Siyabonga Gama – CEO, Transnet, South Africa
Siyabonga Gama, CEO of Transnet, discusses the need for collaboration between the private and public sectors to meet Africa’s infrastructure needs and the government’s role in facilitating this partnership. Furthermore, he touches on the port and energy ecosystem in South Africa, and the role of Transnet in shaping the regional infrastructure requirements.
Many of the South African state-owned entities have struggled in recent times. What have you done to put Transnet in such a positive position?
“We are looking to expand on our current pipeline offering and participate more in the hydrocarbon market with a vertically integrated approach.”
I took over Transnet during a very difficult period for the country as we were coping with the collapse of the mining commodity bubble. Many mining companies became very price sensitive and those on high cost curves were not able to survive. In fact, a lot of restructuring has taken place in the mining industry, notably in the coal, iron-ore and manganese sectors. Transnet had to reduce costs to survive, and in the last three years we have cut 9 billion ZAR (0.75 billion USD) from our cost base. Furthermore, it was evident to me that we needed to change our tactics, and diversify our approach, not only from a product perspective, but also geographically and we started to look at the entire continent.
If you look at South Africa post the global financial crisis (GFC), the entire market was not able to respond properly from a macro-economic perspective, and there has been a fiscal intervention in the area of infrastructure investment. On our side, we have recently introduced Transnet 4.0 to fall in line with the fourth industrial revolution, and a big part of this has a focus around oil and gas.
We are looking to expand on our current pipeline offering and participate more in the hydrocarbon market with a vertically integrated approach. This incorporates a large port terminal intervention and we have already put in place LPG and LNG infrastructure for Saldanha Bay and Richards Bay. Additionally, we aim to facilitate tanker operations by rail, so gas can flow from the coast to the inland, as many major South African cities are landlocked. We believe that this oil and gas strategy has the potential of adding 10 to 12 billion ZAR (0.83 to one billion USD) per annum to the Transnet revenue stream.
Lastly, we are aiming to complement Eskom in delivering energy to the South African population, which will give the consumer a cost advantage. We want to offer Eskom rail logistics and move from the priority being roads. Furthermore, this his will focus around the nations green energy initiative, though we must always consider cost in the process. Consumers will only consume energy at the right price, so we must first be able to ensure renewable energy can offer this solution.
A recent world bank reports indicates Sub-Saharan Africa requires per annum an infrastructure investment influx of roughly 100 billion USD. What can be done to ensure this can be met with a mix of both the private and public sector?
Africa is a continent that needs three things in order to cement its developmental potential. Firstly, energy, and this is critical in all forms. We need to light up Africa, as currently we do not have enough megawatts for the continent. Only recently South Africa achieved an energy surplus, and this is uncommon in the region. The recent gas opportunities in Tanzania and Mozambique are a good start on this African energy journey. Secondly, we must see better transport infrastructure and thirdly, improved telecommunications.
If we are able to see these three things come together, we can all reimagine and reignite the vision of the continent. Nevertheless, the public sector must create a business environment in which private investors have enough confidence to pour money into the region.
Another element stems from the 2008 GFC when a lot of private sector companies tried to manage the situation by minimizing debt, rather than investing. Therefore, many companies sat with a pile of cash on their balance sheet, unsure of what to do with the uncertainty in the market. What we need is business leaders that are far sighted, nimble and can adapt. We must remove their short sightedness, so they understand an uncertain world is the new norm. They can not just wait until they the future is 100 percent clear before making decisions as with this mindset nothing will ever happen, and the continent will remain stagnant.
Are you optimistic that president, Cyril Ramaphosa, can change this?
In South Africa, business confidence recently has been at an all time low. Nevertheless, there has been a new found “ramaphoria” sweeping the nation due to President. Ramaphosa. The belief is that he will fix the elements for investment to thrive, and most importantly, we hope to witness the establishment of policy that takes into consideration the government investment along with the public and private sectors.
