Infra the key to intra-African trade

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By Eamonn Ryan

One development which may ultimately spark widespread airport, harbour, and railway infrastructure development, is the African Continental Free Trade Agreement (AfCFTA) — albeit so far it has only been talk.

Currently, the cost of moving goods in Africa is five times higher than in the US. In some areas of Africa, transport costs alone constitute higher barriers to trade than any other trade restrictions. However, trade facilitation must go beyond the traditional preoccupation with transport and roads, targeting logistics companies, delays at border controls, corruption, and customs regulations, says a report by the Helen Suzman Foundation.

“The need for TF (trade facilitation) was exemplified in Rwanda when the introduction of an electronic single-window customs clearance system took the country from 131st to 87th in the World Bank’s ease of trade ranking. The United Nations Conference on Trade and Development (UNCTAD)’s automated customs data system would be useful to this end and has already been adopted by 44 AU (African Union) states.

“According to UNCTAD, if improvement in TF is realised through AfCFTA, a further USD85-billion would be added to intra-African trade. A renewed vigour is required in the continental efforts already under way to improve TF.”
The challenge in this sector is state-owned monopolies. Transnet is dominant, with its rail infrastructure representing about 80% of all Africa’s rail network. It is building on that dominance with the establishment of Transnet International Holdings through which it intends (like Airports Company South Africa, or Acsa) to extend its services to the rest of Africa.

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Port of Cape Town.

Rail’s scorecard mixed

The South African Institution of Civil Engineering (SAICE) 2017 Infrastructure Report Card for South Africa gives a mixed rating for the country’s railway infrastructure:

A for passenger lines – Gautrain. The Auditor-General report of 2017/18 takes a less encouraging view of PRASA’s performance. It notes that since 2015, its fleet has fallen to 174 from 288 today, and only half of that have their full complement of 12 carriages. Much of the loss (80%) has been in the Western Cape: 214 coaches have been damaged in arson attacks during the time, resulting in a 50% cut in daily rail passengers in Cape Town since 2014.

Metrorail transported 542-million passengers in 2013/14, a figure that has fallen to 269 million in 2017/18.
Fana Marutla, an executive board member of SAICE, as well as head of business development, transportation at GIBB Engineering, says logistics in South Africa could be vastly improved if strategic projects under SOEs were to be immediately implemented — budgets permitting.

He was the technical lead on the Ermelo–Swaziland link to Richards Bay (brownfield portion), a project for which feasibility studies have been completed by Transnet and Swaziland Railways. “At present, the railway industry and funding institutions have been invited to support this groundbreaking initiative through a PPP solution,” says Marutla.

King Shaka

South Africa’s most recent international airport, in Durban.

Ports and harbours good, but expensive

The SAICE 2017 Infrastructure Report Card for South Africa’s commercial ports (only) credits a decent B-. “There are nine ports in the Transnet stable — seven major commercial ports: Saldanha Bay, Cape Town (Table Bay), Port Elizabeth, Ngqura (Coega), East London, Durban, Richards Bay, and two minor ports: Port Nolloth and Mossel Bay. Even though much of the infrastructure has been ageing, Transnet National Ports Authority (TNPA) has made a concerted effort to repair and maintain its equipment and infrastructure, keeping it operationally serviceable. Demand and congestion have increased in most of these ports, but both the fixed and movable infrastructure still perform well in meeting the safety and operational standards.”

A three-year multimillion-dollar overhaul of the Port of Cape Town’s ship repair facilities is under way, part of South Africa’s Operation Phakisa Programme, which has identified shipbuilding and repairs as a strategic industry for the port. South Africa ranks among the world’s top 15 shipping nations, based on the tonnage transported to and from its ports, with three of the eight major commercial ports based in the Western Cape.

Malcolm Hartwell, a director and attorney specialising in harbours and infrastructure in Africa with Norton Rose Fulbright, says that the future of Africa may be bright, but for the present, “It’s a patchwork.” Although South Africa’s port and harbour infrastructure remains by far the best in Africa, he cautions that current trends in the sector could result in this country losing its advantage — with Cape Town and Durban ports already losing business to Walvis Bay.

“There had been talk of the Port of Cape Town positioning itself for repairs to the West African oil and gas market, but nothing materialised. In the meantime, the Port of Walvis Bay has actually invested in the same idea, and its closer proximity to West Africa means it is in the process of cornering that market, as well as attracting Zambian copper through its rail corridor,” says Hartwell.
The opportunity in Africa lies in the massive shortfall in infrastructure, with different countries responding to the need in diverse ways: “Some are building infrastructure themselves; some are allowing the Chinese to do it and accepting the debt; while others are simply doing nothing. This comes in the context of an important theme in the container industry: there has been substantial consolidation of container lines, with expectations that within five years, the top five lines will control 60% of the global market, giving them enormous power,” Hartwell adds.

