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BLSA, Seifsa, SAAFF warn of Transnet strike's impact on the struggling economy

A photo of Transnet's Port of Saldanha

Photo by Creamer Media

10th October 2022

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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The strike by employees at Transnet’s port and rail operations is going to cost the economy billions of rands and will likely set back the country’s efforts to drive a recovery, says business organisation Business Leadership South Africa (BLSA) CEO Busi Mavuso.

Some Transnet employees have downed tools in a dispute over wage increases.

Mavuso describes the strike as an act of economic sabotage that will damage government revenue, robbing it of the resources needed to provide poverty relief.

Industry body the Steel and Engineering Industries Federation of Southern Africa (Seifsa) states that the South African economy is already on its knees.

"Our economy is under siege as it battles a jobs, growth and hunger crisis. A devastating 63.9% of South Africans under the age of 24 are unemployed, consumer inflation is at a 13-year high and one-in-four people live below the food poverty line.

"A full-blown strike at Transnet will add to the damage suffered by the South African economy. This will be as bad as load-shedding in terms of economic impact. For an economy battling to maintain momentum, this could well be the final nail in the coffin," Seifsa CEO Lucio Trentini says.

The strike has forced Transnet to suspend all activity in its ports, snarling up imports and exports for the whole country. Miners and many other companies are losing billions while this goes on, with early estimates putting the costs at R6-billion a day, Mavuso states.

The unions have said the strike is indefinite and 15 000 workers are not going to be working today. All ports and freight rail are not expected to operate, she adds.

"This is disastrous not only to obvious sectors linked to direct imports like the medical sector, and exports, like the mining sector, but to the entire, interconnected economy. It further damages South Africa’s brand, with global cargo operators likely already moving on to other ports and further deprioritising South Africa. This is very bad news indeed," Mavuso asserts.

"The decision by United National Transport Union (Untu) and the South African Transport and Allied Workers' Union (Satawu), to go on strike last week, in the middle of negotiations that were ongoing at the Commission for Conciliation, Mediation and Arbitration (CCMA), is another severe blow to the economy.

“The strike is, at the very least, an act of bad faith, given that negotiations were under way at the time and several court cases are testing its legality. It caught both Transnet and government off guard," she adds.

Seifsa has appealed for a constructive approach that seeks to advance the interests of the country.

"Transnet, as with Eskom, is crucial to the country’s economy. Transnet’s rail and port facilities are key to exporting the country’s bulk commodity exports such as coal, iron-ore, chrome and manganese. A full-blown strike at Transnet, which seems unavoidable, will have a serious effect on the economy, as it will halt exports and put thousands of jobs on the line," Trentini notes.

Exporters rely heavily on efficient rail networks and ports, but Transnet has been operating below capacity for years as it grapples with a shortage of locomotives, cable theft, vandalism, poor maintenance and outdated and slow port infrastructure. This substandard service has had a significant impact on the local steel industry and its ability to manufacture steel to meet its customers’ demands.

In some instances, primary steel producers have had to shut down operating plants due to the unavailability of raw materials, at great cost to their businesses and the economy, states Seifsa.

"We know that it will not be easy to make compromises, but we appeal nevertheless for a win-win approach to the negotiations, as opposed to a winner-takes-all approach. Our plea to all the negotiators, and to those from whom they obtain their mandates, is that you rise above your narrow interests and put the interests of the South African economy first, and look to settle quickly," Trentini says.

Mavuso, meanwhile, points out that Transnet, like other State-owned enterprises, is in financial dire straits. Revenue for the 2022 financial year was still R6.5-billion below pre-Covid-19 levels. It made a R5-billion profit, only owing to the revaluation of its assets that allowed it to book R10-billion in gains, including a R6.6-billion gain in the value of its rail infrastructure.

Transnet is carrying almost R130-billion in debt, with ratings agencies reviewing its credit ratings for downgrades.

Personnel costs for the last financial year were R26.2-billion. In salary negotiations with workers, it has now offered 3% increases and a R7 500 one-off gratuity, money which it already cannot afford, while unions are demanding a 13.5% increase, Mavuso states.

"The strike action makes Transnet’s financial position far worse. It could trigger further ratings downgrades. It also cripples the economy and deals a severe blow to government’s revenue.

