On Friday (27 June 2014), I attended the Transnet Groups Annual General Meeting (AGM) in my capacity as Shareholder representative on behalf of the people of South Africa. I had the opportunity to engage with the Board of Directors of Transnet and appreciate the contributions and hard work they are putting into making Transnet a key driver of economic development and transformation in the country.
It’s indeed an honour to have been given these privilege to be at the forefront of providing shareholder oversight management over State Owned Companies (SOC) such as Transnet that play a critical role in the economy.
Transnet is one of South Africa’s success stories since the dawn of democracy, having accomplished a complete turnaround from a company that was financially unstable to becoming one of the top performing SOC in the country.
ECONOMIC OUTLOOK
In order to appreciate the critical economic contribution which Transnet is making one has to mention the economic conditions in which the company has managed to navigate under. Indeed, Transnet’s meteoric rise to a company that is currently financially sound and contributing to the developmental agenda of the state cannot be understated.
The country’s economic woes are well documented and very familiar to all of us. The same applies to our nations’ developmental needs.
In his inaugural address, President Jacob Zuma stated: “State Owned Companies and Development Finance institutions will become engines of development, complementing the State in promoting inclusive economic growth.”
This was said in the context of the notion of radical economic transformation as espoused in the Medium-Term Strategic Framework (MTSF) of the Fifth Democratic Administration, which is the effective current five-year implementation plan of the National Development Plan.
The objectives of radical economic transformation are:
- Sustainable and inclusive economic growth of better than 5 percent; Much higher levels of employment creation; and
- More rapid reduction of inequality, including de-racialisation of the economy.
The MTSF sets out to achieve this through a range of mutually reinforcing initiatives – Government Departments, SOC, public entities working together and in an aligned manner.
To this end, SOC and Transnet in particular, will have to take on an even more central role in driving Government’s agenda for economic development and transformation.
It is in this context that despite the sluggish economic outlook and minimal growth in the South African economy, I commend Transnet for achieving most of its targets and maintaining its sound financial stability.
1. PERFORMANCE OVERVIEW
In regard to the current year’s performance, Transnet has once again delivered a solid set of results. Not only did the net profit for the year increase by a firm 25%, the capital expansion programme has received a welcome injection, exceeding the previous year’s investment by 15.6% to R31.8 billion during the current year.
2.1 Operational performance
Despite the business environment being characterized by low global and economic growth, as well as volatile commodity markets, Transnet managed to reach a volume figure of 210 million tons in the financial year under review. Furthermore, it is noted that the increase in rail volumes was predominantly from General Freight Business, even though it was still below target. This is indeed encouraging for the road to rail migration strategy where there is a national imperative to focus on these areas.
I note that Transnet’s performance against its Shareholder Compact this past year has improved considerably, with 62% of the targets being met compared to 53% from the previous financial year (2012/13).
However, I am still concerned that the number of targets not achieved, represents a significant proportion of the identified Key Performance Indicators. These indicators are intended to drive Transnet towards achieving national objectives and it may therefore be necessary to interrogate our areas of concern, to find ways to ensure that Transnet is performing as required and ensure that there is a clear plan to mitigate underperformance.
2.2 Leveraging procurement (Industrialisation, Localisation and Transformation)
The year under review saw the awarding of a multi-billion locomotives tender by Transnet, which is expected to boost the country’s manufacturing capacity and capabilities. Our ambitions to industrialise remains this Government’s foremost priorities and therefore it is in this regard that I hope to see clearly demonstrated progress on Transnet Engineering’s evolution through this procurement and the economic impact on the South African rail industry as a whole. This project creates an extra-ordinary opportunity for South African private sector manufacturers in the rail industry, including Transnet Engineering, to grow and develop new capabilities.
It is encouraging to note the tremendous progress that Transnet has made in embedding and advancing the objectives of the Competitive Supplier Development Programme (CSDP) during the past year. Since inception of the Programme, Transnet has entered into contracts valued at R29.5 billion containing supplier development commitments of R10.9 billion, of which R5.9 billion has been delivered to date. While these numbers are commendable, greater emphasis needs to be put into ensuring that suppliers are held accountable to the commitments made. I have instructed the Board to put in a robust independent monitoring mechanism to determine if suppliers are meeting their contractual obligations in respect of supplier development and localisation, including specific milestones. The results of these independent audits must be communicated to the Shareholder on a quarterly basis, together with actions Transnet is taking should suppliers not meet their obligations.
I also note the progress made in transforming Transnet’s supplier base towards a B- BBEE supplier base and spending a significant 94% of its total procurement on B- BBEE and 92% in local content procurement. This is commendable, particularly
because these were archived within the limitations of the Preferential Procurement Policy Framework Act. The Department will continue in engagements with National Treasury to find an amicable solution that will balance the need to have controls to eliminate overpricing while ensuring that local supplier development is maximised.
It is critical that the supplier development, localization and transformation process becomes more than an SOC practice, but part of a national movement of the way business is done in South Africa. In this regard, the Department of Public Enterprises (DPE) has been working closely with the Department of Trade and Industry and the Department of Science and Technology to provide a number of enterprise support and investment incentive programmes for the supplier development process.
2.3 Social impact (skills development, job creation, etc.)
One of the critical elements to test whether Transnet is indeed fulfilling its developmental objectives and complementing the State in improving the standard conditions of the majority of South African is to evaluate whether young people (which constitutes majority of the unemployed) are provided with the necessary scarce and critical skills to be part of the mainstream economy.
I must say, that Transnet should be commended for having exceeded its targets in the enrolment of learners in various scarce and critical skills programmes as committed in the Shareholder Compact. This resulted in the enrolment of 138 engineers and 339 technicians enrolled against the annual targets of 132 and 330 respectively supported through bursaries and Internship programmes, as well as 1 552 artisan trainees enrolled in apprenticeship programmes against the target of 1550.
I further commend Transnet for having enrolled an additional 1000 artisan trainees to increase the total number of artisan trainees in their system to 3 340 in Transnet’s training facilities across the country. This is in support of the commitments made by Government in the National Skills Accord through the NEDLAC Social Dialogue process towards the development of artisans beyond their own needs for the national pool with focus on artisans support skills required for the Strategic Infrastructure Projects (SIPs) amongst others. The collaboration agreement between DPE and the Department of Higher Education and Training (DHET) has indeed yielded good fruit. The Department of Higher Educations through the National Skills Fund allocated R175 million for Transnet to enable to train 1000 additional artisans for the national pool.
3. STRATEGIC THRUST
Looking ahead, the current Strategic Intent Statement (SIS) signed between the Department and Transnet is in effect until 2015/16. The Strategic Intent Statement issued in November 2012, contains key performance areas that Transnet is to focus on through this period. This statement was formulated to respond to multifaceted challenges which include:
- high logistics costs;
- underperformance in critical facets of the logistics chain; inefficiencies in critical corridors;
- road - rail imbalance; and
- under-investment in infrastructure.
The focus areas as outlined in the Statement remain fundamental to the country’s needs and Transnet, through its dual mandate, is expected to continue striving for a balance between its commercial and developmental imperatives.
I note that the Market Demand Strategy (MDS) has been designed to respond to these challenges through the broader policy context of the National Development Plan, the New Growth Path and the Industrial Participation Action Plan and I also recognise the efforts of Transnet in adhering to the strategic guidance provided by the Shareholder.
CONCLUSION
In conclusion, I commend Transnet for its continued commitment to the country by providing sound financial performance in the year under review. I look forward to working closely with the Board of Directors in continuing to build this great organisation for the benefit of all the people of South Africa.
I thank you
