BRICS bank gives Transnet R5 billion loan – BusinessTech

The New Development Bank (NDB) has approved a R5 billion loan agreement with South Africa’s state-owned freight transport and logistics company, Transnet, to “support the modernisation and improvement of South Africa’s freight rail sector.”

The loan agreement was announced and signed during NDB’s 9^th Annual Meeting in Cape Town on 30 August.

The NDB was created in 2015 by Brazil, Russia, India, China and South Africa (BRICS countries) who each contributed $2 billion to the bank’s equity capital and each own a 20% stake.

The goal of the Shanghai-headquartered bank is said to “mobilise resources for infrastructure and sustainable development projects in the BRICS and other emerging market economies.

The NDB said that “the improvement and modernisation of freight rail sector program includes rail network infrastructure renewal, locomotive overhauls, and wagon fleet renewal.”

“This program is expected to restore freight rail volumes in South Africa, improving operational performance and reliability, and contributing to a sustainable future,” it added.

Transnet has faced operational woes, mainly in the critical rail and port businesses resulting from underinvestment in infrastructure and equipment, theft and vandalism, subsequent corruption, and external shocks.

Years of compounding rail inefficiencies at Transnet saw freight volumes decline to 150 million metric tons in financial year 2022/23 from 226 million tons in the 2017/18.

According to a study by the GAIN Group, a boutique consultancy focusing on freight transport contract research, Transnet’s failures are estimated to cost the country R1 billion a day in economic output, equivalent to 4.9% of annual GDP or R353 billion.

This led the SOE, that is around R130 billion in debt and has a port and railway infrastructure backlog of over R50 billion, seeking alternative forms of funding for their recovery.

Transnet board Chairman Andile Sangqu recently told journalists that the company’s debt repayments were averaging just over R1 billion monthly.

Like other overly indebted state-owned entities, Transnet was allocated no bailouts for 2024/2025 as the Treasury continues its “tough love” approach and moves to reduce government debt and stabilise borrowing.

“This investment is important for Transnet, as we accelerate implementation of the Recovery Plan and economic reforms,” said Transnet Group Chief Executive, Michelle Phillips.

:The modernisation programme will enhance our operational capabilities and contribution to the growth and competitiveness of the economy [and] we are grateful for NDB’s support and look forward to a successful collaboration,” she added.

NDB President Dilma Rousseff, said that the BRICS Bank is “delighted to partner with Transnet in this transformative initiative.”

“This loan underscores NDB’s commitment to supporting sustainable development and economic growth in South Africa and by modernising the freight rail sector, we aim to facilitate more efficient logistics operations that will benefit the entire region and align with our goal of investing in a sustainable future,” said Rousseff.

This R5 billion will add to the $5.8 billion (about R102 billion) in concessional loans that the bank has already advanced to South Africa over the past five years.

It is also one of the first to be made in rand, rather than dollars, in line with the NDB’s aim to do about 30% of its lending in local currency.

This is another capital injection for the state-owned logistic company’s recovery plan.

Last month, the African Development Bank (AfDB) has approved a R18.85 billion ($1 billion) corporate loan to Transnet for its recovery and growth plans.

“It will facilitate the first phase of the company’s R152.8 billion ($8. 1 billion) five-year capital investment plan to improve its existing capacity ahead of expansion for the priority segments throughout the transport value chain,” said Transnet and the AfDB.

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