BUSINESS BEYOND COVID-19
AUBREY LEKWANE: There are deep pools of capital in the local market to fund well-defined projects
We would urge the government to prioritise high-impact segments of the market such as rail
To boost SA’s economy while simultaneously reducing carbon emissions and promoting social distancing, the government should collaborate further with the private sector to identify projects in the rail transportation sector as part of its infrastructure drive.
Encouragingly, the government has recognised that a comprehensive infrastructure development programme is the best way to reinvigorate the struggling economy, and that it cannot do it alone given the alarming deterioration of public finances in recent years.
President Cyril Ramaphosa said at the inaugural Sustainable Infrastructure Development Symposium of SA in late June that the government’s investment envoys had already received commitments worth billions of rand for infrastructure projects. This is a step in the right direction.
I have no doubt that if the state presents viable and appropriately structured rail projects to the private sector, the funding and technological expertise will be made available to make these initiatives a reality. By reducing travel times for passengers and freight, improving mobility experience, lessening the carbon footprint and using country resources more efficiently, we can also improve cost efficiencies and build competitiveness into our businesses.
There are deep pools of capital in the local market, and yield-starved global investors would jump at opportunities to fund projects that are well defined and appropriately structured, with risks shared between the public and private sectors. Further, between multinationals and local firms SA certainly has the skills and resources needed to ensure these projects are successful.
It is worth noting that the National Development Plan envisages infrastructure investment as a percentage of GDP rising to 30% by 2030, from about 18% in 2019. The Treasury acknowledged in a recent report that to bridge this sizeable infrastructure investment gap innovative approaches to leverage private-sector finance are needed, alongside improved infrastructure planning. What is needed now is a sense of urgency and commitment to act.
We are encouraged to see that there are already some planned projects in the rail and broader transport sectors, including a planned extension of the Gautrain network — a highly successful public-private partnership in its own right, celebrating 10 years of operations in 2020. The first phase of the Gautrain’s development created 34,000 direct jobs during construction and about 87,000 indirect jobs, according to a 2014 study by KPMG. And 245,000 jobs were created as a result of property developments linked to the project.
The Gautrain project could be a blueprint for future rail investments in SA, and that there is scope for deep investments across the sector and the country going forward. Public-private partnerships (PPPs) in railways can bring opportunities for investment, operating efficiency and modern and clean technology. Such rail projects lead to efficiency gains and an increased revenue basis for states and private investors and make investment in PPP schemes more attractive.
Besides the significant potential for job creation, investments in new rail networks and rolling stock fleets could make SA more competitive in the global trade arena and could give citizens better access to employment opportunities. SA exporters have long been constrained by transport bottlenecks — and risk losing out on new opportunities as the African Continental Free Trade Area comes into effect — while millions of people lack access to decent employment opportunities partly due to the legacy of apartheid spacial planning.
Against this backdrop, the economic effect of targeted rail infrastructure projects would be significant. Meanwhile, there is an emerging consensus globally that the economic recovery must be driven by climate-smart and sustainable policies and strategies. Climate change has come to the fore amid the Covid-19 crisis and policymakers are being urged to respond with future generations in mind.
In that regard, policymakers should be focused on encouraging a meaningful road-to-rail shift in SA, since this would slash carbon emissions. A study by SA's department of environmental affairs found that road transport accounts for more than 90% of the transport sector’s greenhouse gas emissions and this is unlikely to change significantly in the decades ahead.
At the same time, urgent steps need to be taken to increase commuter rail capacity amid the Covid-19 pandemic. The virus is likely to be with us for at least the next year, meaning social distancing will remain the norm for the foreseeable future. This can only be ensured by maximising the use of existing fleets and adding capacity where possible.
As government prepares for the roll-out of infrastructure projects, there are certain urgent steps that can be taken to improve the efficiency and capacity of the country’s rail networks. For instance, the state has an opportunity to quickly increase third party — private sector — access to rail networks.
The Treasury has already flagged this as an opportunity, saying third parties should be granted access to the core rail network with Transnet retaining ownership of all rail infrastructure assets. The Treasury has also promoted the idea of using public-private funding models to roll out secondary rail line programmes, and investigating the viability of establishing a rolling stock operating company.
We believe the leasing of locomotives is a likely scenario in future, and several companies with experience in this field are already positioning themselves for this opportunity, including Bombardier Transportation.To maximise the impact of rail investments, government could prioritise local procurement and development.
The economic crisis facing SA requires new ways of thinking and better collaboration between all stakeholders. Treasury’s proposals broadly make sense and tick these boxes. We fully agree that infrastructure development should lead SA’s economic recovery and job creation efforts. We would urge government to prioritise high-impact segments of the market such as rail.
Despite several difficult years, made worse by the Covid-19 pandemic, the country is brimming with potential and the private sector is ready to put forward funding and skills as soon as it is given the opportunity. The time for action has come.
• Lekwane is SA MD for Bombardier Transportation.
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