Unless there is an urgent intervention, Transnet is likely to be the next Eskom, crashing the economy.
Transnet was one of the state-owned enterprises (SOEs) at the centre of state capture — handing over state contracts to the politically connected, deploying incompetent cadres to management and the board, with trade union protection of uncaring employees. Non-delivery, collapse of infrastructure and destruction of value became the norm.
Lack of maintenance, incompetence, corruption and vandalism have brought Transnet to its knees. The company’s failures have plunged South Africa’s export sectors — mining, agriculture and manufacturing — into crises, causing revenue and job losses.
The near collapse of Transnet capacity in rail and port operations cost the mining industry R50bn in 2022. The Minerals Council South Africa estimates that the logistics crisis caused by Transnet’s inefficiencies cost the sector 50,000 potential new jobs, and the country lost R27bn in taxes.
Most of these paper 'reforms' simply give the appearance of something being done, while causing endless delays and chaos rather than solving the problems. It appears reforms are undertaken in a parallel universe, unrelated to the real issues
Transnet posted a R5.7bn loss for the year ending March 2023. The company’s debt has ballooned to R130bn, and it is paying R1bn in interest every month to service the debt. There is a real danger the company will default on its loans.
Up to now, the government has responded in the usual way: create impressive sounding projects and new task teams and issue statements that appear to create a sense of urgency. However, the solutions never get near the real problems.
Typically, the government is working on a white paper on national rail policy, new legislation such as the National Ports Amendment Bill and the Economic Regulation of Transport Bill, and it has promised to outline a “roadmap” for reform, to be put together by “various departments”, to quote President Cyril Ramaphosa. The government has also set up a national logistics crisis committee.
Typically, these “reforms” have been under way for years, while daily Transnet deteriorates and the economy loses production which is not recoverable. Most of these paper “reforms” simply give the appearance of something being done, while causing endless delays and chaos rather than solving the problems. It appears reforms are undertaken in a parallel universe, unrelated to the real issues.
It appears that the government does not realise the enormity of the Transnet crisis, the devastating impact on the economy and the radical reforms needed.
Government reforms include plans that Ramaphosa said would “enable third-party access to the freight rail network by private rail operators while the network remains in the ownership of the state” — an obvious solution that does not need a task team or lengthy deliberations.
Reforms should be led by stakeholders, the users and businesses, not government officials, who often have little knowledge of the entities they preside over or the businesses compelled to use Transnet’s services.
The auditor-general was damning about the appalling manner in which Transnet fails to comply with auditing and financial reporting standards, casting doubt on the accuracy of official financial figures, since the company’s record-keeping was in such chaos.
“There was inadequate oversight responsibility regarding financial reporting, compliance and related internal controls to ensure that compliance requirements are met in order to prevent irregular, fruitless and wasteful expenditure.”
Transnet saw an increase in irregular expenditure of R2.3bn in 2023, mostly through the awarding of tenders — the source of corruption in almost all SOEs. It has been unable to implement its own “action plan” to tackle incompetence, mismanagement and corruption. The auditor-general reported that it had achieved only 26.3% of its very soft, self-generated performance targets — such as curtailing rail crime, corruption and increasing turnaround time at ports.
Transnet has asked for and been given a three-year exemption from the Public Finance Management Act, so that it does not have to report on irregular, fruitless and wasteful expenditure. Given its dismal record, it is asking to be allowed to hide wrongdoing. For this alone, its audit committee and finance team should be fired — and shamed.
Last year the Minerals Council called for the dismissal of the Transnet CEO and the CEO of Transnet Freight Rail, who appear to be out of their depth
The company needs employees with technical skills, capable contractors and policies which are evidence-based, not motivated by ideological or wishful thinking. Merit has to be at the heart of all appointments and contracts, not party patronage, race patronage or transformation formulas.
There has to be an audit of the legitimacy of all tenders. An evaluation of the performance of all contractors must be conducted. Tenders to politically connected companies and individuals must be stopped.
Executives get promotions and incentives and employees get increases even if the company runs at a loss — executives and board members should instead see cuts in remuneration, and employees should not get increases. Last year the Minerals Council called for the dismissal of the Transnet CEO and the CEO of Transnet Freight Rail, who appear to be out of their depth.
The politicians on the new board must resign. Politicians destabilise boards, management and companies as they have more power than ordinary board members because of their seniority in the ANC. It is very hard for SOE executives to question politicians on their boards, even if the politicians are wrong.
Politicians are also able to override officials in the public enterprises department who are supposed to hold Transnet accountable, and they cannot be held accountable by oversight institutions.
Unless there are real reforms to turn Transnet around, the company is going to go belly-up, just like Eskom, causing the collapse of many more businesses, the loss of even more jobs and the drying up of public revenue.
• Gumede is associate professor at Wits University's School of Governance and author of Restless Nation: Making Sense of Troubled Times (Tafelberg).
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