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The cost of SA’s deteriorating roads

Infrastructure projects need appropriate pricing structures.

PRETORIA – The tonnage of freight transported on South Africa’s roads grew by almost 40% since 2003, signalling that urgent attention is needed for the upgrading and maintenance of the country’s roads. On rural roads and rail, the increase was above 80%.

In the 8th State of Logistics Survey (conducted by the CSIR, the University of Stellenbosch and Imperial Logistics) Hans Ittmann, a consultant who works on the survey, states that infrastructure development is a critical enabler to economic growth.

“The logistics infrastructure of a country – which includes roads, railways, ports, pipelines and airports – forms the backbone for this growth,” he writes in the survey that was released on Wednesday in Johannesburg.

Ittmann highlighted that the freight transported on the country’s main corridors, both on rail and on road, grew by 39.5% over the period 2003 to 2008.

“In contrast, the growth on rural roads and rail was 85%. In tonne-kilometre this growth was 18.5% and 72.7% respectively,” Ittmann writes.

“This raises the question whether sufficient attention is given to non-corridor infrastructure.”

In his state of the nation address President Jacob Zuma announced a massive infrastructure development plan. In the speech he highlighted 17 projects with about R3.2trn needed to complete these projects.

According to the 2012 National Budget Review the projects earmarked for completion with regard to transport is the following:

  • A R80bn passenger railways project (through PRASA) to acquire a new fleet of rolling stock over 20 years in which procurement has commenced.
  • National road improvements (through Sanral) of R45.4bn. This will include maintenance improvements, refurbishment and new roads and is an ongoing programme.
  • Rolling stock and locomotives for freight rail (through Transnet) of R7.7bn where procurement is also underway.
  • Provincial road improvements (through the Provincial Department of Roads) of R25.5bn for the maintenance, refurbishment and new roads over the next three years which is a work in progress.
  • The Ngqura container terminal for R7.9bn to improve the port capacity by 800 000 units, the first phase completed in 2012.

It has been well-documented that South Africa has a backlog for the maintenance and upgrading of its road infrastructure. For maintenance alone the backlog is R149bn, according to the recently resigned CEO of the South African National Roads Agency, Nazir Alli.

The R25.5bn highlighted in the budget for these non-corridor, rural networks, is therefore only a small percentage of what is needed for the proper upkeep and upgrading of these roads.

According to the Municipal Infrastructure Investment Framework for South Africa (Round 7), conducted by the Department of Cooperative Governance and Traditional Affairs and the Development Bank of Southern Africa, 75% of access roads in rural and urban areas are in poor condition.

Ittmann told Moneyweb he believes the money is there, and that it is never too late to start spending on infrastructure.

“I think the argument that there isn’t enough money is not a good one. I believe there is money to upgrade these roads,” he said, referring especially to the rural roads.

“It is starting to happen that the people are waking up and realising that we need to maintain these roads. Of course there has to be a shift of some road freight to rail. If you look at the road between Durban and Johannesburg, if that shift does not take place we might not have a road in future,” he said.

The deteriorating conditions of South Africa’s roads have potential negative effects on the country’s logistics costs. These costs were already up by 4.8% to R339bn for 2010, the year the latest logistics survey focused on.

In the survey, two case studies highlight the potential negative impacts and the cost to logistics companies of transporting cargo on deteriorating roads.

In the one case study, six similar trucks carrying fruit travelled on national and provincial roads considered to be in a good condition, as well as on gravel roads that have not been re-gravelled in the past eight years and were considered to be in a bad condition.

It was found that the trucks were likely to be subjected to conditions that could damage the cargo and lower its economic value. Small-scale farmers would be more vulnerable to the negative impact of this as they provide their own transport and do not use fleets that are safeguarded by service-level agreements and insurance.

The other case study, focusing on the potential losses in transporting grain across the country over rough roads, found that a revenue loss of up to R2.5m yearly was possible.

The authors of the case studies – Wynand Steyn, Wilna Bean, Cornelia Pretorius and Gert-Louis van der Walt – state that the potential effects of deteriorating road quality on logistics activities and costs have been overlooked in the past, but that stakeholders should start considering the potential losses, especially in the agriculture sector.

In an address to the South African Association of Freight Forwarders Congress on Thursday, the deputy CEO of Business Unity South Africa, Raymond Parsons, warned against inappropriate pricing structures being used for these infrastructure projects.

He said that it is imperative that agencies responsible for infrastructure development plans assess potential cost implications carefully.

“The recent increase in electricity tariffs and the debate over e-tolls highlights the potential harm done to the economy by necessary, but badly conceptualised and planned improvements, especially in terms of a lack of certainty and engagement on how projects are financed,” he said.

“The long-term benefits of improved infrastructure will be undermined if the economy suffers excessively in the short- and medium-term through poorly delivered projects with inappropriate pricing structures. This does not imply that infrastructure should not be developed, but that the impact of the costs must be well-managed,” Parsons said in his speech.

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