Transnet on Africa Strategy

Meeting report

Transnet Africa Strategy: briefing 
Mr Siyabonga Gama, Acting Group Chief Executive, Transnet, said rail freight volumes in Africa were low because of a lack of rail infrastructure. Transnet’s cross border strategy saw the development of four big  shipping hubs with rail connectivity. These included , in East Africa, Dar es Salaam in Tanzania and Mombasa in Kenya. In West Africa the hubs were based in Ghana and Nigeria. In Central Africa there were hubs in the Democratic Republic of Congo (DRC) and even in the East  African islands, with Mauritius also being a hub. Transnet would open satellite offices through Transnet International Holdings (TIH).

He presented a SWOT analysis for Transnet’s entry into the rest of Africa. For its strengths, he noted that it had a proven operational capability, was a trusted brand, was the leading logistics company in Africa and the Middle East, ran accredited training programmes, was willing to partner and or collaborate with other entities and could offer an integrated pipeline, rail and maritime offering.

Africa was home to seven of the ten fastest growing economies and there were major opportunities for the hitherto largely neglected rail infrastructure, in the transportation of mined minerals, especially given Africa's endowment with a variety of minerals. This would also diversify revenue income in foreign currency. The market was very big and opportunities lay in the containerisation of products. Most African ports lacked deep water berths. The growth in the oil and gas sector with increased exploration activities offered opportunities for pipeline contracts.

Transnet expected intense competition from global operators who had an established presence in sub Saharan Africa.  Cheap capital from China meant South African development finance institutions (DFIs) struggled to compete but needed to be brought along. Other threats were the poor policy and regulatory environment in Africa, and political risks. Specific risks for Transnet's entry into the field were also set out.

The Transnet Africa Strategy had four key revenue drivers. The first was increased rail volumes. The second was export sales of wagons and locomotives. Thirdly, it planned the geographic expansion of port, rail and pipeline operations through concession agreements and management contracts. Transnet was currently exploring opportunities in Benin, Nigeria, Guinea, Kenya, Tanzania, SADC countries, Burundi, Rwanda, Tanzania, and the North- South Corridor. The fourth strategy explored potential opportunities in pipelines from Djibouti to Ethiopia, from Hoima to the Port of Lamu, and the Gasnosu pipeline in Mozambique.

The presentation then spoke to the Governance / Operating Model. The Department of Public Enterprises (DPE) hosted a monthly Africa Steering Committee. The forum consolidated the initiatives being pursued in Africa by State Owned Companies (SOCs) with the focus being on how DPE and the Department of International Relations (DIRCO) could support the SOCs. Transnet International Holdings (TIH) would be a wholly owned subsidiary of Transnet and be incorporated in South Africa.

Discussion
Mr N Singh (IFP) said two highly likely risks were global competition and political tension. He asked who the competitors of Transnet were, and how Transnet was intending to mitigate the political instability in African countries, in respect of road to rail conversion,

Dr Z Luyenge (ANC) said that more resources would be required to make Transnet operations sustainable and able to face the stiff competition. He asked what method was used to establish relationships with the Development Bank of South Africa (DBSA).

Mr R Tseli (ANC) said there had been a constant change of ministers of transport and Director Generals in the Department of Transport, and asked for comment on whether this was considered a risk. He asked what role DIRCO was playing in regard to Transnet entering agreements. He also wanted to know what strategy was in place to ensure government employment targets were met, and what criteria were required for the training schools.

Mr N Kwankwa (UDM) said political instability affected risk and investment. He asked that more clarity be given on the pipeline projects. He asked also how much revenue the Africa strategy was expected to generate.

Mr Gama said political tension and instability were risks and the most important role of all was keeping political stability in balance. There were many commercial credit insurance institutions available, but all of them had the potential that an investor might not get all money invested back.

He said there were a number of global operators looking at the same opportunities. Some were competitors, but they also viewed Transnet as a necessary partner in certain instances. In container operations, the industry leaders included several global players. DPW focussed on containers. Others were DP World, ITSi, APM Terminals and Hutchinson.

Transnet was not new to African operations and had previously been operating in Togo and even in Brazil. Transnet was a reputable, respected company in the global logistics market. In some instances operations would be done on a project basis. The projects had to be feasible and financially sustainable and Transnet would factor the political risk into its calculations. In African countries, control was held by the ministers and DGs, and as a matter of policy Transnet engaged with partners on the understanding that Transnet was working in areas with political instability.

Mr Gama noted that in regard to the road to rail strategy, Transnet  partnered with local rail and port authorities to manage the political risk, and was also using the road to rail strategy to train and skill the local workforce, through Transnet’s training schools and courses. Transnet preferred to use local skills, as it helped reduce risk.

Transnet had already done 10.6m tonnes of freight but this figure was increasing to more than 18m tonnes and revenue was growing significantly. Transnet would like to achieve a far bigger number from cross border operations. The figures presented were conservative in nature.

In 2014/15, revenue was R3.1 billion and in the current financial year it was targeted at R4.7 billion, with an expectation that it should be R20.5 billion in 2021/2, of which R 2.7 billion would be from locomotive and wagon sales.

The Chairperson asked if government contributed .

Ms Nyameka Madikizela, Executive Manager: International Business, Transnet, said that in some countries Transnet’s skill in being able to bring funding was an advantage. Other advantages were that it also did have some resources and could bring in refurbished rather than new stock which would reduce the initial costs.

Ms Charlotte Hajat, Executive Manager, Business Development: Africa Strategy, Transnet, said targets of 12.5% had been set. Transnet attended monthly meetings with SA corporates and held meetings with DIRCO and DPE at the feasibility stage.

She said Transnet did have an understanding of potential revenue. In Nigeria it had been short listed. In Benin, core operations were being negotiated.

Mr Gama said the Transnet schools were owned by Transnet. Many countries did not have these type of academies and Transnet brought people from these countries to South Africa for training. In this way it contributed through capacity building and skills transfer. It had a rail partnership with the University of Glasgow Caledonian, and with the Rotterdam Institute of Maritime Studies, as well as with SA universities like Wits and UCT. Transnet’s qualifications were globally accepted. Countries that used to send people overseas and pay in dollars could get an equivalent education for less money by training them in South Africa.

He said he could not give specific numbers regarding employment creation figures in South Africa, but that
7 000 Transnet jobs would be created. Through the multiplier effect, this would result in 28 000 jobs being created elsewhere. He expected  208 000 jobs to be created through the investments that were being made.

The Chairperson asked for comment on the role of SOCs in other countries.

Mr Gama replied that the Mozambique Ports and Rail (CFM) entity all sat together in the case of Mozambique, and played an enabling role regarding their own government's objectives. He said South African SOCs had also provided guidance to Transnet.

The meeting was adjourned.