South African Government buzz words and what they mean for South Africa’s ocean economy
20 May 2016
You may have heard the terms, “blue economy” and “Operation Phakisa” bandied about in South African Government addresses such as State of the Nation and the Budget Speech; but what are the specifics of these Government policies and are they working?
The National Development Plan 2030 recognises the potential for developing the blue or ocean economy, noting South Africa’s 3000 kms of coastline on a major strategic shipping route. The plan further recognises that South Africa’s ports handle about 3.5 percent of the world’s cargo measured in tonnage, which places the country among the top 15 international maritime trading nations (bearing in mind that it is a major exporter of bulk cargoes such as iron ore and coal).
South Africa has a vibrant maritime economy comprising private terminal operators, terminals operated by the stated owned Transnet SOC Ltd, ship-builders and repairers, bunker (fuel) suppliers, ships agents, clearing and forwarding agents, ship suppliers (chandlers), security services, ship surveyors and engineers, cargo and ship insurers, and attorneys specialising in shipping and logistics. Durban and Richards Bay form the heart of South Africa’s maritime economy, with 60% of all South Africa’s imports and exports passing through Durban Port and with most of South Africa’s bulk cargoes shipped from Richards Bay.
Stakeholders invited to participate in the Operation Phakisa ocean laboratories in Durban in July and August 2014 were asked to develop initiatives to fast-track the blue economy. The labs succeeded in bringing together more than 650 participants from over 65 institutions in the spheres of business, government and academia. Four development areas were identified within the ocean economy – marine transport and manufacturing, offshore oil and gas exploration, aquaculture and marine protection services, and ocean governance.
Some of the most significant projects in the marine transport and manufacturing space are the refurbishment of ship repair facilities, the development of ship repairs facilities in Richards Bay by possible creation of a floating dock and the development of Saldanha as an oil and gas hub.
In a review workshop in October 2015, it was reported that Transnet National Ports Authority (TNPA) had invested R 2 billion in the refurbishment and maintenance of existing facilities, including the upgrade of the offshore supply base in Saldanha, the refurbishment of the lead-in jetty in Port Elizabeth, and the refurbishment of outer dry dock caisson in Durban. It is of interest that R 100 million has been committed to developing the funding models for the port development projects. This suggests that Government has recognised that, given the scale of the investments required, it is no longer feasible for TNPA to fund and bear all of the risk in port development. It is a small wonder that significant funds have been set aside for conceptualising suitable funding models, the need is great and the issues are complex.
As far as the need for private sector investment is concerned, it is relevant that the Ports Regulator of South Africa refused the average tariff increase in cargo dues requested by TNPA for the financial year 2016/2017. This show of strength by the Regulator will certainly raise doubts about the ability of TNPA to continue to fund port development projects with revenue generated from port users.
Low oil prices, without forecast for immediate improvement, will put a dampener on Government’s plans to build capacity relating to the oil industry in Saldanha. However, long term vision is needed. Analysts are confident that the oil markets will stabilise as the current over-supply is not expected to last.
It is also relevant that the Baltic Dry Index, which records average freight rates earned by ship-owners for dry bulk cargoes (and is considered a reliable indicator of activity in the shipping industry) hit an all-time low in February this year. In these tough economic times, ship-owners are desperate to cut costs and ship repairs are no exception. South Africa’s relatively weak currency may offer a competitive advantage in the ship repair industry, but it will be hard pressed to compete with Asian ship repairers when it comes to labour costs.
The myriad of political, social and economic factors which impact on the success of a port development project means that it is rarely appropriate for one party to bear all the risk, and this is more so in the case of TNPA. The latter’s function is to manage our ports efficiently – not to take investment gambles. By commissioning a study of funding models, Government has heeded the call to involve the private sector in port development.
That alone is not the reason for the expensive, planned development of funding models. The complexity lies in determining willingness of Government and TNPA to enter into public private partnerships and everything that entails. A possible tension exists between TNPA’s monopolistic system of near absolute control over port assets and the interests of investors. The current legislative framework, as set out in the National Ports Act, potentially disallows investors from having a say in the management of their investments, as only TNPA is vested with the authority to manage South Africa’s ports.
Operation Phakisa is encouraging as it affirms the Government’s commitment to the ocean economy, evidenced by concrete steps to develop ports infrastructure. Perhaps the true test of political resolve, however, will come when investors make it clear that the Government cannot expect to dictate the terms of private sector investment – a partnership is required.
This article first appeared as a column in the Sunday Tribune Business section(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)