Con­nect­ing the SADC

RISKSA Magazine - - SHORT TERM - Nick Krige

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.

Un­der­ly­ing po­ten­tial

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.

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