mix of factors alongside decline in commodity prices that have caused a R39.2 billion drop mining tax revenue.

While the government cannot determine favourable commodity prices, the trajectory of Transnet’s performance falls squarely within its control. Stakeholders that are dependent on Transnet, including the mining sector, can chip in when required. We have no option but to support Transnet and make sure it works as efficiently as it should for the entire economy.

Transnet’s recovery plan, which involves “crowding in” private sector investments, needs backing from all stakeholders. Trade union leaders, who are often skeptical of private investments in state-owned companies, must appreciate that a working Transnet is good for workers across all export sectors.

A Transnet that doesn’t work properly poses a risk to jobs not only within the logistics firm itself, but also in the various export sectors it services. Rudi Dicks, the head of the project management office in the Presidency, was recently quoted urging companies to hold back on retrenchments while government was tackling the logistics constraints.

This gives the good impression that we are about to see progress. Minister Godongwana’s budget speech has hopefully added to the impetus to get Transnet back on track. In fact, there is no option: Transnet must work.

Vigilance is required in the implementation of the recovery plan to make sure that it achieves the intended purpose of making Transnet competitive, and not burden it with unnecessary bureaucracy. Allowing private sector players is good because they’ll bring in capital, which the debt-burdened logistics company doesn’t have, and contribute to efficiencies.

There is a glimmer of hope that the company might just be on the verge of being turned around. The first indication was the report by the Department of Public Enterprises that under Michelle Phillips, Transnet’s acting group chief executive who has since been confirmed for a permanent appointment, there has been improvements in the rail and ports efficiencies.

The second was that under Russell Baatjies, the acting Transnet Freight Rail chief executive who has also been confirmed for a permanent appointment, the company signed a collaborative agreement with Sasol. This allows Sasol to fund the maintenance and repair of a dedicated fleet of 128 amonia tankers.

These positive developments should be welcome, and Transnet should build on them. The newly appointed executives should look no further than the recent history of mistakes to learn. Promising starts often ended in disaster. In 2012, Transnet adopted the Market Demand Strategy, incorporation important goals such as economic growth, job creation, reducing costs of logistics, meeting freight demand and improving service delivery. Transnet Freight Rail, the operating division, aspired to be among the top five railway firms in the world.

The strategy was executed through, among other things, the procurement of new locomotives to improve capacity. It was a good idea. But something went terribly wrong when a litany of costly mistakes was made in that process.

And in the process of correcting the wrongs, the company was plunged into further trouble with a leadership instability and a skills flight that compromised its capabilities.

We must make sure history doesn’t repeat itself. Let’s not take for granted that the new recovery plan will automatically produce results and the Presidency-driven crisis intervention measures will bear fruit simply because they are being executed with good intentions. There must be a determination by all involved that these initiatives are implemented speedily and properly until we see the desired results.

The major economic story of 2024/25 must be the return of Transnet to its competitive position as it seeks to move 190Mt of total freight and get out of the loss-making position. If it stays on track, Transnet will help the mining sector survive low price cycles and to take advantage of upswings when they occur. It can only be good for the exports, tax revenue and jobs.

This opinion piece was published in News24: https://www.news24.com/fin24/opinion/vuslat-bayoglu-why-transnet-must-get-back-on-track-fast-20240313