Rebuilding SA’s logistics backbone: What will it take to fix Transnet?

Logistics failures are throttling South Africa’s growth. Rail volumes are down and ports are congested, with exporters facing rising costs and missed opportunities. At the centre sits Transnet – once a financially self-sustaining national asset – now reliant on state guarantees to refinance maturing debt, with profound implications for investors, industry and the broader South African economy. 

From self-funded strength to financial life support 

In 2010, Transnet was among South Africa’s most financially robust state-owned companies. It funded large-scale capital projects directly from its balance sheet. Cash flows were strong and audits unqualified. It was a financially self-sustaining entity capable of executing big capex programmes on its own. 

That resilience began to erode in the mid-2010s as management instability, shareholder interference and state capture took hold. Between 2015 and 2023, executive and board turnover accelerated (no leader lasted more than three and a half years) undermining continuity and accountability. Decision-making became reactive, and long-term capital discipline gave way to short-term crisis management. 

At first, the damage was hard to spot. Financial indicators in the early 2010s still looked healthy. But by the latter half of the decade, the numbers told a different story. Audit opinions became qualified, fruitless and wasteful expenditure ballooned, and capital spend tapered. Debt climbed from roughly R37 billion in 2009 to over R100 billion a decade later, even as cash generation weakened. 

Source: Transnet AFS 2009-2025

By 2021, Transnet had slipped into a loss-making position. Despite some improvement in audit outcomes from 2022 onward, profitability remains marginal, with interest costs consuming much of operational cash flow. The result: an entity unable to fund itself from its own balance sheet, reliant instead on state support merely to refinance existing debt and undertake the maintenance and capital spend that was overlooked for a decade. 

That support has grown rapidly. In 2024, government issued R47 billion in guarantees, followed by R51 billion in July 2025 and R98 billion in August 2025 (almost R150 billion in total). These guarantees provided short-term liquidity relief but did not address the underlying issue: an unsustainable capital structure. Transnet remains responsible for the interest and principal payments; the guarantees only backstop a default. They help in the short run, but they don’t reduce the interest burden, address the unsustainable capital structure or create new investment capacity. 

Governance instability: the slow unravelling 

Behind the balance-sheet strain lies a governance crisis years in the making. From 2011 to 2018 (the height of state capture), successive ministers were appointed who dismissed CEOs and board chairs, eroding institutional memory and accountability, and in many cases installing individuals with deeply conflicted agendas and interests. 

By 2018, as part of the clean-up post the state capture years, then-Minister Pravin Gordhan sought to stabilise the entity, installing a new board and initiating cleanup efforts. Yet the impact of delayed decisions takes time to surface – it eventually appears in the numbers. 

Between 2018 and 2023, several structural weaknesses persisted: 

• Gaps in board composition, notably the absence of members with engineering expertise in a technically complex enterprise. 

• Lack of financial skills on both the board and its Audit and Risk Committee, compromising financial oversight. 

• Slow shareholder decision-making, resulting in delayed appointments and protracted vacancies in key roles. 

The combined effect was a gradual hollowing out of governance capacity – a problem compounded by inconsistent shareholder policy direction and weak accountability mechanisms. As leadership instability rippled through the organisation, operational performance suffered, credit ratings deteriorated, and borrowing costs escalated. 

Futuregrowth’s analysts, tracking these developments over more than a decade, saw the results clearly: the degradation in governance wasn’t immediate but its financial impact was inevitable. 

The reform push: promise and pitfalls 

Since 2020, government and industry stakeholders have recognised that South Africa’s logistics grid is too vital to fail, prompting structural reforms to restore efficiency, attract private capital, and loosen Transnet’s monopoly. 

The model involves separating Transnet into an infrastructure manager (referred to as Transnet Rail Infrastructure Manager or TRIMS) and an operational entity. This aims to delineate ownership of base infrastructure (rail lines, depots, signalling systems, and some port assets) from the day-to-day operations of trains, wagons and terminals. In principle, this separation should lay the foundation for competition and new investment. 

At the same time, the National Logistics Crisis Committee (NLCC), formed in 2023 under Operation Vulindlela, has accelerated reform momentum. Driven by the Presidency and National Treasury and now under Transport Minister Barbara Creecy’s oversight, the NLCC has brought much-needed coordination and political weight. 

Yet progress remains slow and fragile. While the intent to invite private-sector participation (PSP) is sound and the direction of travel is positive, Transnet still designs, manages and adjudicates the very processes that will erode its monopoly. We believe this is an inherent conflict of interest. 

This flaw has already played out: 

• 2022 Rail Slot Concession: Envisioned as a test case, it limited contracts to just two years, an unbankable term that led the sole successful bidder to withdraw. It was economically unfeasible and some believe it was set up to prove that private participation doesn’t work. 

