South Africa Upgrades Port, Rail Infrastructure To Boost Exports

The seaports and rail system of South Africa play an important role in the economies of  not only that country, but those of neighboring landlocked members of the Southern African Development Community’s 15 member states.

But world trade and shipping patterns are shifting.

Growing trade with the Far East, as well as South Africa’s inclusion in the Brazil, Russia, India, China, South Africa (BRICS) trade bloc, has increased traffic through the ports. Add to that ever-larger container vessels that require larger, more efficient port facilities and South Africa was faced with finding appropriate response or face bottlenecks.

The solution: upgrade and expand their seven ports and connecting rail infrastructure to state-of-the-art facilities.

The timing for the expansion is essential to keep up with increased traffic through the countries important sea ports and inland to landlocked countries – something especially important to the economic impact of South Africa’s exports.

“Greater export competitiveness and deeper regional integration could help propel South Africa towards faster-growing exports, allowing it to achieve higher, more inclusive, job-intensive growth as laid out in the country’s National Development Plan (NDP) 2030,” according to World Bank’s South Africa Economic Update released Feb 4.

That World Bank report assesses South Africa’s global economic prospects with a special focus on export competitiveness, with some suggestions of their own. According to the World Bank, the port/rail expansion will help improve export performance to meet South Africa’s targets.

 “Yes, it will help, but power and Information and communications technology (ICT) are also issues that, if addressed along side, would magnify the impact,” World Bank Lead Economist and co-author of the report, Catriona Purfield told AFKInsider.

The United States is particularly interested in the infrastructure expansion to support exports. Since 2000,  the “Africa Growth and Opportunity Act,” or AGOA, has allowed African countries to export duty free to the United States and President Obama has publicly supported renewal of AGOA after it expires in 2015.

“In 2012, South Africa exported $2.1 billion to the United States under AGOA. Many industries, including several automobile manufacturers, have told us AGOA was critical to their decision to invest in South Africa,” US Ambassador Patrick H. Gaspard told an audience at the University of South Africa in Pretoria on February 20.

“South Africa exports more manufactured products to the United States under AGOA than any other country. In 2012, South Africa’s largest exports to the United States were the 60,000 cars made by companies like BMW and Mercedes, along with $70 million dollars’ worth of South African wine. Overall, Americans bought $250 million in South African agricultural products last year, an historic high.”

South Africa’s National Development Plan 2030 has identified the export sector as an engine for higher, more inclusive and job intensive growth, with an  export volume target of 6 percent growth a year. To achieve this goal, the World Bank report identifies three opportunities to help ignite export growth, the least of which is resolving infrastructure bottlenecks.

“Resolving infrastructure bottlenecks and cutting logistic costs present a second opportunity to support export growth. Cutting the charges exporters incur for the use of ports, rail and telecommunications would promote competitiveness and benefit small and medium-size exporters and nontraditional export sectors,” notes the World Bank report.

“Border logistics is also important for trade in the region. The recent [South Africa] Budget Review  [sets] out the initiatives under way to address the concerns we raise,” World Bank’s Purfield told AFKInsider.

Despite “volatile and uncertain economic conditions worldwide,” Transnet SOC Ltd., the South African state-owned company responsible for the ports, as well as freight rail and fuel pipelines, says it “increased revenue by 14.3 percent in the six months ending September 2013 to $2.6 billion, driving profit higher by an impressive 71.2 percent while investing a massive $1 billion on rejuvenating and expanding infrastructure.”

The growth in income was driven by a 26 percent jump in containers and automotive-on- rail, and by a 12 percent increase in mineral and chrome volumes.

“In terms of broad categories, the largest exports are Precious Metals, followed by Motor Vehicles, followed by Iron and Steel,” World Bank’s Purfield told AFKInsider.

“More specifically, the top 5 products exported in 2012 were gold, platinum, iron ore, gold, motor vehicles.”

According to Transnet, “the performance in containers and automotive-on-rail far exceeds economic growth, confirming that we are winning both market share and the battle to shift rail-friendly cargo off the roads.”

In December, Los Angeles-based engineering firm AECOM Technology Corp. was awarded a three-year, $30 million contract by Transnet for up to 15 separate infrastructure projects in and around Cape Town, Saldanha and Postmasburg.

“We have been working with Transnet since 2006,” Paul Dickard, AECOM’s Vice President of Corporate Communications told AFKInsider.

Transnet Port Terminals (TPT), a division of Transnet SOC, operates 13 cargo terminal operations across seven South African Ports – Durban, Richards Bay, Cape Town, Saldanha, Port Elizabeth, Ngqura and East London – which have seen containers increase by a 9.4 percent in the last review period.

