UNDICTATED: Firing Cadres won’t fix Transnet while Pravin still runs show

Long-time property developer Francois Nortje has a vested interest in the country re-establishing its once-efficient logistics network. Then again, given its massive on the national treasury, so do all South Africans. However, we’re observing that the SACP/ANC government seems to misunderstand that simply firing the cadres it deployed at Transnet is not its silver bullet. In this interview with BizNews editor Alec Hogg, Nortje explains why Public Enterprises Minister Pravin Gordhan, at 74, is a significant part of the problem. There’s no disputing Gordhan’s massive contribution to the nation through his successful turnaround of SARS and steadfast resistance to the Zuptas. However, when it comes to managing an enterprise — be it public or private, Eskom, Transnet, or SAA — a communist, no matter how smart or well-intentioned, is operating far outside their circle of competence. The evidence suggests the only lasting solution to the ongoing Transnet disaster lies in a radical transformation of ANC leadership’s thinking, not in doubling down on the long-failed fantasy of a “Developmental State.” Given its track record, this approach, to paraphrase Albert Einstein, is insanity. – Alec Hogg

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Relevant timestamps from the interview

00:07 – Introductions
03:29 – Francois Nortje on being a developer of the port of Gauteng and whether it’s heavily reliant on Transnet
06:03 – On if there are any redeeming factors that we can take from the Transnet situation
11:23 – The problem that is Pravin Gordhan
15:52 – Transnet must take a leaf out of Eskom’s book
21:31 – Breaking Transnet up into smaller businesses
21:40 – Conclusions

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Edited transcript of the interview with Francois Nortje, Transnety watcher and developer of the Port of Gauteng.

Alec Hogg: Francois Nortje is the developer of the Port of Gauteng and our go-to guy anytime we want to find out about Transnet. Transnet has been making headlines lately, especially following the resignation—or firing—last week of its Chief Executive, Portia Derby. She left not long after a new chairman took over at Transnet, replacing Louis Von Ziena. The new chairman, Andile, is the former head of Anglo-American South Africa and brings with him substantial management experience.

Interestingly, both Portia Derby and her ex-husband, Brian Molefe, have served as CEOs of Transnet. Both came from outside the industry, lacking specific knowledge of rail and port operations, but deeply embedded within the ANC. This raises questions about the ANC’s cadre deployment strategies. The latest annual report reveals that Portia Derby was paid 8.5 million Rand, more than double what her temporary replacement, Michelle Phillips, earned at 4.2 million Rand.

In the report, Michelle is among the lower-paid executives. There are nine members in the 20-person executive group that actually earn more than her, raising questions about why she was selected as the temporary CEO.

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Francois Nortje: Whether Transnet succeeds or not in its rail operations doesn’t entirely dictate the success of the Port of Gauteng. We are situated between the railway line and the road, and we bought the land where the container corridor and the N3 are in close proximity and run parallel. Rail needs to function for the sake of the country; it’s too risky to rely solely on the N3 for transporting containers from Durban Harbour into Gauteng.

If rail operations improve, we will benefit financially. However, our business isn’t wholly dependent on it. The volume of truck traffic on the N3 has noticeably increased in recent years. Prologis, the largest warehouse company in America, released a study showing that to achieve the same billion-Rand turnover in retail sales as 10 years ago, you now need 57% more warehousing. So even if companies like Game or Clicks maintain the same turnover, they’re selling more products, increasing the number of trucks on the road.

Therefore, while our business doesn’t solely rely on rail, things would certainly be better if rail were more efficient.

Alec Hogg: You’ve been closely following Transnet and have even articulated your vested interest in its success. Melanie Vanessa has called for a complete overhaul of Transnet’s board and executive team, stopping just short of labelling the situation a disaster. Are there any redeeming aspects to Transnet, or is the company in a downward spiral, perhaps even a death spiral?

Francois Nortje: Stepping back, I agree with Melanie. I have previously advocated for the breaking up of Transnet into 12 to 20 companies. To truly address the issues, we need to replicate the model they’ve implemented in Durban Harbour multiple times across Transnet. They need to separate the rail into different corridors and distinct operators for infrastructure and fleet management. This way, they’ll have manageable businesses with real shareholder investment, not just government shareholders.

