Transport and communications in the SADC region

Transport

Five modes of transportation are included in the SADC agreement; transportation by sea, inland waterways, road, railway and by air. The growing volume of trade and demand for speed and tight scheduling requires a closer link between the different transport systems. Road transport is of particular importance as it represented 85% of total freight in Africa in the early 1990s (De Castro 1993). Inland waterways are used for transport only to a limited extent and are not discussed at length in this paper.

The regulatory environment and market structure

Based on ownership, transport suppliers fall into three categories, the national parastatals, private sector multinationals and African transport enterprises. A large share of the freight forwarding and clearing business is controlled by the multinationals. African enterprises are active in ship agency, clearing, forwarding, stevedoring, port handling and road traffic.

Private (African) entrepreneurs dominate road transport. The trucking industry is characterized by relatively few large and highly competitive trucking operators in addition to a larger number of small firms operating one or two vehicles. 6SADC sectoral report: http://www.sadecreview.com/Sectoral/20Reports/202000/frsector2.htm Long-distance, cross-border services face a number of constraints including market responsiveness, transport service standards and service charges. Vehicles must be licensed to provide cross-border services and member states want to ensure their own road transport services maintain a share of the market. The market is gradually being liberalized as more member states enter into bilateral agreements regarding licensing of operators and monitoring of services. Delays at border posts are a problem in the road transport sector. Customs documentation for freight consignments is complex, voluminous and differs considerably from country to country.

Table 4.1 provides some vital statistics on the transport sector in the SADC region. According to the SADC sectoral reports, the regional road network comprises nearly 900 000 km of roads. Less than 3% of the arterial road network is multi-lane roads, and nearly all of them are in South Africa. Due to long periods of civil strife, Angola and Mozambique each have in the range of only 11-13 000 km of road in fair to good condition, or 14% and 43% of the total road network respectively. The road networks of Tanzania and Zambia are also in generally poor condition.

Table 3.1. Transport sector indicators

* Number of lakes/rivers.

Source: CIA World Factbook 2000.

The region has an extensive railway network of about 45 600 km. Ten of the railways form the interconnected SADC Interconnected Regional Rail Network (IRRN), which has a total length of 33 593 route-km of standard-gauge (1.067 meter) railway. The South African railway, Spoornet, accounts for approximately 60% of the total IRRN route-kilometers. Angola’s Benguela Railway is not in operating condition as there are still landmines in place from the civil war and is not included in the IRRN. 7It is connected to the IRRN. Railways which are in operation, but do not constitute portions of the IRRN are Malawi Railways, the Nacala Line of Caminhos de Ferro de Mozambique (CFM), and Tanzania Railways Corporation (TRC). The railways are owned by their respective governments. 8The Lesotho railway is owned and operated by the South African government. It is also included in the statistics of South Africa (CIA 2000). South Africa’s Spoornet is primarily a freight railway with tone-km representing more than 98% of the railway’s total traffic. The region essentially has no railway regulation. The existing railway parastatal enterprises have a large extent of autonomy in their operations.

The only SADC transport sub-sector that performs satisfactory compared to the SADC countries’ medium-term needs is maritime transport. This is explained by the region's natural harbors with deep-water and easy access from the sea. In addition the location of the most important SADC harbors makes them convenient intermediate ports-of-call for shipping plying between Eastern Asia and the east coast of the Americas or Western Europe. The bottleneck for better capacity utilization of the ports is mainly storage and transport facilities on shore and red-tape related to customs procedures.

The dominant liner shipping port in the region is Durban, which accommodated more than 31.15 million tones in 1998. Durban is one of the ports serving the landlocked member States - Botswana, Lesotho, Malawi, Swaziland, Zambia and Zimbabwe. It is especially important to Botswana and Lesotho as it accommodates nearly all of their sea-going import-export cargoes. Other main transit traffic ports are Mozambique’s three ports Beira, Maputo and Nacala and Dar es Salaam in Tanzania. Both Beira and Maputo serve more transit cargo than domestic, and are thus an important exporter of transport services. Between them, the two ports accounted for 76.5% of Zimbabwe’s sea-borne trade in 1998. Beira also handles much of Malawi and Zambia’s seagoing cargo. Maputo handles significant volumes of South African exports, mainly coal, and Swaziland sugar and citrus exports. Mozambique’s natural deep-water port is Nacala, which has adequate facilities and could serve much higher volumes of cargo. Three-quarters of the cargo handled at Dar es Salaam in 1997 and 1998 was domestic. The port also serves Zambia, accounting for around 87% of that country’s sea-borne trade. Angolan ports handle domestic trade only at present.

