Railways AfricaTM

Issue: 2 - 2017

An upswing in global commodity prices may offer some welcome relief to the global freight industry, after the protracted slump in commodity prices following the global economic recession. The World Bank’s recent Commodity Markets Outlook Report forecasts higher prices for industrial commodities, principally energy and metals, for the 2017/18 financial year. Global prices for energy commodities are projected to increase by 26% this year and a further 8% in 2018. In line with oil price forecasts, natural gas is anticipated to gain 15% this year, led by a jump in U.S. prices. Coal is seen climbing 6% in 2017, due to earlier supply restrictions in China, which consumes half of the world’s coal output.

Prices for non-energy commodities, which include agriculture, fertilisers, as well as metals and minerals, are also forecast to increase - the first rise in five years. Metal prices are projected to jump 16% this year due to strong demand, especially from China, and supply constraints, including mine disruptions in Chile, Indonesia and Peru. Labour strikes and contractual disputes at several large mines have contributed to higher copper prices. However, precious metals are expected to decline by 1% this year and a further 1% in 2018, as benchmark interest rates rise and safe-haven buying ebbs. The Commodity Markets Outlook Report provides detailed market analysis for major commodity groups, including energy, metals, agriculture, precious metals, and fertilisers. The report includes price forecasts to 2030 for 46 commodities and provides historical price data. 

Closer to home, there seems to be a shimmer of hope for the National Railways of Zimbabwe (NRZ), as it was recently announced that the Zimbabwean cabinet had approved the railway operator’s ambitious recapitalisation programme. Integral to the programme is the drive to seek private partnerships to strengthen the organisation, which currently finds itself in a state of disrepair. The NRZ is currently operating at a serious deficit; employees are reportedly owed nearly US$100 million in unpaid wages amid continued layoffs. Officials seem adamant that the bid process will be opened to the market shortly, starting in May 2017.

The Société d’Exploitation du Transgabonais (SETRAG)¹, a COMILOG subsidiary and a part of the French mining group ERAMET, is preparing for an ambitious modernisation and upgrade programme valued at approximately €400 million². The programme, scheduled to start this year, is expected to be rolled out over an eight-year period. The Trans-Gabon railway crosses Gabon, from Libreville to Franceville, over a distance of 710km and has 52 engineering structures and 22 stations³. SETRAG operates the railway within the framework of a concession agreement drawn up in 2005 and updated in 2015. According to the agreement, SETRAG manages the infrastructure, traffic and railway operations including passenger and freight services.

In South Africa, things look a little different. I am not sure how industry is fairing with the Passenger Rail Agency of South Africa (PRASA) and Transnet at present as I recently came across a frightening statistic indicating that PRASA has a budget deficit of R1.8 billion, with its current wage bill taking up 64% of its expenditure. This is before the 2017 wage increase comes into effect and, of course, the inevitable impact of strike action.

I have also been told that tenders have been significantly delayed, payment for work completed is slower than ever and, in some instances, no orders are being placed. This begs me to ask the question: “What - if anything - is happening to remedy the situation?” I would like to know if the Department of Trade and Industry (the dti) is taking into account the negative impact of ineffective decision making within State Owned Entities (SOE) has on industry and the policies they have so carefully crafted?

“Gear up, invest in facilities, create jobs” is what the policy dictates. However, projects stall during implementation. The impact - massive retrenchments, no new hires and an inability to service the debt incurred. It boggles my mind that we just accept it. Suppliers are held to account for the slightest hiccup, yet there are no penalties for the SOE and little consideration of the border socio-economic impact! Surely, there needs to be greater cohesion within all spheres of government to protect against this?

This leads me to the latest report issued by the African Development Bank (AfDB), which in part reiterates my thinking – all that money, with very little impact. A recent press release, titled “AfDB assesses results of US$5 billion investment in South Africa” (which by the time you get this magazine would have run on our News Express) looks at the broader value of the US$5 billion investment. Since the funding was mainly on-lent outside of South Africa, it failed to address the AfDB’s objective of providing support to small and medium enterprises, or the issue of inequality or inclusive growth inside South Africa. Citing the Medupi Coal Power Plant project as one example - the projected lifespan of the Medupi Coal Power Plant is over 50 years. However, the late delivery and the cost overruns of the project have caused power insecurity and hence damage to the economy.

According to the AfDB evaluator general, Rakesh Nangia: “The report offers a thorough analysis of Bank performance and also of the limitations of the AfDB’s positioning in the South African context. Across its work in finance and infrastructure, stakeholders in South Africa saw the AfDB as simply a financier, rather than a value-adding knowledge provider and capacity supporter. The AfDB must think carefully about its comparative advantage and innovatively about funding instruments for the future.

Transnet forms part of this report with relatively similar results. The report makes for riveting reading. Not only does it deal with the lessons that the lending institution has learnt from doing business in South Africa but also highlights South Africa’s need for improved policy as well knowledge and capacity building to manage infrastructure projects and procurement programmes to affect the desired socio-economic impact that underlines policy and essentially the backbone to any infrastructure project – create jobs, build a better society, and improve the lives of citizens, amongst others of course!

The full report can be read at http://idev.afdb.org/en/document/south-africa-evaluation-banks-country-strategy-and-program-2004-2015