SA’s economy won’t grow before supply chain challenges are addressed

South Africa must fix its continued supply chain challenges, which have been the cause of major blockages stifling the export industry, before it can even think of growing its flailing economy.

South Africa sold goods to the value of R1.8 trillion last year but could have exported billions more if our railways and ports were working, our roads were in a good condition, power was reliable, and laws and authorities did not obstruct business.

“Our future is on a knife’s edge with record unemployment, woeful economic growth and the probability of a sovereign debt crisis, while blockage after blockage chokes our economic advance and global competitiveness,” says Ernest Lai King, consultant at Girard Hayward Inc and MD of 1 Road Consulting.

If these challenges are resolved, a massive pent-up flood of investment will flow, he says.

“We are a resilient people. We have looked into the abyss many times and every time we have stepped back. South Africa still stands albeit unsteady on its feet.”

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Supply chain blockages

According to recent World Economic Forum (WEF) statistics, the quality of South Africa’s port infrastructure is ranked at just 4.8 out of 7 points, lagging behind other emerging markets such as Chile at 4.9 and Namibia at 5.2.

The quality of the country’s railways is of even greater concern, ranked at just 3 out of 7 points, below Tanzania at 3.2, Botswana at 3.6 and Kenya at 4.

King says another blockage is restrictive legislation and administrative red-tape, which is not fit for purpose but can be overcome relatively quickly.

“Our economic growth relies on the export sector a great deal.”

Foreign investors own many export companies and represent a valuable source of foreign currency and job creation, but this red tape means that international businesses and investors thin of investing in countries instead, King says.

He points out that the structure of the Value Added Tax (VAT) and the Tax Administration Acts and more specifically, the way SARS conducts VAT audits and withholds VAT refunds, are serious concerns for the export industry.

These issues were raised by the Tax Ombud before parliament and discussed at the Nugent Commission.

Sars was also chastised in a recent high court judgement for conducting a VAT audit and withholding VAT refunds for an indefinite period with no deadline, as well as not considering fairness and taxpayer rights.

Yet these problems persist, King says. He calls for urgent statutory amendments as part of the solution.

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Strong growth, but not for long

Hein Jordt, MD of Ctrack, says the Ctrack Transport and Freight Index recorded strong growth of 7,1% compared to the corresponding period last year, but despite this growth several indicators show that this growth will slow down in the short term.

He says growth has continued despite the return of Covid-19 and lockdowns in China, continued supply chain disruptions and the ongoing conflict in Ukraine.

“Fortunately, the global supply chain has mostly untangled itself since November 2021 and this has assisted local growth across the sectors in the last two months.”

The storage sector has reported massive declines, which could be due to supply chains being unable to replenish items such as microchips, motor vehicles, and other complex products. The increase and expected additional increases in short-term interest rates, which in turn makes storage and high inventory levels costly, have also influenced the rapid decline.

International transport declined compared to a year ago due to the same major issues and the inability of rail transport to deliver bulk commodities to export markets has resulted in a loss of at least R40 billion for the country over the last eight months, Jordt says.

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Significant increases for road freight

“Although four of the six subsectors decreased, the overall Ctrack Transport and Freight Index returned significant increases that can be attributed to road freight, the biggest sub-sector and contributing approximately half of the Index, returning excellent growth.”

Jordt says due to the ongoing collapse of certain rail corridors due to theft, road freight has gained market share, but that alone cannot be held responsible for the increase of over 16% in road freight.

“Road freight increased by 16,8%, with long-distance transport increasing by between 10% and 14% depending on the specific route.”

However, the strength of the road logistics index seems to be in the growth of local transport operations as opposed to international operations. Local road transport does not only include transport by trucks, but also by bakkies, vans and even motorcycles.

StatsSA’s figures show that land transport of electric goods and transport equipment, followed by textiles and clothing is the fastest growing sub-sector. Both these relatively small categories increased by over 25% compared to a year ago.

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Supply chain trends

Local transport, which includes transport directly to consumers or between local businesses, grew by more than 20%, which made it a major factor in the overall road freight growth of 16%.

Ctrack identified various trends by considering the growth in value and the number of vehicles crossing certain landmarks on the road network:

• the growth of inland transport and increase of employment can be attributed to growth in the retail environment
• home deliveries are here to stay with better tracking of deliveries
• additional security features and better planning methodologies
• smaller vehicles and warehousing located in closer proximity to the major delivery areas
• transformation of the restaurant industry to no longer offering walk-in or in-store dining facilities
• air freight has increased by 8,1% during the last year.

“The majority of transport sub-sectors are benefitting from the revolution in home transport demand in some way.

Just as an army marches on its stomach, stomachs at home may have helped create a completely transformed sub-sector in road transport. The latest revolutionary transport trend focuses on more consumer-orientated products, but rail freight continues to play a major role in the agriculture, container and non-metallic product sectors,” Jordt says.