Like the airline industry before it, the ocean transport industry is establishing a hub-and-spoke concept with large ships sailing between hubs, and smaller vessels fanning out to lesser ports. Hartwell, who began life as a ship’s captain before switching to law, says the truly monster ships of today carry 24 000 containers compared to 2 000 in his day.

Africa will need a number of hubs, and Hartwell says the opportunity currently exists for “first movers”. While Durban is well ahead, it nonetheless cannot serve the largest ships which draw 16m. Harbour channels will have to be dredged, and adequate inland transport corridors established by any country wishing to host a port hub. A few African countries have already put their hand up.

Pieter van der Merwe, managing director of Xcentric Rippers, says the technology is available in South Africa to be used on dredge applications. “The use of our Xcentric Rippers connected to an excavator on a floating barge, can deepen berths and break up rock on the ocean floor. The ripper is completely sealed and can work underwater with no contamination.” While the technology is not currently being used on dredge applications in South Africa, he says it is employed in Iceland, Columbia, the Netherlands, and the Dominican Republic.

“The actual depth we can go to depends on the configuration and size of the carrier. The deeper the required depth, the bigger the carrier needs to be, which is expensive, and therefore requires a large contract to warrant the cost. However, the high efficiency and low maintenance cost of the ripper, is normally a big game changer, especially in demanding and challenging applications, such as dredging.”

Hartwell says: “First movers will have a huge advantage, and if South Africa doesn’t move soon, somebody else will.” He has no doubt South Africa will host one such hub (but only provided we get our act together with infrastructure), but others will be necessary in East or Northeast Africa, West Africa, and one is already established in Morocco for North Africa.

Countries that show intention include Kenya (Mombasa has invested considerably in itself), Côte d'Ivoire, and Ghana. Hartwell points out that it is not necessarily the biggest or wealthiest economies that will win in the end, as Nigeria for instance is not currently in the running. “It is stable countries which will have the advantage. Ethiopia is leading the way (through neighbouring Port of Djibouti) as it has already demonstrated aptitude through its hub-and-spoke designed Ethiopian Airlines. Tanzania is investing USD10-billion in Bagamoyo and a link to Dar es Salaam; while Namibia has moved under the radar to develop Walvis Bay. The Chinese are also developing ports in Angola.”

Not all is lost, he says, as several seeming first movers have simultaneously taken backward steps politically, including through indigenisation policies and rampant corruption. “If the African Continental Free Trade Agreement takes off, it will create the largest free trade area in the world. Africa would become less reliant on imports and exports, and more on cross-border trade. This would be entirely dependent on internal infrastructure.”

Operation Phakisa looks at ‘quick fixes’ to the South African economy, and one realistic opportunity identified was the Ocean Economy. “In South Africa, the ocean economy has a lot going for it.” It has been used by TNPA to accelerate some refurbishment projects, he says, but the dig-out port (former Durban International Airport) is on hold. He believes dredging of Salisbury Island may be going ahead, and the establishment of ship repair facilities at Richards Bay is under consideration. However, he notes that our railways and ports are uncompetitive for calling ships and to change that, would require dropping the “monopoly mentality”.

Marutla says that Transnet has long-term plans for the expansion of various ports in South Africa via its long-term planning framework, “and there is talk of expanding ports in Mozambique, Senegal, Tanzania, Kenya, and more”.

He explains that locally, a core component of the hub-and-spoke philosophy is the pit-to-port aspect. “Strategically located hubs across the country enable commodities to be moved from origin to destination seamlessly, thereby assisting in minimising delays and reducing the cost of doing business.” Inland ports for containers already exist at City Deep and Kaserne in Johannesburg; Pretcon and Rosslyn in Pretoria; Bellville; Bloemfontein (small); and Centrarand (only a marshalling yard at the moment). “Future ones are planned at Tambo Springs (between Johannesburg and Heidelberg), Pyramid South, and Cato Ridge,” says Marutla.

The biggest challenge to port engineering, Hartwell says, is the large-scale loss of engineering skills the country has suffered over the past 30 years. Although we still have world-class skills, Hartwell believes those skills are no longer in such abundance for South Africa to embark on large projects without outside technical assistance. “The dearth of local projects has compelled our engineers to go where the work is.”

