Moving South Africa - Benefits and Beneficiaries

Department of Transport

moving south africa

BENEFITS AND BENEFICIARIES

18. Benefits And Beneficiaries

Perhaps the most complex issue related to the implementation of the strategy is the determination of beneficiaries – which customer segments and providers benefit from the refocusing of the transport platform in conformance to the vision. The flip side of this question is the more vexing one of who loses? These questions must also be viewed through the lens of overall impact on the nation.

Given the constraints on funding and sustainability throughout the transport system, ensuring that benefits are harvested and systematically redeployed is critical. Benefits that accrue at a system level must flow, as much as possible to the customers of the system, resulting in lower costs to passengers, and greater competitiveness to manufacturers. Within some providers, there will, understandably in consequence of their sustainability problems, be considerable incentive to hold on to the benefits wherever possible, and this must be guarded against as it will defeat the purpose of the strategy. Any measurement of gains and losses must be anchored in the impact of the strategy on the customers and the nation, and measured and monitored accordingly.

Short term pain, long term gain

In the nature of restructuring in general, a number of the strategic actions will require up- front investment or cost in order to effect the changes necessary. Systems benefits will be long term in character, and may take a long time developing, while costs will be high at first. MSA is convinced that the restructuring will have both high economic and social returns, but clearly the investments required to kick start the process will have to be found, or at the very least, staged in a fashion that allows for them to be substantially funded.

At the very highest level, the distribution of benefits can be broken into four parts:

The creation of greater value for customers;

The improvement in industry profitability and reinvestment;

The lowering of the fiscal burden;

The minimisation of externalities.

Freight benefits

As Figure 110 shows, there are decreased requirements for funding from branch rail, non-core ports and branch roads as well as road funding to repair overloading that can be avoided. Requirements for road corridors, SADC links, core ports and inland terminals and logistics will increase. The potential savings in rail from improved operations, and income from enforcement and road user charges will be great, while port wharfage charges will, in the medium term, likely fall.

The complexity in freight is that much of the saving will occur inside of the operating entities of Transnet, and so will, of themselves, deliver little direct benefit into the system. Clearly, the need to fund at a Transnet level will be substantially reduced, or eradicated in the medium term. Much of the saving will however have to go to funding the transformation of the Transnet entities themselves in the short term. This will require a team of government and Transnet officers who negotiate and manage the and timing of benefits flows. Their charge should be to find the quickest path to savings and service improvements to customers. A clear provision must be made for the retraining and nurturing of those who are victims in the consolidation as a primary use of funds in the early period.

Figure 110: Summary Potential Benefits

Maritime Inland

Build density around corridors
Trade flow balancing raises prices by 18 to 25% from 2004
Reduction in multiple port calls: 2 to 11% savings in cost and transit time

Separation of core rail lines from branch lines reduces core line costs by 15%
Investment in corridor freight network reduces vehicle operating costs

Appropriate use of Modes and Modal economies of scale
Increase vessel size decreases vessel cost by 17%
Feeder and specialised ports save from 3 to 5 days in transit time

Increased use of unit trains improves service reliability
Road user charges for infrastructre and externalities increase 0.5 to 1 cent per NTK

Improve Firm-level Performance
Port investment, fixed vessel arrivals and operating efficiencies eliminate excess port delays

Rail operational improvements reduce general freight cost by 25%
Road freight productivity improvements reduce costs by 20%
Inland terminal improvements improve service reliability and reduce road freight costs

Distribution of Benefits

To customers by decreasing prices
To the nation by reducing externalities
To firms to raise reinvestment levels and improve productivity
To stakeholders negatively impacted by the strategy
To invest in implementing the strategy
To government through reduced allocations from the fiscus

Indirect benefits will flow very heavily towards those who move to respond to the consolidation of the freight network within corridors. As the large providers cut back, opportunities to develop transport businesses that feed the corridors will increase, particularly as branch lines are rationalised. Concessioning and buy-out options will be many, and these can and should be directed towards those who lose employment in the restructuring. The shift in transportation emphasis to road based freight transport around and within the corridors will create significant opportunities for small and medium enterprises, particularly given the relatively low barriers to entry to these businesses. The job creation impact of greater transport efficiency and greater competitiveness is potentially very large, but is dependent on firm level actions. What must be ensured is that, as soon as possible, the cost reductions in the system flow to the customers, and onward to their customers, and are not exclusively harvested by the operators.

