South Africa investing in rail line for mining operations

February 10, 2012

During his State of the Nation speech on Feb. 9, South Africa President Jacob Zuma said state-owned rail and port operator Transnet SOC Ltd. will spend 300 billion rand ($40 billion) over seven years to expand capacity on iron ore, coal and manganese export rail lines, Bloomberg reported.

Mining “plays a critical role in the socio-economic development of the country,” Zuma said. “We remain committed to the creation of a favorable and globally competitive mining sector.”

Zuma’s government is battling to lure investment in mining as the ANC Youth League, led by Julius Malema, pushes for the seizure of mines in the world’s largest producer of platinum, chrome and manganese. An ANC-appointed task team to investigate the matter said nationalization would be a “disaster,” while recommending higher taxes.

Anglo American Plc, Xstrata Plc, Rio Tinto Group Plc and BHP Billiton Ltd. have operations in the country. Anglo American, the largest investor in South African mining, and AngloGold Ashanti Ltd. are among companies that have said the nationalization debate is deterring investment.

“There are no mixed signals about this,” Zuma said in an interview with the South African Broadcasting Corp. “Nationalization is not the ANC’s or the government’s policy.”

Zuma is betting that increased spending on infrastructure projects will help offset slower growth in Africa’s biggest economy and reduce the highest jobless rate among 61 countries tracked by Bloomberg. High port costs and a lack of rail and power capacity have been cited by the government as one of the major obstacles to faster economic growth.

“The massive investment in infrastructure must leave more than just power stations, rail-lines, dams and roads,” Zuma said. “It must industrialize the country, generate skills and boost much-needed job creation.”

South African Finance Minister Pravin Gordhan has pledged to cut the budget deficit to 3.3 percent of GDP in three years from 5.5 percent in the current fiscal year.

Growth will probably slow this year to below 3 percent from 3.1 percent in 2011 as Europe heads toward recession, Gordhan said on Jan. 26. That’s less than half the 7 percent annual expansion that’s needed to cut the jobless rate to 14 percent by 2020 from 23.9 percent currently.

Rail, road and water systems in the northern Limpopo province will help unlock coal, platinum, palladium, chrome and other mineral deposits in the region and encourage investment, Zuma said. Railway lines in the eastern Mpumalanga province will be expanded to connect coal fields to power stations, while transport links between the central Gauteng province and the eastern port of Durban will be improved, he said.

Transnet will spend 200 billion rand on rail projects over seven years, including links that will enable it to transport 82 Mt/a (90 million stpy) of iron ore, up from 60 Mt/a (66 million stpy) currently, Zuma said. The rail operator will build a rail-line to carry 16 Mt (17.6 million st) of manganese to the Coega port on the country’s south coast.

The government will reduce port costs for exporters of manufactured goods, saving them 1 billion rand, the president said. Zuma has also asked Eskom Holdings SOC Ltd., the state power producer, to curtail planned price increases.



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