In fact, because 95 percent of all trade to the region passes through these ports – and other major ports of East Africa, if one port experiences any interruption due to a bottleneck, the entire region can feel the effect. This, in turn, would affect goods getting to the other members of the 15-country Southern African Development Community, including  Angola, Botswana, Democratic Republic of the Congo, Lesotho, Madagascar, Malawi, Mauritius,  Mozambique, Namibia, Seychelles, Swaziland, Tanzania,  Zambia and Zimbabwe.

Expanding Port Infrastructure

In April 2012, Transnet formulated a Market Demand Strategy that will spend $28 billion through 2019 to create freight capacity before demand exceeds capacity across rail and ports infrastructure, including $3 billion to boost port operations.

TPT wants to help also grow business outside of South Africa by forming partnerships with other African ports “to strengthen the economic and social development of the African continent” by providing operational, technical and systems advice, as well as improve intermodal connectivity in the region.

Some of the major contractors recently announced for the infrastructure projects include firms from the US and China, though the actual work will remain primarily localized.

Los Angeles-based engineering firm AECOM is a “global provider of professional technical and management support services,” including transportation projects and  the Fortune 500 company serves public and private clients in more than 140 countries. The company has been active in Africa since the 1960s and today they are present in more than 30 African countries.

AECOM’s new Transnet projects include rail and material-handling infrastructure for a new railroad car rotary dumper in Saldanha; expansion of the container terminal in the Port of Cape Town; new iron ore train-loading facilities at Postmasburg; fire-suppression system upgrades at various locations; resurfacing of various berths in the Port of Cape Town; new-build port buildings; and numerous building upgrades and expansions.

Each of the projects has a construction cost of up to $150 million – a total of approximately $2.2 billion – and AECOM estimates its fees on the projects will total up to approximately $30 million.

AECOM is also involved with Transnet’s proposed Durban Port “digout,” a project to expand one of the busiest ports in Africa.

“We are currently 80 percent of the way through the pre-feasibility study,” AECOM’s Dickard told AFKInsider. “We anticipate more expansions in the Ports of Saldanha, Durban, Richards Bay, Ngqura and Cape Town.”

Rail Infrastructure Upgrade

To get goods to and from the ports requires a strong, modern rail system and two thirds of Transnet’s Market Demand Strategy is geared toward rail infrastructure and “rolling stock,” which have suffered as a result of decades of underinvestment.

In fact, Transnet Freight Rail has one of the largest locomotive acquisition programs in the world. The company is buying and building thousands of locomotives and equipment, as well as expanding their port-rail resources and shifting cargo from road to rail – which reduces the cost of doing business and carbon emissions.

Although they are a state-owned company, Transnet points out that their outside funding initiatives are on the strength of their financial position. Last year they raised $1.34 billion and during the current year they are targeting another $1.4 billion from a range of sources.

Transnet recently announced a loan agreement with Nedbank, with a guarantee from US Export-Import Bank. The funding is for 53 of the 143 diesel locomotives they have built with US-based General Electric. The funding is in two stages. The first, concluded last year, was for the initial 47 locomotives, and the new agreement is for the remaining 53 locomotives.

Keeping it local, the locomotive acquisition program has stringent supplier development requirements that range between 54 percent and 65 percent, which means the General Electric diesel locomotives were actually built at Transnet’s engineering facilities in Koedoespoort, east of Pretoria.

An additional 95 electric locomotives have been contracted to a consortium led by China South Rail’s Zhuzhou Electric Locomotive Company. That award stipulated that only 10 of the locomotives be built in China, with the rest – like the GE agreement – to be built at Transnet’s engineering facilities.

Last March, Transnet said it had signed a “groundbreaking” $5 billion financing agreement with the China Development Bank, deepening the country’s relations with China. China South Rail, meanwhile, is hoping for an additional contract to supply the additional 599 electric and 465 diesel locomotives Transnet has already budgeted for.

In all, Transnet has obtained approval to acquire 1,064 diesel and electric locomotives at an estimated total cost of $3.5 billion. Transnet has also invested roughly $920 million a piece in the maintenance and overhauling of locomotives and rail cars.

The combined port and rail expansion in South Africa is expected to help the country not only increase its exports offshore to their BRICS partners, the US, and beyond, but also to inland African nations who have experienced sluggish trade do to the bottlenecks in infrastructure.

If all goes as planned between now and the project’s end in 2019, goods will soon be moving seamlessly and investors will be lining up.