Marutla adds that South Africa has experienced railway and port engineers: “But we should allow them to do their work without undue political interference. The railways and ports are engineering systems — I believe they can best be run ethically by qualified engineers in their respective fields and there are plenty in this country.”

Airports good

The SAICE 2017 Infrastructure Report Card credits South Africa’s Acsa-owned airports (only) a decent B+: “The three major international airports (OR Tambo in Johannesburg, Cape Town International, and King Shaka in Durban) account for nearly 90% of the 39-million annual Acsa passenger movements. Acsa has proven to be a world-class aviation infrastructure provider, strongly driven by the need to meet international compliance requirements and by its own high internal standards. Relatively high tariffs and possible capital over-investment could pose a problem for the sustainability of these standards.”

Speaking at the latest South African Forum of Civil Engineering Contractors (SAFCEC) annual national conference, Acsa group executive: technical services & solutions, Girish Gopal, outlined Acsa’s capital expenditure programme over the next five years in its international network, mostly in South Africa. Acsa has forecast R20-billion of capex on infrastructure in the next five years, primarily at three of its international airports. The biggest projects have been funded and are ready to go on tender in 2019.

“We categorise our projects in terms of capacity; commercial development; efficiency and technology; replacement and refurbishment; and compliance. The bigger numbers are sitting in the capacity projects: in 2019, just over R1-billion, but it grows to R4-billion (2020), over R5-billion in 2021, and thereafter reduces slightly. There was a delay of about three years in terms of getting the authorisation for these projects from our regulator, so there’s a bit of catch-up to do. Most of the capacity projects are in Cape Town and OR Tambo largely, with the rest being at King Shaka and the smaller airports,” says Gopal.

The construction programme for Cape Town International Airport (CTIA) includes a realigned runway — moving it by about 200m to the east and turning it by 11 degrees. The main point of this project is to create capacity between the terminal buildings and the current runway to allow for both apron and terminal expansion. This key project will be under way for some time, said Gopal, at a cost of R3.8-billion. Preliminary work began as far back as 2008, but the bulk of the project didn’t start until July 2017. Work on the runway is expected to conclude in 2021.

It will also get a new domestic arrivals terminal to the value of R690-million and two apron developments at a cost of R775-million. Most of these projects are going out to tender in 2019. “CTIA is going to be a construction site for the next three to five years,” said Gopal.

The cost of poor efficiency

An illustration of the economic impact of costly logistics and monopoly-minded inefficiency, is provided by South Africa’s granite quarrying industry. Between 1999 and 2002, the industry exported just under a million tonnes of granite blocks a year; a volume that has since declined to less than a third of that. The cost of logistics is the single biggest cost in exporting granite, explains Finstone SA chief operating officer, Ian Ashmole. “Of the price we sell for in Europe, logistics accounts for about half of that selling price, leaving us to recover the rest of our operating costs from the other half. So clearly, logistics costs are very sensitive in our business. One of the challenges is that when I started in this business, 99% of our exports went to the port by rail. Today, like the rest of the industry, most of it is going by road.”

Finstone has gone from paying USD80/m3 20 years ago to well over USD160/m3 today to get its product onto a vessel for export — a doubling which does not consider the massive weakening of the rand, which means the local rand cost has spiralled upwards. “It is today on average 20% cheaper and more reliable to move bulk materials by road; yet, rail ought to be significantly cheaper. The problem is that Transnet [being a monopoly] just announces above inflation increases of up to 10% each year, and not just on the rail service. What they are charging for the port service is similarly out of line. Our Richards Bay port costs are higher than what we pay in most European ports.

“In terms of operating efficiency, in Brazil, for instance, we load 10 000t in 12–16 hours. Here, we are loading about 2 500t/day. Vessel hire is expensive, and when one is delayed in port, the ship owner will charge for that delay. For example, we ship material from Brazil to Xiamen in China at USD20/tonne cheaper than from Richards Bay to China, which is half the distance,” explains Ashmole. “It’s to do with port efficiencies.”

Marutla concurs that exporting from South Africa has become an expensive challenge, attributing it to “long dwell times at ports, the poor cross-border logistics, and trade barriers”.

Fana2

Malcolm Hartwell2

Ian Ashmole3

Conclusion

Marutla says: “The challenge facing this country is on performing high-quality maintenance on the railway network, rolling stock, and other equipment timeously to ensure that the reliability and availability of these systems is achieved in a sustainable manner. Substandard maintenance is reducing the asset life of these systems.” 


 

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