“Over the weekend, news came that both sides had agreed to a new CCMA process at mediation. This is a step in the right direction, but the strike should be suspended immediately while engagement happens," she recommends.

The mining sector has calculated that it has lost R50-billion so far this year owing to Transnet’s deteriorating performance and reckons it could have generated another R100-billion in revenue, were it not for capacity constraints on Transnet’s rail operations and at the ports.

"That money would have generated another R27-billion in tax revenue, revenue that could have covered, in part, an extension of the social relief from distress grant," Mavuso emphasises.

Organised business has been seized with the challenge of combatting the economic crisis, including by partnering with government to create the Solidarity Fund when Covid-19 struck, working to mobilise resources to support many areas of the public sector where critical skills are needed, from the energy sector to the criminal justice system. This has required the mobilisation of huge amounts of money to ensure we can drive an economic recovery.

Further, several companies have approached Transnet with potential solutions, including willingly offering to pay increased fees for Transnet services. There are also further legal options including declaring port workers as essential workers.

Given the economic situation South Africa is in, this is an option to seriously consider. Without ports operating, the whole country could collapse, Mavuso asserts.

"In our joint effort to turn around our country’s performance, the missing party has been labour. Where are the unions’ ideas on how to improve productivity and Transnet services to deliver some of that R100-billion in additional output that could have been delivered this year?

"Where is the commitment to resolve blockages in the logistics systems? Where is the effort to fast-track planned port restructuring and rail public-private partnerships to improve performance and capacity?

"Instead, we are dealt a severe body blow without warning, risking tipping the economy further into the abyss. It will be in vain, there simply is no money to meet union’s demands. For all of us being afflicted, it is a terrible blow. But perhaps the largest blow is to the standing of Transnet’s unions as credible partners in the effort to resuscitate this economy," Mavuso notes.

FREIGHT FORWARDERS
Meanwhile, industry organisation the South African Association of Freight Forwarders (SAAFF) is also calling for an urgent resolution to the ongoing impasse between recognised unions and Transnet.

"It is essential for supply chains to be maintained, as we learned during the pandemic, and SAAFF research shows that logistics delays to the supply chain cost our economy between R100-million and R1-billion a day. However, when calculating the total economic cost, the final consequence of the devastating impact is far higher than that," SAAFF CEO Dr Juanita Maree comments.

From the perspective of the clearing and forwarding industry, which is the workhorse that makes the merchandise trade tick, it is apparent that the economic extent of this action is not fully understood by decision-makers.

"It is also apparent that the unintended consequences of the port strikes will be far worse than our energy crisis if left unattended, as the shock to our economy could not have come at a worse time.

"Neither Transnet nor labour seem to understand the full extent of the damage. Simply put, we cannot run on a contingency plan for any length of time, as the waterside and landside are too integrated and spill over into one another," Maree notes.

A one-day loss in port activity results in operationally a minimum of ten days of recovery. However, the economic loss has a ripple effect on the economy, resulting in further foreign revenue loss at a time when South Africa's balance of trade is steadily deteriorating. Therefore, SAAFF's estimates are conservative and losses will likely run more into the billions a day.

"If the country and the government do not have money now, they will have much less in seven days. The strike is throttling our economy to the point of no return. We need decisive, urgent action now," Maree says.

According to the latest South African Revenue Service merchandise statistics, R343-billion worth of goods were traded, imports and exports, in August. Further, as 70% of merchandise is processed via the ocean modality, the current inactivity blocks more than R8-billion worth of goods each day. Combined with the ripple effect, the impact is more than the country can absorb, given the current economic climate, says Maree.

International trade remains an essential driver of economic growth and development – and importantly, job creation. Facilitating trade must take place on shared infrastructure via shared responsibilities from all parties. Any failure to facilitate trade has dire consequences for each and every South African, she adds.

"Against the backdrop of low growth, high unemployment and rising living costs, we are doing an injustice to ordinary South Africans by leaving this catastrophic situation unattended. Collectively, SAAFF calls on government and labour to reach a swift resolution to the current impasse, as the time is ripe for decisive leadership on behalf of all constituencies," she states.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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