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Skills shortage and poor infrastructure hamper South African growth
Michael Bleby
1/26/2006
Last year was easier for Coal Procurement South Africa. Despite an ailing rail transport system, the Johannesburg-based coal trader enjoyed a six-month period when it managed to get all its planned rail shipments to Durban port.
All too frequently, however, delays or short-notice cancellations force director Georges Mayer to use road transport, which is 10 to 15 per cent more expensive.
Rail is vital for a company that exports 600,000 tonnes of coal a year to industrial and domestic customers in Europe and elsewhere.
Demand for coal is surging. Recently, leading power equipment makers suggested that the world was on the verge of a switch from gas to coal as the preferred fuel for power stations.
But conducting this lucrative business when the local transport infrastructure suffers from decades of underinvestment and neglect is tough, Mr Mayer says.
Transnet, the state-owned utility that owns South Africa's rail network, recognises the problems. It is spending almost R9.0bn ($1.5bn, euro1.2bn, £850m) over the next five years on freight lines that customers such as Coal Procurement use.
Underinvestment also dogs the country's power, port and road networks, and South Africa is racing to increase investment.
State-owned utilities will spend about R160bn over the next five years on transport, electricity and road infrastructure. Deputy President Phumzile Mlambo-Ngcuka is leading a team charged with boosting the country's average growth rate to 6.0 per cent between 2010 and 2014 -- double the rate since 1994, when the first democratic election was held.
A 6.0 per cent target may seem unambitious in comparison with those of other developing countries. India's economy grew at an annualised 8.1 per cent in the second quarter and the country is aiming for 10 per cent.
Growth is picking up in South Africa, but the country has a struggle to keep it at a higher level.
"When you go beyond certain levels, it is the micro-institutional underpinning that sustains growth," says Iraj Abedian, chief executive of Johannesburg-based PanAfrican Investment and Research Services. On this count, South Africa has only began to act.
"Sustaining growth, or putting in place what makes it possible to have sustainable growth, itself takes time," says Mr Abedian. "It will take a five- to six-year period to get up to speed."
The potential rewards are great for an economy that was seriously underperforming in the dying years of the apartheid regime.
A 6.0 per cent growth rate could double the economy in 12 years, boosting per capita GDP by almost 60 per cent, says Raymond Parsons, a professor of economics at the University of Pretoria.
It would also bring unemployment down from the current 26 per cent to as low as 11 per cent in this country of 46m people.
The hurdles are high, however. The Swiss-based International Institute for Management Development's 2005 World Competitiveness Yearbook ranked South Africa's infrastructure 58th out of 60 economies surveyed.
A recent study by the South Africa Foundation, a business lobby group, found the country had the most expensive business ADSL broadband costs of 15 countries surveyed, including India, Morocco and Brazil.
Logistics costs take up 15.2 per cent of South Africa's GDP, compared with 8.6 per cent in the US and 11 to 12 per cent in Brazil and India, according to the state-owned Council for Scientific and Industrial Research.
The share of freight carried by road rose to 75 per cent last year from 72 per cent in 2003. In 1990 it was 65 per cent. Planned state spending and subsequent business expansion could push growth close to 7.0 per cent, according to Mr Abedian's organisation.
However, infrastructure is not just about railways and roads. It needs the engineers and trained workers to build them and they are in short supply too.
Kumba Resources, a Pretoria-based mining company, had to import specialised welders from Germany last year to upgrade its titanium oxide furnaces because there were not enough at home.
The skills shortage is felt at all levels. A failure to provide basic services such as water, sanitation and power 11 years after the end of apartheid has led the national government to embark on a project to supply skilled staff to half the country's 284 municipalities.
The outlook is positive, however. Growth in 2004 was 4.5 per cent, the highest in 20 years. The government announced plans last month to import an initial 400 engineers. European business leader Percy Bamevik, a foreign adviser to President Thabo Mbeki, says the country has the right growth policies and just needs to implement them correctly.
Yet much remains to be done. A cold European winter and greater demand for coal increases strain on the rail network, which is still losing its share of freight to road.
Even after a better year, Mr Mayer is using road transport for a third of his new year shipments. He pays extra, but the country at large also suffers. Anyone driving to Durban will pay for rail inefficiencies, he says. "They'll be stuck behind a coal truck."
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