Revamping the Regional Railway Systems in Eastern and Southern Africa | RIRN Discussion Paper

Most of the regional railway systems in eastern and southern Africa (ESA) are not functioning as they should, in virtually all respects. Their reliability is extremely poor; there are high accident and failure rates; operating costs are high and volumes of goods transported are low compared to volumes transported by road in that about 5% of regional traffic volumes (excluding South Africa) travel by rail; and they are financially loss making. It can be safely said that the railway systems in east and southern Africa, outside of South Africa, in their present state and condition, are not operationally sustainable.

The current situation for several of the regional railway systems is that the traffic volumes and income have fallen below that required for sustainable operations. The income generated is first spent on salaries and fuel, with inadequate funds left over for maintenance and repair of both infrastructure and equipment.  The budgets and performance indicators clearly show this. The railways thus continue to decline and lose customers, and are unable to attract the necessary funding required to return to competitive levels of reliability. On average traffic and income levels would have to increase by three to four times if financial viability and a sustainable level of operations are to be achieved.

The reasons for the decline of the regions’ railways have been well documented and are as a result of a lack of investment in the railways and poor management, coupled with the rise in importance of the road sector which has received high levels of public sector investment and subsidies. The road sector has been deregulated, compared to the rail sector, and this, coupled with advances in technology, has allowed trucks to carry higher payloads at lower costs. This has introduced competition between service providers in the road sector and between the road and rail sectors. The road sector is now much more competitive than the rail sector so the railways have lost traffic and business to the road sector leading to a decline in railway revenue, resulting in deferred maintenance, leading to further unreliability, loss of capacity, further loss of business and revenue and a spiral of decline.

The region’s governments responded to this crisis mainly by concessioning the railways to private sector operators – one for each railway system. Concessioning has taken place throughout the Eastern and Southern Africa region, including in Mozambique, Malawi, Zambia, Zimbabwe, Kenya, Uganda, and Tanzania.

As Pierre Pozzo di Borgo of the World Bank points out, one of the initial constraints for concessions was that concession companies started with a far too limited capital base, in part to lower the risk perception of private investors (see Figure 1). The result of this limited capital base was that many concessions felt rapidly into a cash-strapped situation as projected positive cash flows did not materialise.

After many years of neglect of the railways, governments and other stakeholders have shown a renewed interest in the railways and efforts are being made to explore ways of how best to revive the railway systems so that they are part of a more efficient multi-modal transport system and take the pressure off the road transport sector. The road sector is now at a stage where it is having difficulty in meeting the region’s surface transport needs, resulting in high wear and tear on the road network, and associated high costs of road rehabilitation and maintenance and congestion at borders that delay freight movement and increases costs of imports and exports. In addition, there are environmental, safety and economic benefits to moving some goods, such as fuel, acid, coal, minerals, cement and grain, by rail rather than by road.

The process of privatisation of railway systems through long term concessioning was in many cases flawed. The process took much too long, during which time there were no provisions for funding, the agreements were generally weak and the choice of concessionaire was often poor in that there was a lack of serious bidders with the appropriate skills and resources.

At present it is not obvious where the required funding to revamp the region’s railway systems will come from. National governments, on their own, do not have the resources to revamp the railways. It is unlikely that the large International Financing Institutions or Development Banks have the ability to fully finance the complete revitalisation of the railways; and the private sector will not invest in railways to the required level unless some forms of guarantees, in terms of securities, and revenue earning opportunities (such as contracts with mines, fuel distributors, etc.) can be locked in in advance.

The solution probably lies in financing packages involving public funds (from government budgets); grants and concessionary loans (from donors, IFIs and Development Banks) to fund the track infrastructure, with the private sector providing the bulk of the financing and management for the equipment and operations.

A future model for seamless cross border general freight railway operations in the region could be similar to that of the road services, with the state providing the track infrastructure and the private sector being mainly responsible for the provision of equipment and operations on a track access fee basis, similar to toll roads. Scheduled rail services have the advantage of better security than road, allowing for goods to be customs cleared at the commercial end stations, thus avoiding the problem­ of border post congestion and delays – railways traditionally operate in this manner.  

Authors: 
Mark Pearson and Bo Giersing
Organisations: 
Regional Integration Research Network | TradeMark Southern Africa
Date: 
May 2013

Publication

Early Closure of TMSA Programme: The Secretary of State of the UK’s Department for International Development (DFID) has decided to terminate its financial contribution to TradeMark Southern Africa (TMSA), as announced on 4 December 2013. As DFID is the sole financier of the TMSA programme of support to the COMESA-EAC-SADC Tripartite, TMSA will officially be closed from 17 March 2014 instead of 31 October 2014. For more information about the TMSA closure, and for a summary of some of the more notable successes of the Tripartite achieved with TMSA support, please click here