Transnet CEO Brian Molefe believes his market demand strategy to invest R300bn in upgrading the company’s ports, rail and pipeline infrastructure will make Transnet into a top-tier freight logistics provider and position South Africa as an integrated logistics hub into sub-Saharan Africa.

“One of our biggest opportunities is the fact that intraregional trade in Africa is low. As the fortunes of the continent are reversed over the next few decades, trade is bound to grow and we will need ports and rail infrastructure to take advantage of this growth,” he said.

Molefe told the audience at a recent GIBS Forum in Johannesburg that his strategy to transform the company over the next seven years aims to address maintenance backlogs, develop new tracks and install more modern equipment in the country’s ports and pipelines so that Transnet “can begin to share our expertise and expand into Africa to take advantage of the growth that is to come”.

The capital investment project aims to improve operational efficiency, encourage a decisive shift from road to rail for freight, thereby reducing the cost of doing business, create jobs and encourage skills development.

R7,6bn of the R300bn capital investment will be spent on training, with an increase in Transnet’s permanent staff headcount from 59 000 to 75 000 at the peak of the project.

The investment in infrastructure is expected to boost export coal volumes to 97,5m tons a year, from 68m tons a year, while iron ore export volumes are set to rise to 82,5m tons a year from 53m tons a year over the next seven years.

If Transnet is able to reach its target for coal, South Africa will be the fourth largest supplier of coal to China, Molefe said.

The expansion project is to result in additional capacity in all commodities for the company – export coal, export iron ore, general freight business and maritime containers. The higher volumes are expected to lift Transnet’s revenue by an estimated 178% over the period, from R46bn to R128bn by 2018-19.

“If we achieve what we have set out to do, we will be a very different company in seven years.”

Upgrading South Africa’s ports is a key focus area of the strategy.

Molefe said improved asset utilisation, productivity and efficiency improvements are expected at the ports and that he hopes to attract more international shipping liners through significantly improved turnaround times and: “Shipping liners are interested in a quick turnaround time and we will be able to offer a much better service with improved infrastructure.”

As Cape Town has the best operating port and equipment in the country at present, Molefe said the majority of the infrastructure spend on ports would go to improving Durban harbour, which is in need of significant investment.

Molefe said Transnet will be investing in seven of the biggest and best new tandem lift cranes for Durban Harbour that can carry up to four freight boxes at a time.

He went on to tell the audience that by building capacity at the ports, he hopes to change the international shipping route to allow freighters to bypass Somali waters altogether, which have been plagued by pirates in recent years: “We hope we can offer a South African route with better service and security so international freight ships won’t have to pass through Somali waters.”

Molefe pointed out that while Transnet has spent R180bn in capital investment projects over the last seven years, over 60% of that has been spent on maintenance of existing infrastructure.

“No new rail line has been laid in South Africa in the past 30 years. The country’s rail infrastructure is 158 years old and in some places we are utilising tracks that were laid at the turn of the last century.”

Molefe would like to see an increase in the amount of agricultural and domestic produce carried by rail, rather than on road. He said this will significantly lower the cost of doing business and would be more environmentally friendly.

Automotive units transported by rail are estimated to grow by 338% in the next seven years driven by the demand for new car sales. Molefe said Transnet is in the process of discussing a pending deal to transport a well-known brand of cars from East London to Gauteng by rail rather than road transportation, and that he hopes to reach similar agreements with other automotive manufacturers soon.

Molefe believes that the requirement for improved domestic freight logistics facilities that will reduce the cost of business and promote regional integration is self-evident: “It is called the market demand strategy because we are trying to meet the demand that already exists.

“If we achieve what we have set out to do, we will be a very different company in seven years.”

While Molefe acknowledged that the growth estimates contained in the strategy will be dependent on commodity prices and production, which in turn will be reliant on the global economy, he is confident of being able to raise sufficient capital to fund the massive infrastructure upgrade.

Cash-flow from operational activities will fund the capital investment projects and Transnet will have a zero dividend policy for the next seven years. In the event of additional funding being required, Molefe said the company will look to domestic sources such as domestic bonds and money markets.

While Molefe acknowledges that any slowdown in the global economy presents a risk to keeping the strategy on track and would result in Transnet having to scale back on its plans, he believes realising the company’s vision ultimately depends on a broader South African partnership and support, and that South African citizens will be the ones to reap the benefits of success.