• Durban Container Terminal (DCT) Bid: Although multiple bidders participated, Transnet ran the adjudication internally, awarding the contract amid alleged procedural inconsistencies. A competing bidder challenged the outcome in court, freezing the process for two years and leaving one of the world’s most congested ports in limbo. This matter has recently been settled by the courts, who ruled in favour of Transnet. 

• 2025 Rail Slot Process: Eleven successful bidders were announced for 41 slots, yet we understand that one of Africa’s largest rail operators declined to participate, citing “unsustainable commercial terms”. Many winning bidders were small or inexperienced, raising questions about execution capacity. Further, we understand that the penalty regime in the current version of the Network Statement is asymmetrical – imposing no requirement on TRIM to maintain the condition of the rail network to an agreed standard and yet imposing penalties on the rail operators for non-performance. 

Across these examples, contracts remain asymmetrical: penalising private operators for non-performance but imposing no reciprocal penalties on TRIM. Without balanced risk sharing, investment appetite will stay muted. 

We believe the path forward lies in replicating as far as possible the REIPPPP model (South Africa’s Renewable Energy Independent Power Producer Procurement Programme), which succeeded partly because it was run independently of Eskom.

An equivalent, independent office for rail and ports could design and adjudicate PSP projects transparently, unlocking an estimated R160 billion in infrastructure repair and expansion. 

In short, reform is moving in the right direction, but its success depends on speedy, focused decision-making – including the willingness to make some difficult trade-offs.

The policy vision is there; what’s still missing is the consistent ability to translate that vision into action. Until an independent structure ensures fairness, transparency, legal certainty, appropriate risk-sharing and commercial viability, private capital will remain cautious. 

Futuregrowth’s approach: investing with eyes open 

For long-term investors, Transnet’s situation presents a paradox: infrastructure is urgently needed, yet the current environment remains fraught with risk. Balancing developmental impact and financial prudence is essential. This is a discipline Futuregrowth has applied for decades. 

As one of Transnet’s key funders over several decades, Futuregrowth has navigated its credit deterioration with both caution and conviction. We’ve historically been one of Transnet’s main lenders, so when the degradation started showing up in the numbers, and later in the downgrades, we had a few arrows in our quiver to respond decisively.  

That response took several forms: 

• Risk-based structuring: Where possible in bi-lateral lending facilities Futuregrowth built in margin ratchets – provisions allowing lenders to increase the interest margin each time Transnet was downgraded. This mechanism ensured that investors were compensated for the rising risk. 

• Governance engagement: When the board lacked financial and engineering expertise, Futuregrowth engaged directly with the management team, board chair and the Minister responsible, to highlight the concern. Those engagements, disclosed to clients for transparency, were met with acknowledgement and gradual board strengthening. 

• Covenant enforcement: Bi-lateral facilities included financial covenants that have been breached in recent years, triggering dialogue with Transnet and providing us with meaningful information regarding the entity’s “going concern” assumptions and an opportunity to seek clarity from the shareholder. 

• Ongoing stewardship: Futuregrowth continues to monitor (and engage with where appropriate) the reform process, balancing its role as a funder with its broader responsibility to protect clients’ capital and promote systemic improvement. 

This blend of active engagement and disciplined structuring reflects our philosophy: investing in developmental assets with open eyes; neither avoiding risk nor accepting it blindly. Our role is to ensure that while we contribute to rebuilding national infrastructure, we also protect the savings entrusted to us. 

What funders need to see before writing cheques 

Across the institutional investment community, interest in logistics infrastructure is real, but it comes with conditions. Capital will flow only when projects are bankable, transparent, and governed by rules that inspire confidence. 

From Futuregrowth’s vantage point, we will look for several non-negotiables: 

• Regulatory certainty and predictability 

• Policy alignment across the various government ministries, entities and decision-makers  

• Robust legal agreements  

• Independent regulatory oversight  

• Fit-for-purpose projects 

• Fair risk sharing  

• Appropriate returns  

• Recourse mechanisms  

• Bankable projects, including certainty of cash flows. 

A lot of private capital is willing and able - and frankly very keen - to invest in infrastructure. The capital is here. What’s needed is the political will to accelerate the reform process and rapidly launch commercially sound projects that allow for private sector capital participation. 

When rules are clear and fairly enforced, private capital doesn’t replace the state but multiplies the state’s capacity. A fair and robust process with clear and commercial terms, including independent oversight and sound governance, is how South Africa can rebuild its logistics backbone and reclaim competitiveness. At Futuregrowth, we stand ready to play our part - as responsible allocators of capital - in helping turn that vision into reality.