Transnet's expansion plans helped make sucessful Zuma speech

[Steve Appleton]

Commentary from Business Day, 13 February 2012, http://www.businessday.co.za/articles/C ... ?id=164746

CAROL PATON: Transnet helps Zuma deliver on his commitment to SA.
‘Many of the projects mentioned by President Jacob Zuma in his state of the nation address are new additions to Transnet’s rolling corporate plan’.
CAROL PATON
Published: 2012/02/13 07:37:45 AM

IF THERE is one person President Jacob Zuma has to thank for the success of his state of the nation speech last week, it is Transnet group CEO Brian Molefe. Without Transnet’s R300bn expansion plan, which is aimed at expanding mining production and exports, and its decision to lop R1bn off its anticipated revenue from ports in discounted fees in the coming year, Zuma would have found himself without much new to say.

His assurances that the government has made "steady progress" in health and education unfortunately lacked credibility and it is hoped that neither he nor his Cabinet really believes them. Thankfully, on the jobs front, while Zuma did mention the fourth quarter of last year’s small decline in the unemployment rate from 25% to 23,9% — the announcement of which came in the nick of time for the speech — he decided against portraying this as a major victory. Having declared, in last year’s speech, that 2011 would be the year of job creation, Zuma would have realised that in the face of such small gains it would have been foolish to make this the central message of his speech.

Thank heavens then for Molefe, who over the year since he became CEO has turned Transnet from a logistics company with a raft of unrealised plans to one that can take bold decisions, win political support for them and play a serious role in building the economy.

A year ago, in Finance Minister Pravin Gordhan’s budget, it was announced that Transnet planned to spend R110bn on infrastructure expansion over five years. This would have formed part of the government’s R809bn medium-term spending plans on infrastructure. Thursday’s announcement by Zuma takes this to R300bn over the next seven years — almost double what was being planned for by Transnet on a yearly average. Together with other "social infrastructure" projects Zuma announced, this will take the government’s infrastructure programme in the medium term to more than R1-trillion.

Many of the projects mentioned by Zuma are new additions to Transnet’s rolling corporate plan. However, many of the big five he singled out — the Limpopo Waterberg rail and road expansion; the Mpumalanga coalfields rail expansion; the Durban-Gauteng freight corridor; the iron-ore export channel to Saldanha; and the manganese export channel through Coega — have been talked about for years, without decisions or progress.

To be fair, it is probably not all due to Molefe’s brilliance and proactive leadership style that the logjam has been broken. Some analysts point out that for two years before Molefe’s arrival, Transnet had an acting CE, who had put many plans on the table but lacked the power to take big decisions.

Zuma and Economic Development Minister Ebrahim Patel also deserve some credit for the progress made. The presidential infrastructure commission, which was set up in September and functions as an interministerial and interdepartmental committee, seems to have been decisive in moving things forward. The commission draws together and co-ordinates infrastructure planning and has prioritised a pipeline of projects that have simultaneously been stamped with political approval. While many observers wondered about the idea of establishing yet another government committee in the face of several existing cross-cutting initiatives (such as the National Planning Commission), the value of a political forum to deliberate on infrastructure and mediate the competing priorities of various departments has now been demonstrated.

There is also evidence, at last, of some policy coherence: infrastructure-led growth is the foundation of Patel’s New Growth Path; many of the projects that have now been prioritised by Transnet and the presidential commission were also prioritised by the National Planning Commission in its proposed plan published in December; and high port charges have been an obstacle for the Department of Trade and Industry in its attempts to attract new investors, as well as a significant disincentive for exporters.

As well as the presidential commission, a forum involving Public Enterprises Minister Malusi Gigaba , Patel and the leadership of both Transnet and Eskom also meets regularly to plan and discuss priorities.

With this has come the shift on state-owned enterprises for which the left has been lobbying for years: these will no longer be run primarily as commercial operations, which must finance their activities using their own balance sheets, but as state-owned companies that operate in the national interest to build the economy. Gigaba and Patel have pushed this line strongly since they came into office and, while at first there might have been ambivalence, it is now largely accepted within the government as the dominant view.

Financing the new vision is of course the biggest question.

Transnet is working energetically on a range of partnership models. Gigaba is on record as saying that while the private sector will be invited to build infrastructure, it will not be allowed to operate or own it. But Transnet’s management is confident that the end result will not be that restricted. As well as partnerships, the company is also confident it can secure long-term user contracts with mining companies, in particular, which can then be used to raise more affordable finance through the market.

Elena Ilkova, a credit analyst at Rand Merchant Bank, says this is significant since it appeared for years that Transnet and its potential clients were locked in a stalemate, with neither prepared to make the first move on making the commitment to either build or use new infrastructure.

Using partnerships to raise finance and leverage resources is where Zuma’s plan for a "presidential infrastructure summit" with potential investors and social partners (also mentioned in the speech) comes in.

It is also expected in government circles that, given the financing demands of the infrastructure programme, the government’s own development finance institutions — the Industrial Development Corporation and the Development Bank of Southern Africa — will be involved. The Public Investment Commission, which manages the Government Employees Pension Fund and has made statements recently about expanding in socially useful areas, is also expected to invest. It is also hoped that South African infrastructure will be viewed as an attractive investment by foreign funders in the light of uncertainty in markets elsewhere in the world.

Although the funding gap is far from solved, the government’s focus on building infrastructure does have another advantage: as Zuma hinted in his speech, by drawing on the successes of the 2010 Soccer World Cup, large infrastructure projects are something SA’s engineering and construction firms have the proven expertise to do.

This makes it an achievable goal; in fact, far easier than turning around the decline in health services or improving the quality of public education. Zuma’s lack of honesty on the challenges in these areas, insisting instead that progress was being made, was the most disappointing aspect of his speech.

This was perhaps because Zuma decided that on an occasion on which he is expected to inspire the nation, it was more opportune to focus on strengths rather than weaknesses. If that is so, then we can hope that the idea of building a capable state is one that is at least getting some behind-the-scenes attention.

• Paton is writer at large.