SA’s economic growth can improve if Transnet improves – BLSA

South Africa’s economic growth can only improve if there is a substantial shift in Transnet’s performance. Last week’s disappointing GDP figure of only 0.4% growth in the second quarter and the news of Transnet’s large financial loss in the previous financial year shows how urgent it is to fix the state-owned entity.

Busisiwe Mavuso, CEO of Business Leadership South Africa (BLSA), says the gross domestic product (GDP) figures released last week, show how much must still be done to get the economy going.

“The headline figure of 0.4% growth, while in line with expectations, is simply not good enough if we are to escape our growth trap and start meaningfully improving the lives of South Africans. It was, at least, an improvement from the previous quarter which experienced zero growth.”

She says the GDP numbers indicated that reforms are having a positive effect, such as electricity production that grew over 3.1% and manufacturing increasing by 1.1% compared to the previous quarter, reflecting a far more stable electricity supply scenario.

“However, there was also evidence of the damage that the logistics crisis is causing, with the primary sector of the economy, which includes mining and agriculture, falling 1.3% from the previous quarter. This is substantially affected by producers’ struggle to get products to and through our ports to markets in the rest of the world. The transport economic cluster fell by 2.2%.”

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IMF urges government to implement bold reforms

Mavuso also points out that in addition, the International Monetary Fund (IMF) released an assessment of South Africa’s economic performance last week, calling for government to implement bold reforms to alter its economic trajectory.

The IMF urged government to build on the existing reform agenda to “increase its ambition and accelerate implementation to put the economy on a permanently higher and more inclusive growth path.”

She says these reforms are focused on finalising the electricity sector restructuring and getting on top of the logistics crisis by ensuring greater private sector participation. “If we are going to meaningfully change the lives of South Africans, growth must be above 2% and get back to the records of over 5% set 15 years ago.”

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Transnet must be fixed to accelerate economic growth

The performance yet again highlights how critical it is to fix Transnet that also revealed another huge financial loss last week, she says. “It lost R7.3 billion in the year to end March, up from R5.1 billion the year before, although a large part of the loss stems from provisions for litigation which may see Transnet having to refund R9.1 billion to clients for previous overcharging.”

The parastatal did manage a marginal increase in the volumes hauled across its rail network to 151.7-million tonnes, but Mavuso says it still has some way to go to reach the 170-million tonnes set out in its recovery plan, never mind the 228-million tonnes record it achieved in 2018.

“Getting closer to those targets must be Transnet’s priority and accelerating the concessioning of infrastructure to private sector operators will get it there faster. Transnet says it is on track to report a profit next year and is selling non-core assets to help relieve its cash constraints, but it is the volume figures from improved operations that the rest of the economy will be watching most closely.

“A sustained and substantial shift in the performance of Transnet is vital to improving the economic growth outlook. It is also critical to driving business sentiment overall. While electricity stability is certainly helping, investors remain unwilling to commit to large new projects. The GDP figures showed gross fixed capital formation falling 1.3% from the already weak previous quarter and a clear indicator that business is still not willing to put capital at risk.”

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President’s visit to China

Mavuso says President Cyril Ramaphosa’s trip to China last week seemed positive for our relationship with the country, an enormous market and trading partner. “The challenge is of course to improve our terms of trade, which remain heavily biased in favour of China, with manufactured goods flowing to South Africa in exchange for a smaller flow of commodities to China.

“This is certainly important, but the economic impact of this trade is limited compared to the more balanced basket of goods we export to the West, including vehicles and other manufactured products. While China remains the world’s emerging economic powerhouse, South Africa’s engagement must deliver to its own interests and somehow find a market in China for higher value-added outputs.”

She notes that global trade will of course be substantially enhanced if we can address the logistics crisis that massively affects the transaction costs to get goods to the rest of the world. “Structural reforms should ultimately improve competitiveness, supporting export-led growth in the country. Markets everywhere become more accessible, including in China.”

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Accelerate economic growth by using political momentum

Mavuso points out that the IMF expects South African GDP growth of 1% this year and 1.3% next year. “I believe we can do better than that if we grasp the political momentum we still have following the national election and direct it toward accelerating reform, enabling the private sector to expand operations knowing it can get higher volumes to markets in the rest of the world.

“That is what will drive investment, create jobs and expand economic activity. Organised business is a willing partner to government to help realise that vision.”