256 | South Africa should invest in value chains not just transport infrastructure

LONG-STRETCHES OF TAR MOVE AN ECONOMY, THEY DON’T BUILD IT

In transport infrastructure investment corners we say “build it and they will come”. But at some point we should start asking, who they are, what they carry and where to.  Deep colonial network investments anchor modern day ports, pathways and railways where settlers passed in Africa. 

While their purpose was to extract and export, modern investments need to take a different route: to circulate and add value at a continental scale. 

Thus, when the investment case for South Africa is presented, it maybe more convincing if it offered an integrated and progressive value chain offering rather than a sectoral discourse with an infrastructure base. 

Transport embedded supply chains

For supply chains of the future, transport is becoming more embedded. As a stand-alone outsourced offering, transport operators seem to be entering a new era. 

A period wherein, load, driver and carrier combinations may enter a virtual frontier. That is, leaning into a thinner-cost-base free market on the surface. Looked at in more detail, industries are gearing up for lower carbon footprints and a leaner supply chain with lower emissions becoming a substantial selling point for some industries and consumers. 

This shift is premised upon carbon-neutrality on the production floor, material choices and product configuration. On the other hand, transportation’s contribution to the emissions profile is becoming a critical point of discourse. 

Another force entering the supply chain discourse reveals a tension between green logistics and global value chains. The premise here is that value chain networks need to connect sustainable inputs and produce products which fill a sustainability gap, or prove to be more environmentally friendly. Say, circular economy: a reinforcing loop of reused reusables being recycled for reuse. 

The challenge however, is that international standards push the ratchet up from a consumer value perspective, but down from a cost perspective— while prices in between rise in the long-run. Winners survive the upscale phase if they truly align their supply chains with consumer needs, especially with appropriate segmentation techniques and related offerings. 

These two forces, energy profiles and value chain configuration, are inextricably linked to the transportation choices of the slow industrial and rapid final consumer facing segments. 

More strategically policy responses that link industrial development with transport network efficiencies are necessary and should be articulated. 

Unlocking value chain investments

With a goal to reduce carbon emissions by 1/3 by 2030, the SA economy remains vulnerable to climate change responsive industries, especially as “a material share of importers are rapidly moving away from carbon-intensive activities”. A value chain level transition was better suggested in the National Climate Change Response White Paper, in which had an inclusive programme of efforts from settlements, to transport, to energy and water. 

We’re in an ancient inertia, and to escape it requires a different strategic investment discourse — one that focuses on the kernel. The layers of change are in lower carbon emissions, adaptation and capturing. 

Let me put it this way, the returns from investing in One-Stop-Border-Post infrastructure and intermodal facilities around city regions would outweigh those derived from additional long-stretches of freeway infrastructure, although necessary.  

However, the first two are more difficult problems to solve, and in transport we believe starting with the furthest point first is an important consideration. The political appeal of investment projects that could take a decade to break ground transcends the electoral fanfare, but alleviates the triple-challenge dribbling the SA economy into a no-goal limbo. 

Between the 1980’s and pre-2010, Africa retains a small share of global trade at 2016 prices. It has a lot to do with supply chain configuration and how globalisation meant greater demand internationally, but very relatively less value-adding production domestically. 

For us, and our conventions, it would be inappropriate to override proprietary technology and mimic products with complete disregard of the intellectual property. Thus, the depth and breadth of ingenuity that is required for the R-X-Trillion in benefits from the African Continental Free-Trade Area cannot be undersold nor misunderstood. 

However both the World Bank Reports on the AfCTA and global value chains assume a conducive policy environment, and argue that political stability and the quality of institutions can influence Global Value Chain participation (backward, and forward), respectively. 

Strategically, corridors need to so efficient that trade on a continental scale is effectively cheaper off-the-bat. The energy and value chain reforms at industrial level in secondary and tertiary sectors are derived from this level field. Africa needs the scale and scope to grow and develop, respectively. 

It’s not close to juggling at a circus, but the 22 or more departments and entities involved in seamless supply chain networks justify the value of the investments in infrastructure, incentives for manufacturing and programmes which stimulate and monetise ingenuity. 

Ingredients for global competitiveness on one hand, and efficiencies and effective businesses which can plug in to the modular global value chains we see emerging through the transport sector. 

A multi-tier approach to investment 

Transport operators are fundamentally faced with opportunities to build deep links with clients, offer flexibility across clients (or modulation), and probably become part of the competitive advantage of their clients. This means, multi-tier relationships between operators and producers, intermodal platforms and seamless borders should smoothen this process. 

The last thing that should hinder these partnerships should be strategic policy decisions that underpin the base of freight transport in SA, or Africa in general. 

While the shift from road to rail brings great appetite for debate, the challenges facing Africa are at a value chain level— revealing the interdependences that could be politically inconvenient to admit. Without which, our scale and scope as a continent will lag behind the next wave of change in energy and value chains. 

All of this, so far has not included the changes in consumer behaviour (greener products, focus on more durability, and changing habits), and the shrinking service window between order placement and fulfilment across most markets. 

For now, business should brace for a slow-moving tide on the surface, and quick currents at a value chain level. At an abstract level, these are two layers of investment, going against history’s grain. I hope policy and incentives will follow beyond paper. 

Thank you for reading.

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