African Development Bank rescue of Transnet has national, regional and continental implications

This investment, used as a facilitator of local production, can also help develop regional value chains and access upstream global value chains

On 12 July, the African Development Bank’s (AfDB) board of directors approved an R18.85 billion loan to Transnet, one of the most significant parastatals in South Africa. Transnet has faced operational problems, mainly in the critical rail and port businesses, resulting from underinvestment in infrastructure and equipment. This has had a negative effect on the country’s leading transport and logistics firms and have inevitably created problems regarding the exportation of commodities, with the trickle-down effect on the manufacturing and services sectors. 

As the African continent’s development financier, this loan by the AfDB to Transnet would be very handy for Transnet’s recovery plan to eliminate its operational inadequacies and inefficiencies. A functional Transnet is important not only to the South African economy but also to that of the Southern African region and the continent at large.   

Two of the five most important objectives of AfDB are to industrialise and integrate Africa, with the former more concerned with promoting industrialisation and making the continent a manufacturing hub to create jobs. The latter is more related to ramping up regional integration and creating regional value chains.  A non-capacitated and inefficient Transnet, with the African Continental Free Trade Area (AfCFTA) and the Tripartite Free Trade Area (TFTA) on the horizon, could derail this prospect. More so the promotion of regional value chains, given that South Africa’s national ports of entry have served as the gateway to the Southern African region from several parts of Africa and elsewhere. 

The AfDB has ramped up the effort in this respect. For instance, in January this year, the AfDB, in collaboration with the European Commission formalised a new Financial Framework Partnership Agreement to accelerate funding for infrastructure projects in Africa. This is clearly demonstrated in the bank’s 10-year strategy (2024-33), with the plan to create more resilient economies in Africa in the face of global financial and other shocks. As recently as June this year, the AfDB’s African Development Fund approved a loan of $14 million to Guinea in support of the country’s implementation of its industrial development projects. The point is that the loan to South Africa is not an isolated intervention by AfDB but part of the bank’s continental-wide development and industrialisation agenda.

At this point, it can only be hoped that Transnet will allocate these funds effectively and efficiently, given that it is one of the South African parastatals that have been marred by corruption and integrity issues. Transnet has an important role in the country’s economy — for growth and increased employment — both directly and indirectly. President Cyril Ramaphosa spoke about the “smart industrial policy” and the local (continental) processing of the country’s commodities in his opening of the parliament address. Transnet is central to that plan, more so in transportation and processing. Thus, the sooner its recovery plan runs, the better. 

The world is involved in a furious debate and effort to find ways to reform the global financial architecture. This development is a positive for the effort in domestic resource mobilisation and contributes to the aggregate lending numbers by Multilateral Development Banks (MDBs). The pursuit of reforms of MDBs is for, among other things, realising increased access to financing for Africa’s infrastructure build and investment in production without throttling it with unsustainable debt. Reforms of the global financial architecture for purposes of greater and faster development is a major imperative of the Global South, among others.

The 15 flagship projects of the African Union, of which the AfCFTA is a major project, require massive investment. This effort seeks to exploit the advantages of the trillion-dollar African economy and expand it. Among the crucial elements for the success of this free trade area and integration is an advanced, modern and technologically hefty logistics system and infrastructure for the movement of both goods and people. Transport by rail, especially high-speed rail, joins the pursuit of a single air transport market as an important focus area for African development.

This AfDB development financing takes place as the East African Community, Southern African Development Community and the Common Market for Eastern and Southern Africa trilateral free trade area comes into effect this week. This is an opportunity for Transnet Engineering as it seeks to increase its locomotive production effort for both export and its freight rail division. The integration of African economies is happening, albeit slowly. This tends to follow the idea that full African integration must first start with integration within and between regional economic communities, as is the case with this trilateral free trade area.

But improved access to financing and increased investment on their own cannot achieve the ends of economic growth and development in the absence of a robust tax system and the combating of illicit financial flows. 

But careful attention must also be paid to the effort to replace an extractive economic model of the colonial era with one focused on the local production of finished value-added goods for export. 

Much is yet to be done and achieved. To attain sustainable development goals in Africa, well over a trillion dollars is required. The G20 India placed the figure for the Global South or developing economies at $4 trillion a year. The Brazil G20 2024 presidency is likely to affirm this figure. 

In the final analysis, the AfDB financing is welcomed for the basket of efforts required to attain development and the renaissance of the AU’s “Africa we Want”.

Dr Siphumelele Duma is a senior postdoctoral research fellow at the University of Johannesburg’s Institute for Pan-African Thought and Conversation. 

Mikatekiso Kubayi is a researcher at the Institute for Global Dialogue associated with Unisa, a research fellow at the Institute for Pan African Thought and Conversation, and a doctoral candidate at the University of Johannesburg.