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Getting back on track

Chris Hattingh, Executive Director, Centre for Risk Analysis

IN 2022 Exxaro (by production the country’s biggest coal miner) exported 5,2 million tons of coal. For 2023 it expects overall volumes to be 1,6% lower than in 2022, or around 5,1 million tons. 

That the company has managed to keep volumes somewhat level – despite the numerous problems afflicting Transnet – points to the work being done in terms of alternative plans being made, adequate solutions being tested, and demand for South African commodities persisting. 

The latter aspect is by no means a given, as the world heads into a tighter growth period (with interest rates higher for longer) in 2024. But the key takeaway here is that should some measure of reform take place in the rail and port spaces, South African miners, farmers, and others stand to benefit. 

The country’s export capacity is coming from a relatively low base in 2022 (at least, compared to its full capacity). The Transnet Freight Rail coal line’s total exports to the Richards Bay Coal Terminal in 2022 totaled about 50 million tons (the worst performance since 1993). This year Exxaro expects the total to come in at about 47 million tons. 

With about 110 000 people directly employed (according to the National Association of Automobile Manufacturers of South Africa), the automotive industry is a pillar of the country’s economy. 

At 4,9% of GPD, and 12,4% of exports in 2022, the industry is vital for economic growth and job creation. One of the industry’s largest export markets is the European Union (EU). From 2026 the EU’s Carbon Border Adjustment Mechanism comes into effect (a carbon tariff on carbon intensive products). 

The sale of new internal combustion engine (ICE) vehicles was also due to start from 2035, but uncertainties persist. Any sort of restriction or ban on imported ICE would be very bad news for South Africa’s automotive sector. 

As Trade, Industry, and Competition minister Ebrahim Patel correctly stated on 4 December, “We do need to solve the energy and transport logistic issues absolutely urgently.”

This was in the context of discussing South Africa’s building of electric vehicles (EVs) production capacity. The minister elaborated, “The producing side requires transport logistics. When components are stuck in a port, then they undermine the ability to cost-effectively produce vehicles. And then, of course, the finished cars should not be sitting in factory warehouses. They’ve got to get to the market.” 

Transnet’s struggles come even more strongly to the fore, then. Absent reliable, cheaper rail transport options, EV production – as well as other materials and components needed for greener technologies – is all the more time-consuming and expensive than it should be. 

The building of renewable energy value and supply chains will remain far off, costlier and delayed; with the very real prospect that South Africa will lose out to countries like Morocco that are stepping up their production game. The improvement of Transnet’s capacities across rail and ports is therefore of utmost importance.

2024 might prove to be a year during which the trade hubs that are Cape Town and Durban take over at least some measure of port operations, bringing in private sector skills, improving processes, and investment. It is not only tax revenues that South Africa risks losing out on. 

The country’s reputation as a hub for trade in the sub-Saharan African region is at risk, perhaps more so than at any point in the last 30 years. 

It should never have reached such a dire situation. But the sense of urgency seen recently from the Transnet board can now be built upon and used going forward.

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