28 March 2001
Ladies and Gentleman, it is an honour and a privilege to address you at this important event because it marks the beginning of a fundamental change - for the better - in the operation of South Africa's ports. Since assuming the role of shareholder of Portnet in 1999, much correspondence from disgruntled port users has passed my desk. I hope that my address to you today will be cause for optimism.
Let me start by locating the restructuring of Portnet within the broader restructuring initiatives of government.
South Africa is engaged in an accelerated restructuring of state owned enterprises. We use the term "restructuring" to denote that this is not a simplistic privatisation process, but rather an array of strategies and options that are designed to maximise Government's interests defined in social, economic and developmental terms. We have detailed the objectives and principles of restructuring in the Policy Framework: An Accelerated Agenda towards the Restructuring of State Owned Enterprises. Many of you will have heard of them before. If you have not and you are interested I invite you to look at the document which is available on the Department of Public Enterprise's web site. I would just like to highlight that they include improving enterprise level efficiency and effectiveness, contributing towards the country's macroeconomic health through attracting foreign direct investment and reducing borrowing requirements, as well as helping to achieve social imperatives like employment growth and wider economic participation by previously disadvantaged groups.
Government's restructuring agenda is not an end in itself. Rather, it is a means to achieving broader economic objectives. In his State of the Nation speech in February this year, President Mbeki said that although there is a general consensus that we have established the necessary macro-economic balance and stability, our rate of economic growth is still too low. He noted that we now have to move the economy onto a high-growth path, increasing its competitiveness and efficiency and raising employment levels. To improve our competitiveness we need to lower input costs throughout the economy. This will be undertaken through a managed liberalisation of the energy, transport and telecommunications sectors.
In addition to the imperative for growth, South Africa needs to stabilise its level of debt and reduce its budget deficit. The restructuring of state owned enterprises will ensure that investment decisions are made more efficiently and that public sector debt is therefore optimised. In addition, funds raised from the restructuring of state owned enterprises will be used to reduce the budget deficit.
Having outlined government's broad economic development framework, let me turn to the sector close to all your hearts and explain government's view of the role of ports in achieving these broader objectives.
South Africa's democratic transition was accompanied by a transformation from a closed and internationally isolated economy to an open economy, which is firmly located within the global economy. The enhanced flow of goods and capital between South Africa and other parts of the globe since 1994 is evidence of our place in the international economy. Indeed, government is of the view that enhancing our export capacity and attracting a higher level of global capital flows is a key element to the success of our economic growth and development strategies.
The vast majority of international trade enters and leaves South Africa through Portnet's seven commercial ports. Hence, the efficiency of port infrastructure is a key determinant of South Africa's export competitiveness. Export competitiveness in turn has a direct impact on the creation of jobs and the expansion of productive output.
The introduction of the South Africa - European Union Free Trade Area and the SADC Free Trade Area have served to remove the obstacle of tariff barriers in our endeavours to increase exports to our traditional markets. Coupled with multilateral tariff liberalisation under the auspices of the WTO, the lowering of tariffs will have a positive impact on the South African economy. The critical issue is whether our transport infrastructure can facilitate the increased volumes of trade, which these measures herald.
A key objective of government is to shift the economy's productive capacity and exports from primary commodities to manufactured goods. This implies a shift away from goods exported in the form of bulk and break-bulk to containerised cargo.
In the transport sector broadly, the inefficiencies of state owned enterprises has been inimical to government's policy of enhancing global competitiveness and promoting exports of non-traditional products.
The purpose of this stakeholder conference is to inform Portnet's customers about the restructuring of South Africa's commercial ports. The priority accorded to the restructuring of our ports emanates from their current deficiencies, which manifest in inefficiencies and perverse cost structures. Indeed, the numerous complaints from Portnet's customers about these deficiencies have been an important consideration in government's recognition of the urgency to restructure this sector.
Being part of a global village, South African ports serve as an interface between inland and ocean transport modes. Products that pass through ports compete in global economies and port services have to reflect international levels of productivity and costs. If ports are perceived as being too costly and yet inefficient, clients will look for alternative modes of transport or even other markets. This is why it is imperative that Portnet addresses the way it operates to combat inefficiency and improve productivity.
Features of the inefficiencies within Portnet include long average vessel waiting times at docks; fewer tons per vessel per day of bulk and general cargo leaving ports and fewer containers per vessel per hour. There are also fewer working days per year and working hours per day. All these factors constrain the volumes of cargo that can be moved through our ports and compromise the reliability of the supply of goods to end-users.
