Africa’s Railway Economic Regulatory Choices for the Best Balance of Payments & Sector Development

GAINS from Railway Concession and Railway Open Access Regulatory Regimes

International trade, in simplicity, refers to import and export exchanges and activities between nations, i.e. involving exchange of goods, services and technology. Balance of payments measures how money flows across a country's borders over a specific period. According to Investopedia (2025) Balance of payments record the value of a country's exports and imports, as well as the flows of investments and loans, and remittances by workers. Each country wants to increase net benefits from trade by either:

• Ensuring higher revenue value from export earnings compared to the net import expenses.
• Ensuring upstream value generation from imported goods and services triggers economic growth with multiplier effects of enhancing the value and future of domestic productivity to enhance export capacity.
• Transporting its exports more cheaply (in bulk and more efficiently) to optimize economies of scale such that more volumes are traded making the country’s exports more cost competitive compared to other countries exporting to the same markets.
• Transporting its imports more cheaply (in bulk and efficiently) to optimize economies of scale such that more volumes are trades in making the country’s imports less costly especially to the end users- domestic production inputs being cheaper makes the outputs produced cheaper and more attractive for export against competitors.

For both exports and imports trade, bulk and efficient transportation and logistics value chains are a significant enabling factor. Whilst surface transport competition is between road freight trucks and railways, both have unique absolute advantages whilst at the same time, they have comparative advantages. The comparative advantages relative to international surface transport enabled trade may be understood as Intermodal competition between road freight transporters and railway transporters.

Inter-modal transport competition may be understood as a situation in which alternative modes of transport exist between two points; in the case of trade corridor end-to-end points, the alternative transport modes being freight trucks and the railways. Variables that determine the market power of the alternatives and competitiveness in this regard include capacity, speed, comfort, reliability, and security, amongst other customer requirements. According to the OECD (2003), road freight transport is preferred over rail amongst other transport modes because it offers the last mile point-to-point service, enhancing the speed of end-to-end service, and reducing the need for trans-shipment. This minimizes the risk of breakage or loss and allows for surveillance of the cargo as a unit from its origin to its destination. Railways on the other hand argue for their absolute advantages of bulk and heavy cargo movement as a significant variable giving them capacity to deliver large volumes at once. Whilst the variables determining market power can be considered as cut-throat competition factors of consideration, the variables which give absolute advantage to the railways may be enhanced by completing rail with road as first and last mile logistics partners.

Martland (1999) argued that the primary difference between the road freight industry and the railway industry is the ease of entry and exit from the industry. Further, the road freight industry is more of a perfectly competitive industry because it presents itself as an economic model wherein competition, market entry and exit and a generally homogeneous product work together to force rates towards the minimum long-run average variable cost. Firms that can produce most efficiently survive, but the less efficient do not. Martland deduced that a significant side-effect of road competitiveness is that these eventual average minimum road rates stand as a constraint to rail rates. To be competitive against the road trucking transportation, the railway market needs to maximize from variables, such as those of its comparative advantage (e.g. bulk and heavier cargo carriage and delivery within one service design), which give accrual of benefits of economies of scale.

In the Southern African Development Community (SADC), the last five (5) years post the corona virus 2019 pandemic have witnessed increased railway sector economic reforms aimed at making railway transport corridors more competitive. Whilst from time in memorial, SADC railways have been vertically integrated (infrastructure management and rollingstock operations) under government ownership and operations most of the 11 SADC railway corridors are now considering alternative railway economic regulation operating regimes. According to Sakanga (2024) there are four categories of railway economic regulation operating regimes or times:

1. Concession or Franchise: A regulatory regime where the railway infrastructure management and rolling stock operations are franchised to the responsibility of a private operator for a fixed period time using terms and conditions agreed by the parties and constituting the Concession agreement. The State assumes a regulatory role using the ‘Concession agreement’ as the regulatory instrument. Examples of this are practice in Argentina, Brazil, Nacala corridor, Benguela Railway on Lobito Corridor.
2. Vertical Integration: is an approach where a railway company owns and manages both their rolling stock and infrastructure. Examples are Japan, USA, Canada and post African railway post-independence period as is currently practiced in Mozambique by Mozambique Ports and Railways and also in Botswana by Botswana Railways and in Namibia by TransNamib. Note: These companies may, under (third party access agreements) allow for private sector operators to access the use of their infrastructure and support services.
3. Vertical (holding) Separation: This is the practice like that of Germany and Russia where, the national railway system is under an integrated company having accounts for railway infrastructure manager, transport operating activities and services including signalling and communication being under different specialized legal holdings in terms of accounting, budgeting and independent financial results. The industry, therefore, operates as a competitive market where the several legally separated legal persona companies control infrastructure charges, infrastructure capacity distribution, maintenance, and the other aspects of the railway system planning and operational processes.
4. Vertical Separation: a process that increases the number of independent actors interacting with one another, thus diffusing the governance of the system and potentially rendering each single actor less responsible towards the end user. It pronounces a recognition of complementarity between privatization of the railways and vertical separation. Illustratively, because of vertical separation between control of the infrastructure e.g. by Australia Rail Track Corporation (ARTC) and running the trains e. train operators such as Pacific National-PN, each participant has different objectives. ARTC sells capacity and so is interested in finding ways of running more trains. PN wants competitive travel times at the least operating cost.

A decision on the type of railway economic regulation regime to adopt can be influenced by various factors and objectives. The reasons may be:

• private sector interests especially in light of profit seeking behaviour; or
• increasing railway rollingstock capacity on a railway corridor or in a railway market; or

• mobilizing resources for infrastructure rehabilitation and enhancing of rollingstock capacity; or
• expansion of a railway market by introducing multiple players for different aspects of the railway sector; or
• new railway infrastructure development investment initiative
• Public sector interests may be summarized as per alluded to national goals relative to international trade and surplus balance of payments.

With the above stated, an interesting juxtaposition of the Railway Concession to Railway Open Access can be regarded as below:

The above direct and indirect juxtaposition of Concession vs Open Access railway economic regulation regimes are explained in detail by TRANSNOMICS Consultants. The rational lies on Rail Infrastructure Management and development and separated of infrastructure management from rail operations which gives the rail infrastructure manager, developer, and rights owner the option to add more operators to run trains on the track infrastructure in competition or on restricted track section slot and/or freight allocations.

What is most important in structuring the effective option is the Objective behind of the Rail Economic regulation employed. Overall balanced Success and objectives implementations will depend on:

• Stakeholder understanding and acceptance of the objective.
• Effective executive interpretation of the objective by the Infrastructure Manager and rights owner.
• Risk management in monitoring and application of the rules of the Economic Regulation option employed- responsibility and impartiality.
• Fundamentally, the security and safety of the track infrastructure and rolling stock.

Engage TRANSOMICS Consultants for advice on structuring SMART railway economic regulation objectives for the balanced growth and competitiveness of your railway sector.

Profile Summary

Dr. Lubinda Mufalo Sakanga is transport economist specialised in economic regulation, project and operations management. He has over 17 years of progressive transport sector experience gained at national and international levels. He worked in the public sector from 2006 to 2017 (Zambia) as a Senior Transport Economist position and progressively promoted to Assistant Director for Road and Rail. From 2017 to date, he serves the SADC region as Southern African Railways Association- Director Technical and Operations in charge of Programmes Coordination (Rail transport corridor development, policy, projects coordination and resource mobilization). Dr. Sakanga also provides transport, infrastructure, economic policy & operations management TRANSNOMICS consultancy services. His professional experience is complemented by astute academic qualifications: PhD degree in Operations Management under the Faculty of Engineering and the Built Environment of the University of Johannesburg in South Africa. He has developed a regional railway corridor economic regulatory framework for sustainable economic development in SADC. He has a Master of Science degree in Project Management from University of Salford, a Master of Arts Degree in Economic Policy Management, and a Bachelor of Arts Degree in Economics from the University of Zambia. In addition, he holds professional certificates in Infrastructure and Public Private Partnership Financing, Road Management & Transport Technology, Business Accounting, amongst others. He champions the TRANSNOMICS philosophy.

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