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Transnet and CRRC-E-Loco are state-owned entities. Their dispute necessarily translates to a dispute between China and South Africa, writes Vuslat Bayoglu.
Transnet Group chief executive officer Portia Derby has referred to the concept of ukusisa to support the empowerment of emerging mining players. I first heard of it in 2022 when she addressed the Joburg Indaba, the annual conference of big and emerging miners, in Sandton.
Practically ukusisa, a concept I’m advised is derived from isiZulu and other Nguni languages, is akin to lending a poor person a hen to be returned to the owner after it has produced chicks. The poor person gets to keep the chicks and, as theory goes, stays on the path of self-sufficiency. It’s an admirable concept if you can get it right at huge scale.
For its part, Transnet invited emerging manganese miners to apply for rail export allocations through a process called Manganese Export Capacity Allocation (MECA) III. After a quick but thorough due diligence, including physical verification of mining activities, six of 19 applicants clinched a total of 2 million per annum export capacity. This brought the total number of active emerging miners with rail allocation to 10.
The speed with which the decision was taken was commendable. Some might even venture to say, uncharacteristic of Transnet. But it showed that if there is willingness and passion to do something speedily, it can be done. Derby had long made it known that transformation was her passion.
In a statement issued after the MECA III, Transnet said it was excited to be an “enabler” of the successful applicants. It added that it was committed to more transformation of the rail business. This is indeed a major development in the mining sector. In principle, Derby shouldn’t be at fault.
But the trouble is that this allocation was not accompanied by overall improved export capacity.
In fact, before Transnet executed the allocation to emerging miners, she was already under fire from big mining players. Citing her underperformance in improving rail capacity and efficiency, the Minerals Council of South Africa called for her axing. The council’s position was ill-advised.
However, had the allocation to emerging miners been accompanied by improved capacity, the protest by major mining companies would have been moderated. Overall, Transnet’s performance has been disappointing, resulting in opportunity costs to businesses and the economy in general running into billions of rands.
Transnet’s performance has been disturbed by infrastructure vandalism. The mining sector, including major mining companies and the Minerals Council, has since joined hands with Transnet to tackle the challenge.
But the unavailability of procured locomotives appears to be the biggest challenge that Derby has had to deal with. It seems this matter has gone beyond her realm of influence. In fact, it is the responsibility of the national government to solve.
During the administration of former president Jacob Zuma, Transnet procured locomotives in a manner that was subsequently declared irregular following a string of investigations. Transnet thereafter began negotiations with CRRC E-Loco, the Chinese supplier of the locomotives, to settle the matter and for the supplier to regularise its business processes in South Africa.
These processes involve the South African Revenue Service, the South African Reserve Bank, and the Special Investigating Unit. Since the dispute began, CRRC-E-Loco has refused to supply Transnet with spare parts to service the 161 locomotives, literally grinding them to a halt. The dispute has also halted the delivery of 99 new locomotives that Transnet wants at a new, “corrected” price.
The dispute has a huge impact on Transnet’s capacity and the entire economy. The logistics company has stated that these locomotives directly impact three major rail corridors – North, Northeast and Cape Corridors.
In total, these corridors account for roughly 50% of Transnet Freight Rail’s revenue, and support three primary mining sector segments, namely export coal, chrome and iron ore and manganese. It is therefore not a surprise that South Africa has failed to make a meal out of higher commodity prices.
Information in the public domain so far suggests that the Transnet negotiations with the Chinese manufacturers stalled due to technical legalese. Clearly, the narrow approach of reducing something of immense national interest to narrow legal technicalities failed.
This is not to suggest that technicalities are not important. But they are important to the extent that they are enablers of the broader national economic interest. Transnet is literally the logistics monopoly of the whole South African economy. The economy feels every aspect of its derailment.
It’s time the matter was given the highest level of attention it deserves – diplomacy. Transnet and CRRC-E-Loco are state-owned entities. Their dispute necessarily translates to a dispute between China and South Africa.
The two countries enjoy cordial economic and diplomatic exchanges, dating back to the onset of democracy when South Africa switched diplomatic recognition from Taiwan to mainland China. Since then, trade and investment exchanges have grown significantly. For example, South Africa’s exports to China in 2022 stood at $11.9 billion, slightly down from $13.8 billion in the previous year, but higher than the $9.7 billion in 2020.
Ironically, South Africa’s exports to China includes minerals like chrome, iron ore, all of which are impacted by the locomotives dispute. It would not make sense for China not to help Transnet to return to its competitiveness. It’s in China’s economic interest for Transnet to operate optimally.
In addition, China, a partner with South Africa in the quad group BRICS, is on a global charm offensive and would most likely do everything to keep its relations with South Africa in good order. The South African government needs to bring this locomotives dispute frankly and sharply to the attention of the Chinese government at the highest level.
President Cyril Ramaphosa should address the issue with President Xi Jinping or his newly elected prime minister Li Qiang who is more business inclined. The outcomes of the high-level talks must then be translated into the legal technicalities and executed by both the state-owned companies.
A recent meeting between Ramaphosa, Transnet executives and Public Enterprises Minister Pravin Gordhan resolved that a diplomatic solution was required. Although extremely late, this realisation, the outcome of which was that Gordhan should lead a delegation to China to convey South Africa’s political position on the locomotives, was nevertheless crucial.
An amicable deal that takes care of both South Africa’s and China’s interest must be cemented at the highest level between presidents Ramaphosa and Xi. Such a deal would augur well for the BRICS summit which Ramaphosa is due to host in South Africa in the second half of the year. China is a leading country in the quad grouping.
Transnet cannot afford to be derailed by original equipment suppliers in a way that is detrimental to the entire South African economy. Transnet’s major customers are already up in arms. There are ongoing talks between Transnet and customers that tend to smooth relations and even hide unhappiness.
Transnet needs its own dose of ukusisa diplomatic aid from our government. Hopefully, Gordhan’s belated diplomatic plans will yield positive results. This can, in turn, can translate to Transnet’s improved capacity to dish out its ukusisa initiatives at a wider scale.
Bayoglu is MD of Menar, an investment company with interest in Sitatunga Resources, a small manganese miner that got a rail allocation in MECA III. News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.
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