OPINION | Transport SOEs: A crucial link in SA's economic recovery

Entering the Covid-19 pandemic, the transport economy's performance had declined by 0.4% in the 1st Quarter of 2020, compared to the 4th Quarter of 2019.

Other sectors were down by between 0.8% to 6.9%, according to the March 2020 Quarterly Bulletin from SARB.

National Treasury's most recent recovery report highlights how the transport sector is exposed -3.5% direct contractions and -4.5% in total, compared with the range between -1.4% (in government services) and -14.2% (in construction).

The underlying machinery for economic recovery is hinged upon how the transport sector's role is accounted for in all other sectors. Consider the fact that all industries are dependent on transportation costs, travel times, and spatial distribution. This interdependence holds structural limitations together.

Rail: the backbone

Rail transport is the backbone of many economies because of its capacity to transport large volumes of people and goods, affordability gains when subsidised, encourage multi-modalism and attract long-term land-use development. Regional trade depends on domestic production, regional demand and low transport costs.

The IMF argues that given the proximity gap in Africa a "reduction in ground transport costs is especially critical to encouraging intraregional trade". But Transnet Ltd has been transporting less than 30% of the freight tons in SA for as long as StatsSA data can report; while the Passenger Rail Agency of SA's (Prasa) Metrorail has been losing passenger volumes from 50 million passenger journeys at a peak month in 2013 dipping as low as 7 million passenger journeys in December 2019.

Prasa's crisis under administration is stirring deeper challenges, while the Gautrain's model for passenger transport awaits extension. Unlocking SA's logistics underpinned by finding a harmonious interface between ports, road, air and rail transport for passengers and goods.

What's happening in Cabinet?

What have the ministries in Cabinet placed on the table?

Ministries in Cabinet are juggling policy baskets with different timeframes at every media briefing.

The short-term baskets, which require urgent attention and require rapid iteration. Then there are the medium to long-term baskets which need important policy reforms and shifts toward more dynamic entities. Both of these are equally critical. Navigating through these short and long-term tides involves capital, partnerships and a shift from administrative legislation toward sophisticated economic regulation.

National Treasury and the Transport Ministry (DoT) are inherently intertwined in formulating a policy position which could unlock the transport economy's potential.

The role of the Department of Public Enterprises as the custodian of SOEs, appears to hinge on its influence on behalf of the state, as a shareholder, in the absence of the Single Transport Economic Regulator. From the policy pronouncements, SA may be entering a cycle wherein rail transport markets become more corporate-like, deregulated and liberalised by absorbing new entrants that compete to unlock efficiencies and benefits for all classes in society.

Competition for efficiency in network industry monopolies

National Treasury argued last week that the corporatisation and liberalision of network industries as among the instruments the country needs to unlock its potential. More specifically, they said separating infrastructure from operations is a key avenue release the monopolies in freight and passenger rail transport.

Such a path inadvertently implements the White Paper on Rail Transport Policy, which places emphasis on inducing a shift from road to rail transport through improve rail transport operations, service strategies and infrastructure. For passenger movement it implies more efficient regional mobility with more passengers off highways, urban motorways and road based public transport.

For freight transport this does not usually translate in fewer payloads for road transport, instead it incentivises more goods in freight rail with appropriately integrated intermodal networks. Making road freight an essential part of the network. If done right, and through an appropriate series of partnership, financing and land-use efforts it may result in various social and economic benefits.

Introducing more competition in transport monopolies found in railways, ports and interchanges may place upward pressure on efficiencies. The efficiencies come from customer orientation embedded in the process of reforming transport industries. However, competition does not always mean introducing the private sector entirely. Some countries introduced new state agencies that are regulated in such a way that they're mandated to compete. Thus, the range of options is great and depends on the political ideology, fiscal position and incentives for 'accumulation by dispossession'.

A platform for competition

Furthermore, Treasury also advocates for unlocking national ports into competitive markets, through corporatising the Transnet National Port Authority.

This requires unbundling Transnet Ltd in order to attract a competitive freight industry on the basis of efficiency.

The Minister of Transport's strategic statement on ports on October 15 2019 highlighted the need to accelerate investments in port infrastructure, efficiencies and a regulatory authority in order to relieve the ports from severe strain.

A study by Jan Havenga reveals that the benefits of appropriate intermodal transport infrastructure in the South African logistics networks could reduce transport costs by 64%. It is evident that a competent feasibility study should already follow the urgency of the pronouncements, particularly through the DPE.

Efficient transport interchanges between various transport modes for passengers is also justified, particularly in the urban and regional travel markets. With the findings of the Competition Commission against the Passenger Rail Agency of South Africa for favourable treatment of its subsidiary AutoPax indicating "an abuse of its dominant position as monopoly provider of the only intermodal facility in Johannesburg in contravention of the Competition Act". With the Joburg International Transport Interchange (JITI) nearing completion, evidence based regulation of these interchanges from operations is pivotal for ensuring fair and competitive practice across land-use development, diversification and market access.

Bridging the gap between Prasa, Gautrain and Transnet

For both passenger and freight markets, a transport interchange authority or regulator in charge of land-based passenger movement will be necessary. These networks can connect economic zones along corridors similar to the model in India, the Delhi Mumbai Industrial Corridor, and they could feed into regional airports and larger aerotropoli. The regulatory entity may be similar to relationship between the Civil Aviation Authority and Airports Company South Africa—one independent authority, and hopefully various interchange agencies and multiple transport providers competing.

New frontiers

This is where the DoT comes in to play: drafting the enabling legislation to realise this new frontier. If for instance Chauke and Maluleke's proposals in 2005 involve spreading the risks of finance, ownership and operations in the most optimal manner between the public and private sector for transport projects.

Following them, Transnet Ltd may become the custodian for rail infrastructure, but private firms may be tasked with building standard gauge lines and providing freight services.

New operators could also compete with Prasa's Metrorail and Shosholoza Meyl on or for the tracks, but this might be initiated by expanding the Gautrain's business model to these subsidiaries of Prasa.

Tying them up to development clusters through land-use incentives, and stimulating multimodal interchanges with mixed land-uses could reduce the cost of transport in urban and rural areas at scale.

Neither of these possibilities are far from the competitive, and unbundled tone of National Treasury's economic policy discussion document. Nor are they outside of DoT's White Paper on Rail Transport Policy. For the DPE, getting out of the pandemic with a seemly set policy course, comes with an unusually opaque journey.

Ofentse Mokwena is a transport economist, lecturer, researcher and podcast host. Views expressed are his own. 

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