The government has said South Africa urgently needs to transform its railways if it is to have any chance of becoming an attractive investment destination. Rail inefficiencies are discouraging investment and costing the economy billions of dollars.
The South African government will need to make significant investments to strengthen the country’s rail network and stimulate economic recovery, but it cannot cover the costs on its own.
As with the electricity crisis, governments are seeking private sector support and are looking to leverage various policy reforms.
President Cyril Ramaphosa said at the opening of Parliament on 18 July: “We need an efficient freight rail network to drive inclusive growth…We will continue our reforms to transform South Africa’s freight logistics system.”
The reform plan is summarized in a 124-page roadmap for South Africa’s freight logistics system, setting out timelines for everything from establishing an independent rail regulator to allowing private companies access to the railways and giving them the right to operate rail lines.
The move has been welcomed by many in the sector, including James Hawley, CEO of Traction, Africa’s largest private railway operator.
Mr Hawley said South Africa had seen “significant leaps in the right direction in the implementation of the government’s rail reform plans”.
“I believe there will be a boom in the rail industry itself once this is rolled out, but for me the main driver of urgency is the impact it will have on upstream economic growth,” he told the Business Times.
He added: “[Rail inefficiency]is having a bigger impact on the economy than the power outages in recent years.”
call for reform
South Africa has the most extensive rail infrastructure in Africa, which for many years has been controlled by a government monopoly.
This is an important means of transporting goods. However, since 2017, exports have consistently declined due to operational deficiencies and lack of investment in railway infrastructure.
The reasons are varied, but are a combination of factors, including years of mismanagement, lack of investment, theft and vandalism of infrastructure, and corruption.
According to National Treasury estimates, these inefficiencies will cost the South African economy R411 billion in 2022, and the decline in rail (both freight and passenger) remains a serious constraint on domestic and regional trade.
Earlier this year, Deputy Director-General of the Department of Transport (DoT) Lilhans Mashaba said South Africa’s railways were unable to cope with increasing demand for freight transport, resulting in high transport costs for businesses.
According to Mashaba, about a third of long-distance freight moved from rail to road within five years, and businesses increasingly relied on trucks to transport freight across the country.
Currently, 87 per cent of cargo is transported by truck, causing increased congestion and damage to road infrastructure, costing the economy an estimated R1 billion a day, the deputy director-general said.
Promotion of railway reform
The inefficiency of government monopolies, such as logistics and energy, has forced the African National Congress to retreat from one of its core ideals – that state-owned enterprises and investment drive economic growth – and instead rely on the private sector to stem the decline of services.
“The current move is a move towards what we call ‘open access’, where the state retains control of the infrastructure. The state continues to run the trains… but the private sector is invited to take up potential slots on the network,” Hawley explained to EWN.
Very broadly speaking, significant recent government policy regarding railways has aimed to:
National Rail Policy: Aims to transform the rail sector by ending government monopolies and promoting competition to enhance efficiency and investment. Freight Logistics Roadmap: Detailed strategy (including PSP) to optimize freight logistics, improve infrastructure and streamline operations to drive economic growth (estimated R150 billion required). Private Sector Participation Framework: Encourages private investment in rail infrastructure and operations and fosters partnerships and concessions to modernize the rail system.
One policy introduction that has received particular attention is the vertical separation of Transnet Freight Rail (TFR) into an infrastructure management company and a rail operating company, which Hawley describes as a “huge step in the right direction”.
This statement outlines the requirements and application process for private train operating companies (TOCs) to access Transnet’s rail network, overseen by Transnet’s Infrastructure Manager (IM).
This statement outlines the requirements and application process for private train operating companies (TOCs) to access Transnet’s rail network, overseen by Transnet’s Infrastructure Manager (IM). It also describes IM features and privileges.
“Ultimately, this statement represents a significant step forward for the rail industry (and the product providers that rely on rail services), which has been dominated by Transnet, opening the door to private investment,” explained Vivian Chaplin and Gabby Wesson of Cliff Decker Hoffmeyer.
“It also provides a means for Transnet to reduce its large debt burden, increase freight traffic within the network, which has been reduced due to Transnet’s poor performance, and ultimately improve the economy,” they added.
The CEO is confident that the feasibility of mass freight rail in South Africa means that the financing needed is manageable, and predicts that once the proposed access fee is amended, the country could be able to operate private trains within the next six to nine months.
Chaplin and Wesson said: “Before the privatization of the rail sector can be effectively implemented, substantial consultation and amendments are needed to appease industry stakeholders, particularly in light of the negatively perceived minimum access charge.”
Looking at opportunities arising from similar initiatives in the power sector, the DoT is expected to establish a Private Sector Participation (PSP) unit to identify and prioritize projects and develop implementation plans to accelerate PSP initiatives.
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