In addition to the high costs these inefficiencies impose on port users, the structure of Portnet's tariffs stands in contradiction to government's industrial and trade policies. Neither wharfage nor operational tariffs bear any relation to the underlying cost of providing these services. While cargo handling tariffs are below the cost of providing the service, wharfage charges far exceed costs and, moreover, are ad valorem and hence fly in the face of government's policy of promoting exports of high value-added manufactured goods.
The deficiencies identified by government in the current operation of Portnet underpin our approach to restructuring this state owned enterprise. The objective of the restructuring exercise is to put in place a commercial ports system that is efficient, low-cost, responsive to its users and government's economic policies and widens ownership in the South African economy.
To that end, the key elements of a restructured Portnet includes:
· A tariff reform process which brings tariffs into line with cost structures. This will entail a reduction in wharfage charges, which will become an infrastructure levy and an increase in cargo handling tariffs that reflects the cost of providing this service;
· Port operations - involving cargo handling - will be separated from the National Ports Development Corporation. The latter entity will maintain common infrastructure, develop new infrastructure, provide marine services and enter into and monitor concessions with port operators;
· While The Port Development Corporation will remain a State Owned Enterprise, port operations will be opened to the private sector by way of concession agreements.
The tariff reform process is the key catalyst to the realisation of a restructured ports system. The interim measures which come into effect in April this year are but a tiny step towards the bold stride that all stakeholders will have to take to ensure that our ports facilitate, rather than hinder, export competitiveness.
The key challenge facing government is to enhance the competitiveness of the economy through the process of restructuring Portnet. To that end, the process must not be disruptive to the movement of cargoes during its implementation, it must be transparent and understood by all stakeholders, in particular port users and it must achieve government's objective of black economic empowerment.
The key challenge now is to finalise the commercial ports policy framework and release it for stakeholder consultation. Once feedback has been received from stakeholders the policy will go through the legislative process and become the legal framework within which a restructured ports system will operate. The Department of Transport, who are responsible for the ports policy, assure me it will be available for stakeholder scrutiny by no later than May this year.
The next challenge is to successfully complete the divisionalisation of Portnet.
The final, and most critical challenge is to commence with the introduction of private port operators in a transparent and credible manner which meets the state's objective of widening economic ownership through black economic empowerment.
A related challenge is to tackle the inefficiencies currently evident in the transportation of freight by rail, as this compounds the inefficiencies of the commercial ports. In addition, the interface between South Africa's ports and railways requires urgent attention if the deficiencies are to be remedied. I assure you that in tandem with the ports restructuring process, government is tackling the restructuring of Spoornet.
I trust that with the support of all the stakeholders represented here today - who's interests I hope are served by restructuring Portnet - government will rise to these challenges.
Government is committed to rising to the challenges because meeting them will open a range of opportunities for this country and its people as well as global players in the ports sector.
Enhancing the efficiency of South Africa's ports will have a direct impact on the expansion of the country's exports through an expansion of productive capacity and the concomitant growth in formal employment. This will buttress the development trajectory that the government is currently pursuing and presents an array of opportunity for a wide range of players in the economy.
A further opportunity is for private sector players to become directly involved in the provision of cargo handling services. In addition to opening up lucrative avenues for the private sector, the concessioning of port operations will generate Foreign Direct Investment for the economy and provide resources for much neglected capital investment in port infrastructure. The introduction of private sector operators will be implemented in a manner that meets government's objective of widening economic ownership of the economy through black economic empowerment.
Finally, a globally competitive commercial ports system will reinforce South Africa's position in the global economy and create a favourable perception among potential investors and the broader international community.
This presentation would not be complete without some indication of the time frames associated with the process I have outlined. I'm sure that many of you want some indication of timing of the tariff reform and restructuring process to enable you to plan your own business activities. That is the precisely the purpose of this conference.
Although it is difficult to unequivocally commit to time frames given the complexities involved in the restructuring process, I would like to provide you with an indication of government's thinking. The tariff adjustments that come into effect from April this year are largely superficial and hence a transitional measure. It is my hope and expectation that the tariff reform process will be concluded by the third quarter if this year. Between now and then the preparatory work to commence with the concessioning of port operations will be put in place. Hence, if all goes well, port operations will be ready for concessioning to the private sector in early January 2002.
I thank you for your attention and for taking time out of your busy schedules to attend this conference. I look forward to close cooperation with all Portnet's stakeholders as we implement this ambitious restructuring programme together.