As the CEO’s of the state-owned operators, we must assist the government in this developmental agenda by understanding which infrastructure must be put in place to attract private investors. For example, if we invest in a new road, train route or pipeline, it is not for Transnet’s benefit, but to attract private companies to South Africa so they can take part in the nation’s development.
On a continental scale it is about how we can improve intra-African trade. If we have in place the three aforementioned key elements – energy, transport and telecommunications – with a dose of private and public collaboration, we will see Africa reach its targets. The continent has one billion people with 50 percent of the population under 35. There is amazing potential for Africa to grow and we must show private investors the time is now, and they in-turn must have courage, an open mind for change and take risks
How do you translate this Pan-African approach to neighboring countries?
Transnet is more than 165 years old, and we have thrived on our core competencies of ports, railways and pipelines. We now aim to replicate this across the African continent and have done work in nearby countries such as Mozambique, Zambia, Swaziland and Zimbabwe amongst others. By either constructing or modernizing the infrastructure set-up in these nations, we are able to strengthen Africa’s logistics and supply chain backbone, a key necessity for future developments.
All this requires a targeted investment program that entails binational agreements. The private industry must then act quickly to take advantage of these opportunities.
How does South Africa remain relevant in the port ecosystem considering the large investments being made throughout Africa?
The area that will drive our port’s success is operational efficiency. Competition is welcome, and other ports across the continent have their right to exist, although our ports will remain relevant by positioning themselves as world class. This requires continuous improvement by making our operations lean and cost-efficient as the overriding factor in many cases is how many containers can you move in an hour and at what cost. This is the philosophy that puts us head and shoulders above the rest in the region, and South Africa is perfectly positioned along the axis of world trade to continually be a key maritime destination.
Furthermore, the human factor will also separate us from the rest. Investing in infrastructure is one branch of development, but the other is developing a skilled workforce that is exposed to the port operations of the leading global terminals.
Energy is key to the regional development of Africa. How is Transnet taking part in this process?
At the moment, a lot our energy involvement is in the conceptual reformative stage, largely participating within Southern Africa. We witness new opportunities in Mozambique and Tanzania, and we are looking at how we can contribute across the region either from a rail and port infrastructure or possibly constructing new pipelines.
Does South Africa have the potential to be an import-based energy system?
The jury is still out on this topic, though I feel that the government does not believe this is the correct approach. There have been a lot of discussions around upgrading the capacity and capabilities of the nation’s refineries, and many companies have noted they are willing to invest in this process.
If you do construct a majority import-based energy ecosystem the country will need to invest heavily into rail, port and pipeline infrastructure. South Africa is most probably going to have a hybrid model, and already large gas storage investments have been made at key ports. Local players, such as Sasol and PetroSA have unique capabilities that the country must build on, rather than just importing our requirements.
The company has a goal to reach 100 billion ZAR (8.35 billion USD) revenue per annum. What will make allows you to reach this goal?
We believe that this objective is not insurmountable, and we hope to achieve it in the next two to three years. Overall, it is about creating a winning mentality and getting used to success. We must be relentless in our mission, and even if we have setbacks, get up and keep going with our eyes on the prize. Transnet must work fast and when opportunities come knocking take them and be receptive to the market. Furthermore, we must be willing to work with others and establish strong, long-term partnerships. With this we will see the transfer of knowledge across the industry, allowing us as a collective to gain strong market growth.
What advice would you give to other heads of state owned companies, so they can follow in Transnet’s footsteps in being a profitable business?
I would never run a business that does not generate profit. Every time Transnet has positioned me in a branch, I tell my team this year we will make profit. It does not matter if it is a state-owned company or not, if your cost base it too high, it is time to restructure, even if at the end of the day a business must strongly generate cash, and even you are only making a little profit, that is good enough. Every state company has its developmental goals, though without enough cashflow, these objectives cannot be met.