The air cargo service industry is in its infancy, and most airports do not have adequate air cargo facilities. The region is in the process of developing an integrated Communications Navigation Surveillance/Air Traffic Management (CNS/ATM) system and of integrating SADC air space in line with system design in order to bring safety to international standards. To accommodate the development of this system the member states (except Lesotho and Zimbabwe) have installed a VSAT terminal. Air freight developments have opened up for exports of low-weight, high-value niche products such as fresh flowers from Tanzania and Kenya.

Transport Costs

The transport costs in rural areas are higher in Africa than in the rest of the developing world and the transport system is often weak and unreliable (Ellis and Hine 1998). In Mozambique and Angola road transport costs ranged from $0.20 to $1.00 per ton/km as compared to between $0.07 and $0.09 in France and between $0.02 and $0.03 in Pakistan in the early 1990s (De Castro 1993). In a comparative study carried out on rural transport in Ghana, Zimbabwe, Thailand, Pakistan and Sri-Lanka in 1994-5, Ghana and Zimbabwe were shown to have transport charges 2-2.5 times above those prevailing in the Asian countries for comparable journeys of up to 30 km. 9(Ellis 1998) referring to own Ph.D. thesis: Ellis (1996). Hine et al. (1997) found that long distance freight rates in Tanzania were on average three times higher than for Indonesia.

Hine et. al. (1997) developed a framework to decompose transport costs. The transport operating environment, vehicle operating costs and characteristics of the transport market are identified as the main factors determining transport charges and service frequency. The transport operating environment consists of the physical infrastructure, the institutional and economic infrastructure, the size and density of the market for transport and income levels. Factors influencing the vehicle operating costs are fixed factors such as the capital cost of the vehicle and interest payments and the variable costs represented by repair and maintenance, labor and fuel. The market for transport is described by the degree of competition, vehicle utilization and diversity. The results are given in table 3.2.

Table 3.2. Estimated composition of operating costs (1995 US cents per km)

Source: Hine et al (1998; p 21)

The results of an earlier study, as reported in Ellis and Hine (1998), comparing the vehicle operating costs for rural transport services (RTS) in Asia and Africa are given in table 3.3.

Table 3.3. Vehicle operating costs in 1994 US cents

Source: Ellis and Hine (1998; p 19, table 4)

Turning to vehicle utilization, Hine et. al. (1997) found that in Tanzania the average annual utilization of two and three-axle trucks were 60 000 km compared to 80 000 km in Indonesia. They also found that two and three–axle Japanese trucks in Pakistan achieved over three times the tone kilometers of similar trucks in Tanzania. Fuels and tyres were found to be about double the price in Africa and productivity was found to be lower than in Asia. Ellis (1996) found maintenance and tyre costs to be between 5 and 16 times higher in African countries than for the lowest value found in Asia.

The virtual lack of a road vehicle workshop industry also hurts the development of the road transport industries. The trucking industry suffers from widespread shortages of good managers, competent accountants, and qualified mechanics. These factors combined have posed restrictions on the industry’s efficiency and service standards. A new and ominous human resource shortage is facing the industry, namely, qualified drivers. This problem arises mainly because long-distance driving is a high-risk profession as far as AIDS is concerned, and the incidence of AIDS among drivers is high. Other indicators of relevance to the effectiveness and cost of the transport sector is presented for each country in table 3.4.

