South Africa’s Transnet Gets $1B Loan for Recovery and Growth
Transet, the operator of South Africa’s beleaguered ports and rail network got a strong vote of confidence from the African Development Bank Group as it looks to move forward with a five-year modernization and growth of its operations. Last week, the bank which was established 60 years ago by the African nations to support development, approved a $1 billion corporate loan to Transnet to underwrite the first portion of the effort to upgrade the port and rail system.
Persistent underperformers, South Africa’s ports have been at the bottom of the annual rankings from the World Bank. For example, this year Cape Town was in last place on the list of 405 ports, with Ngqura port at 404 and Durban at 398. Cape Town’s container port has been plagued by backlogs and delays which led to government intervention to reform the company’s operations.
Transnet outlined a plan for investments in the ports and infrastructure. The company also selected the first private partners for the ports. According to the African Development Bank, Transnet has faced operational challenges mainly in the critical rail and port businesses resulting from underinvestment in infrastructure and equipment, theft and vandalism, and external shocks such as floods and the effects of the COVID-19 pandemic.
The terms of the approved loan will provide $1 billion with a 25-year term. The loan will be guaranteed by the government of South Africa. In addition, the bank is contemplating two target grants totaling an additional $1,750,000 to improve energy efficiency and technical assistance to help accelerate railway reforms. Transnet has been a client of the African Development Bank since 2010.
“Our partnership will enable Transnet to execute a comprehensive Recovery Plan (RP), addressing operational inefficiencies, particularly in rail and port sectors,” said the African Development Bank’s Vice President for Private Sector, Infrastructure and Industrialisation Solomon Quaynor. “This initiative signifies our commitment to enhancing national logistics capabilities and driving sustainable economic growth.”
Transnet mapped out a five-year capital investment plan that calls for an investment of $8.1 billion to improve its existing capacity ahead of expansion for the priority segments throughout the transport value chain. Officials point out that it is critical to contribute to the broader South African economy.
The company told the bank that is committed to addressing past challenges, fostering integrity, and enhancing efficiency within the organization. It has made progress in some key areas including reforms in governance procurement and financial management.
The recovery plan, launched in October 2023, seeks to rehabilitate the infrastructure and accelerate the relaunch of operations over 18 months, focusing on restoring operational performance and freight volumes to meet customer demands.