Passenger benefits

For passengers, the benefits equation will be more tangible – access, price reductions and service improvements. The Stranded will be mobilised quite rapidly, with the substantial positive impact that this has on their capacity to actively seek employment in either the formal or informal sector. Improved service to all customers will lower transit times with positive productivity impact. The actual cost implications to customers may, in the short term, result in higher costs to those not supported by subsidies.

Additional costs within the system will result from increases in fares to reflect actual costs and the knock-on impact of increases in tolls, parking charges, license fees, increases in the fuel tax and other additional fund sources chosen by government. Redirected funding from subsidy targeting, only subsidising the optimal mode and reducing investments which benefit all road users indiscriminately will create funding for benefit flows. In the short term, these funds can be invested in the corridors and public transport, upgrading public transport, subsidising the Stranded and Survival segments and, importantly, on enforcement. The benefits from enforcement will accrue to all passengers in the form of greater safety, reduced externalities and higher levels of security.

Substantial savings are envisioned from optimising modal economics and densification along corridors, particularly in the reduction of investment required to serve the unserved and underserved. Broad social benefits will flow from the higher levels of coordination across government, particularly with regard to the roll out of housing and infrastructure programmes. Tenders and concessioning will generate funds for the system for longer term investment towards system and component sustainability. At the provider level, the need for massive reinvestment to achieve sustainability has been documented elsewhere in this report, and is a necessary corollary to the consolidations envisioned.

Employment benefits

In terms of employment creation, the strategy will in itself create few jobs in the short term. The consolidation of various providers will, in fact, result in job losses in the short term. However, the impact on competitiveness of the customers of transport can be substantial, and thereby the strategy will contribute very directly to the creation of a large number of sustainable jobs in the economy.

There is a strong likelihood that after consolidation the key providers of transport services will again begin growing their employment bases as they grow with the economy. This is particularly true of the potential contribution of transport to tourism, both domestic and foreign. Once the signaling from tourism in relation to their needs and those of their targeted customers is clear, the capacity of the transport system to respond quickly to these needs will be dramatically enhanced. As mentioned above, the opportunities flowing from the creation of the low cost backbone in terms of feeder activity and the sale of assets can be channeled to those who lose employment in the rightsizing of providers.

Irrespective of how this is handled, the employment creation in low barrier to entry businesses in and around transport will be substantial. Further, as decisions about the road network play out, the opportunities for labor intensive road building and maintenance will be great on roads that are not part of the backbone, the majority of the roads in the country. The benefits of increased social integration made possible by the creation of the low cost backbone will be an important underpinning to the social goals of government.

The Need for Initial Investment to Generate Long Term Benefits

The key issues to deal with, however, remain the need to front-load funding for transformation, so that the benefits outlined above are unlocked as soon as possible. It is here that the strategy is limited by the art of the possible, and where trade-offs and timing decisions will have to be made over the next few years. To the extent that external funding is not available, or the system cannot release sufficient internal funding from rationalisation or restructuring, the implementation program will need to be systematically staged to match outflows to availability. Serious consideration must be given to getting right the balance between pain and gain in the system as the hard realities of fiscal discipline collide with the investment character of the transformation strategy.

<- Previous Section	CONTENTS	Next Section ->

( 17. integrated general principles of the strategy )	back to MSA page	( 19. next steps )

	Maritime	Inland
Build density around corridors	Trade flow balancing raises prices by 18 to 25% from 2004 Reduction in multiple port calls: 2 to 11% savings in cost and transit time	Separation of core rail lines from branch lines reduces core line costs by 15% Investment in corridor freight network reduces vehicle operating costs
Appropriate use of Modes and Modal economies of scale	Increase vessel size decreases vessel cost by 17% Feeder and specialised ports save from 3 to 5 days in transit time	Increased use of unit trains improves service reliability Road user charges for infrastructre and externalities increase 0.5 to 1 cent per NTK
Improve Firm-level Performance	Port investment, fixed vessel arrivals and operating efficiencies eliminate excess port delays	Rail operational improvements reduce general freight cost by 25% Road freight productivity improvements reduce costs by 20% Inland terminal improvements improve service reliability and reduce road freight costs

Distribution of Benefits
To customers by decreasing prices To the nation by reducing externalities To firms to raise reinvestment levels and improve productivity	To stakeholders negatively impacted by the strategy To invest in implementing the strategy To government through reduced allocations from the fiscus