Table 3.4. Transport sector indicators

Sources: HIV/AIDS: UNAIDS Report on the global AIDS/HIV epidemic 2000:

http://www.unaids.org/epidemic_update/report/index.html

Fuel prices: The World Bank. Fuel prices and taxation:

http://www.worldbank.org/html/fpd/transport/urbtrans/other/fuel.pdf

Air transport: World Development Indicators 2000

From these studies we can conclude that not only are the charges actually paid for transport extremely high in the SADC countries, but delays and unreliability add to the total cost to the customers, particularly business customers. It is for example necessary to maintain a large and costly "just-in-case" inventory, which in turn binds working capital. This is an expense that competitors in overseas markets do no longer have to bear. We finally note that the cost of working capital is often quite high in the SADC countries. 10See Hodge and Nordås (2000) for a discussion. The state of the transport sector in SADC (outside South Africa and Botswana) can therefore be seen as a "cost multiplier" for local businesses. Assuming that transport costs add about 25% to the factory gate price of final goods in overseas countries, imports from the land-locked countries in SADC would fetch a price 75-25% of that obtained by overseas producers if the transport costs are 2-4 times higher in the SADC area. 11This varies with the value per ton of goods. Since the SADC countries largely export goods with a relatively low value per ton (commodities and low-technology manufactures), transport costs are probably in the high end.

Telecommunications

Access to Internet services in the SADC area has been largely confined to the capital towns and over half the Internet users in Africa are located in South Africa. Table 3.5 provides an insight to the telecommunications sector in the SADC countries as to the number of mainlines, mobile phones, fax machines and personal computers per 1000 people. In 1994 all countries but South Africa (7.1), Zambia (0.1) and Zimbabwe (0.02) had zero Internet hosts per 10.000 people. The region’s telephone density as a whole was 4 per 100 people in 1997, increasing to 5.1 per 100 people in 1998. This represents a growth rate of about 24%, and would in fact yield universal service within 10 years if sustained. 12The figures are taken from Southern African Transport and Communications Comission: http://www.satcc.org. Universal coverage is, according to Røller and Waverman (2000) about 45 per 100 people. This is hardly a realistic scenario, but nevertheless put recent achievements into perspective. Furthermore, access to the Internet has spread more rapidly in Africa than in the OECD area, albeit not as fast as in Asia and Latin America. Tanzania has experienced the fastest growth rate in the number of Internet hosts in the SADC area during the period 1997-99, achieving an average growth rate of 108%. Tanzania is followed by Uganda and Mauritius with growth rates of 76% 66% respectively during the same period (ITU 2000). At the end of 1996 only 11 African countries had Internet access, by November 2000, all African countries had achieved permanent connectivity, at least in the capital cities.

Table 3.5. Telecommunication indices, SADC countries

Source: World Development Indicators 2000

As South Africa has taken a lead role in the (mainland) region, it is worth taking a closer look at the development of the communications and Internet market in the country and its usage by business. South Africa is known as an early adopter of technology and the rapid penetration of both mobile phones and the Internet is testimony to this.

The mobile industry has been amongst the fastest growing GSM markets in the world since its launch in 1994. This growth has recently accelerated, with the declining cost of phones and the advent of the ‘pay-as-you-go’ options for subscribers making it more accessible to the lower income groups. 13Under this option subscribers can purchase phone credits to make outgoing calls and these purchases also give them free incoming calls for a certain period. The current estimate is that the market will reach 8 million subscribers by the end of 2000 – a penetration rate of around 19 phones per 100 people. It is also estimated that by 2006 almost half the population will have a mobile phone (Business Report, 6/11/2000). This phenomenal penetration rate, especially in lower income areas, has led many to argue that m-commerce (mobile phone commerce) may well be the future path for African consumers rather than PC-based internet access where there is less penetration and greater cost and learning barriers to entry. M-commerce services are already part of the South African mobile telephony landscape and the range of services on offer matches any in the world. In fact, a South African company, iTouch, has been taken on as a Vodafone partner globally to exploit its value-added services such as short-message-service (SMS), WAP portal and voice-information-services (IVR). 14It is already active in the UK, Australia, New Zealand, Ireland and Israel. The company has now been listed on the LSE.

In the Internet industry, South Africa has been more limited in the household market by the low ownership of PCs due to a high proportion of low-income households. However, this has not held back usage by companies and those households with sufficient income. Their early adoption has reinforced South Africa’s image as an early adopter of technology, with the country being ranked 14th in the world in terms of the number of Internet hosts in 1996. The ranking has subsequently slipped to 25th in 2000 as other emerging markets catch up (e.g. Brazil, Korea, Russia). The closest rankings from Africa include Egypt (68th), Botswana (77th), Zimbabwe (78th) and Namibia (79th).