Transnet is akin to a complicated electronic circuit wired in series—too much resistance builds up, making it unworkable. It’s a 55,000-employee conglomerate, and it’s almost impossible to manage effectively. The company might well be in a death spiral, and the issues didn’t start with Portia Derby. The balance sheet was already in shambles before she took over.

A lot of academics who were involved in crafting grand business plans for Transnet between 2008 and 2012 are the same ones criticising Portia Derby now. Their projections of 8% annual growth in containers were wildly optimistic. These academics contributed to the company becoming over-indebted and now they criticise its current state, which is analogous to multiple health issues plaguing a single patient.

Alec Hogg: What you’re telling us is extremely insightful. Regardless of Portia Derby’s personal life, it sounds like whoever took the job would have been set up for failure.

Francois Nortje: Exactly, it was a hospital pass. The company’s issues go beyond one or two sets of management; they date back to 2009. External factors also contribute to Transnet’s woes, such as the police failing to curb organised copper theft. Operating in such an environment makes it extremely challenging to steer the company in the right direction.

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Alec Hogg: It seems that the ANC government’s instinct is centralised control. Even now, Pravin Gordhan thinks the solution is to simply replace the chief executive with a better one. But from what you’re saying, that won’t solve the core issues.

Francois Nortje: Pravin Gordhan was excellent at SARS because SARS is a type of organisation that must be “wired in series.” It’s a government enforcement agency. But you can’t apply the same principles to a multidisciplinary business like Transnet. What works in one sector doesn’t necessarily work in another. The complexity of problems at Transnet can’t be fixed by simply adding more power or trying harder; there’s a nuance to it.

The organisation is both too big to manage effectively and too big to fail without causing significant repercussions for the country. It’s like wearing shoes on the wrong feet; you can adjust them all you want, but they will never fit right until you switch them. Transnet needs a fundamental shift; it needs to be “wired in parallel,” not in series.

Alec Hogg: We’ve seen a real-world example with Eskom, which changed dramatically when the private sector got involved. The private sector is making significant contributions, like in solar energy. Yet the government’s penchant for control is not suited for the complex world we live in today. How do we ensure that this lesson is applied to Transnet?

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Francois Nortje: Exactly, it’s the same principle. The transformation in Eskom happened because the country refused to go without electricity. Transnet’s problems are more insidious; they don’t produce immediate, glaring issues for most people. But given that two-thirds of our economy is based on imports or exports, Transnet’s inefficiency impacts us all, even if it’s not as obvious. The government needs to let go of its control obsession and consider alternative structures that work—like breaking Transnet into more manageable entities and letting competition thrive. That’s how you get the message through to those who don’t want to hear it.

Francois Nortje: The issue here is not just about management; it’s also about the budget. We saw a huge drop in company tax revenue in the last quarter. The failure of Transnet to function properly has a cascading effect on the economy. When Transnet can’t facilitate exports, sectors like farming and mining suffer, which in turn impacts tax revenue and employment.

The government’s inefficiency is going to hit them hard in their budget. It’s more serious than load shedding; while people can adapt to a power outage, the government can’t adapt to a 10% loss in income. What they need to realize is that their primary functions—like law enforcement, tax collection, and regulation—are already suffering. They can’t manage these essential services properly, yet they want to run businesses too.

If you look at the electricity grid, it was essentially controlled by a handful of people. That’s too big of a risk for a country. We need more private companies in sectors like electricity and transport, and the government needs to focus on regulation and safety. Changing the CEO of Transnet isn’t going to solve the problem.

Alec Hogg: Thank you, Francois. Just to reiterate some of the numbers: In the 2022 annual report, Transnet had 68 billion rand in revenue, with significant contributions from various sectors like coal, iron ore, and steel. Your point about Transnet being too big to manage efficiently, yet too crucial to fail, really brings the urgency of the issue home.

Francois Nortje: Exactly. Transnet is both too big to manage and too big to fail. The country’s well-being is at stake here. We need to break it down into smaller, more manageable units as soon as possible, so we don’t end up in a crisis situation.