Connecting the SADC
When the global economy struggles, growth prospects in developed nations begin to stagnate. This leads businesses and investors to look towards developing regions for more attractive opportunities. Big business and investors do not consider political boundaries when they look at investing in a new region, which makes co- operation within the SADC so important. They consider issues such as the growth of consumer populations, the development of economies, the discovery of raw materials and the availability of labour. Emerging economies, especially in Southern Africa, have these elements in abundance but the big question is whether the heavy commercial supply chain can access and deliver across the entire region. Emerging economies are particularly enticing to big business and investors during times of global economic downturn because they can offer growth and opportunity when established markets begin to slow down. Global financial crises tend to originate from established markets, which dents investors’ confidence and casts their eyes towards greener pastures.
Africa, in particular has often been cast as the ideal growth area. Indeed, Ghana, Rwanda, Mozambique and Libya are all included in The Economist’s list of the top- 10 fastest growing economies in the world. This sentiment has been backed up by investors and foreign direct investment in sub- Saharan Africa has grown from R284 billion in 2010 to R362 billion in 2011. This is all great news for heavy commercial vehicle ( HCV) operators and the companies that insure, them because someone is going to have to haul all the new products and services the new money will be buying. However, Southern Africa still has many issues it needs to address before it is seen as a truly world- class trans- shipment destination. Of particular interest to the HCV market is that intra- African trade is estimated at only 10 per cent, while regional trade in developing markets in South America and Asia sits at around 22 and 50 per cent respectively. “The simple answer is that the idea of SADC becoming a world- class trans- shipment destination is a long way off. To move from Third World to First World, which is the comparative yardstick for world class, would take not only a major physical infrastructure improvement, but also a basic mind shift in worker ethics, moral fibre and law abidance,” says Sid Beeton, divisional transport insurance manager at One. According to Wayne Phillips, CEO of Lynx Transport Underwriting Managers, the biggest challenge facing the HCV sector is a lack of compliance with rules, regulations and laws among some operators. “Currently the predominant issue among transporters is discipline. In efforts to secure as many contracts as possible and to meet ever- increasing deadlines, drivers are pushed to their absolute limits. Additionally, the requirement to always have vehicles mobile leaves little time for vehicle maintenance and driver recovery.” The outcome is unnecessary incidents that could have been avoided, due to driver fatigue and vehicles breaking down. “This results in the potential for further strain and damage to our existing road infrastructure; increasing insurance claims costs, which mean higher premiums, more stringent underwriting requirements and criteria, and more often than not, loss of life,” continues Phillips.
Switching to rail
On the one hand, an effective rail network will be a feather in the South African transport industry’s cap and a huge boost in moving the SADC towards becoming a world- class transshipment community. The other side of the coin is that any improvement to the rail network will take capacity away from HCV operators. “Should the emphasis of moving from road to rail ever materialise, there would be a massive impact on the transport industry. Many contracts would be lost and the vast majority of transporters, whose focus is solely on road transportation, will find themselves in dire straits,” warns Phillips. “Those who manage to secure the remaining road freight contracts will be in high demand. This means the overall technical pricing of HCV will be diminished in line with the small pool of available risks and intense market competition. However, much will need to be improved upon and streamlined in terms of the rail facility. Considerable investment will be needed to facilitate rail freight,” he continues. There are benefits, however, as fewer trucks on the road would mean less wear and tear. There is an underlying feeling that a move from trucks to rail will not happen soon, if at all. “During the last 10 years, there has been much talk
about revitalising rail transport of goods with no indication of actual action. The infrastructure is antiquated and inefficient and does not meet customers’ or suppliers’ requirements for the current trend of ‘ just in time’ deliveries. If government is serious about shifting freight transport from road to rail, no real movement to rail would occur during the next decade,” laments Beeton. “The benefit is that the situation on our roads would improve by the reduction in road freight vehicles and related incidents. However, because South African businesses are highly dependent on road transport, it will take a monumental effort to establish a rail freight mind- set. This could happen only at an extremely high cost,” adds Phillips.
The SADC holds enormous potential for business development and foreign direct investment and developed nations are eager to establish their markets in Southern Africa. However, it will take a co- ordinated effort from everyone involved in the process to overcome the issues present in the region. “While government, together with private investors in toll road projects, must be the main driver of road and rail infrastructure development, the private sector and external countries such as China and World Aid societies are funding road and rail development. Private sector involvement is also needed for repair facilities, truck stops, roadside assistance and storage facilities development,” says Beeton. However, it is not as simple to execute when so many egos, ambitions and private agendas collide. “The SADC’s potential is huge provided that the plan is not interfered with and is managed appropriately to completion. Africa has the potential to successfully implement and carry out ambitious projects but the buy- in must be achieved from all related parties. Personal agendas need to be removed from the equation and the ongoing management of facility must be effectively governed,” concludes Phillips.