Since commercial Internet access started in earnest in 1994, the sector has seen growth rates in the number of users of around 80-100% per annum until 1998. At this point the penetration appears to be reaching a plateau and growth rates have dipped to the 30-45% range. Current estimates are that approximately 2.4 million South Africans have access to the Internet either at home, work or school/university (see table 3.6). This indicates a penetration rate of 6 people per 100 of the population. Future forecasts expect the growth rate to slow a little more to around 15% by 2003, after which it is expected to accelerate again after the telecommunications industry is liberalized in that year. Current forecasts are that about 5 million South Africans will have Internet access at home or work by 2004. These figures do not include the portion of the population that gain access to the Internet through other means – such as Internet cafés, digital villages, telecenters, and Internet Kiosks. 15Digital villages are located in poor communities and consist of an ISDN line and numerous workstations which people pay an annual fee to make use of. Telecentres are much smaller and more multi-purpose operations that operate on a pay-per-use basis. A kiosk is a single device that includes a PC, keyboard, printer and coin operator that can be placed in any public place or shop. These initiatives are bringing a much poorer group of users into the pool. 16In SADC as a whole the number of internet hosts has grown at about 45% annually on average during the period 1993-1999 (ITU 2000).

Table 3.6. Number of Internet users in South Africa by access source

Source: Media Africa.com (2000)

Aside from having mere access to the Internet, companies in South Africa are making extensive use of the medium for commerce (both business-to-business and business-to-consumer) and investing in their commerce portals. Revenue from the provision of non-access services to firms in South Africa reached R500 million in 1999 and is expected to top R3.5 billion in 2003 (BMI Techknowledge 1999). 17Consulting, application development & integration, network and systems migration, operational services & outsourcing, other. Related Internet and e-commerce services and product sales add a further R600 million in sales, reaching R4 billion in 2003. Clearly South African businesses have got online and are now in the stage of making the Internet work for them. This enables them not only to participate in supply chains, but also to establish and operate their own supply chains nationally or regionally.

The one thorn in the side of the burgeoning industry appears to be the continued monopoly by the incumbent telecommunications provider. The continued monopoly means that prices set by Telkom impact the pricing, and hence demand, for all other communications-based products. These prices, it is alleged, are artificially high due to monopolist pricing and are therefore hindering the Internet market in particular. 18See for instance, the Business Report opinion piece titled ‘Telkom's monopoly is dialling SA out of the new economy’ (7/11/2000). This scenario is not uncommon in SADC, where the pace of privatization and the introduction of real competition in the telecommunications sector has been slow. There are many reasons behind these delays, including local resistance to such policies (particularly from labor), efforts to maximize the revenue from the sale of enterprises (by extending the monopoly period), and poor regulatory capacity to manage a privatized sector.

A key question is how much of the learning and developments in the South African market are spilling over to its neighbors, enabling them to modernize production structures and integrate into supply chains. An indicator of some spillover is the fact that South African Internet and communications firms are establishing operations in neighboring countries. Although the rationale for such FDI is primarily to service the South African multinationals, it does allow host-country firms to make use of their services and improve their communications and Internet presence. However, most of these services do not operate in isolation and run on the telecommunications backbone of the host country. As such, there are limits to the extent of positive spillovers that can be achieved.

We have seen in this section that liberalization, both internally and externally, of the telecommunications sectors has indeed induced an unprecedented growth in access to telecommunication services, both telephony and the Internet. Furthermore, mobile telephone access has been growing much faster than fixed line telephony and may in fact gain a higher penetration rate than fixed telephony in several of the SADC countries. There are thus some indications that the SADC countries are in the process of leapfrogging the fixed line, PC-based access to the Internet and rather adopt less expensive and more flexible technologies. The transport sector, however, appears to be the major bottleneck for SADC firms’ entry into international production networks. This is particularly a problem in the land-locked SADC countries. Thus, a SADC-wide coordinated approach to reducing transport costs through liberalization and investment in infrastructure is probably necessary in order to fully benefit from the significant achievements already in place in the telecommunication sector.