Saai calls time on state-run vaccine distributor

0:00Welcome to MoneyWebidMidday, the actuality news show offering unique insights and in-depth analysis featuring South Africa's top business leaders, newsmakers and analysts for today's professionals. Your host, Jeremy Mads. Hello and thank you for listening to MoneyWebidMidday in the next 30 minutes. I'm going to put some context around the numbers, some perspective around the politics and some clarity around the choices facing us in South Africa. A warm welcome, I'm Jeremy Mads. Coming up on the programme today, Trotsnet is back in profit. The numbers are out a little earlier, but is this a genuine turnaround or just a better looking version of a business still under pressure? The Group Chief Executive Officer will join me in just a moment for an extended interview.

1:01Farmers are losing patience as pressure mounts to privatise state-run vaccine producer, the honest-to-poor biological products company. And how tang's mega-city vision is promising scale and efficiency all well and good, but it does raise a big question for residents and businesses. It's Thursday, the 10th of September. Trotsnet today is reporting a return to profit for the year with revenue rising, freight rail volumes improving and signs of recovery across parts of the port network. But the 4.6 billion round headline profit does include a substantial once-off gain from the Durban Gateway Terminal Transaction. Rail volumes do remain well below historic levels, debt and financing pressures remain significant, and the company is still dependent on government guarantees. So let's pull all of this together. Joining me is Trotsnet Group Chief Executive. Michelle Phillips, Michelle, welcome to you. Can you genuinely say that Trotsnet has turned a corner or have you simply stopped getting

2:05worse? Certainly, Trotsnet has turned a corner. Of course, the job is not done. We still have a lot to do, but I can say with confidence that Trotsnet has certainly turned the corner, the numbers speak for itself, in respect of volumes and what we've done over this past period, but also in respect of our revenue numbers and our profit. Rail volumes, Michelle, are improving, but they are still below 2021 levels. When does recovery do you think become a real success here? Recovery becomes a real success when we continue to get to the targets that's not going to be the target that we have set for ourselves. The 180 million money is quite critical. The number that Trotsnet needs to move. And the reason for that is because that's when we actually start making money out of the movement of volumes. Of course, the revenue continues to increase. However, up until such time, you will see the reason why we have to continue with our

3:10private sector participation projects, because that obviously supports us while we are trying to get the business into a more sustainable position. 180 million, though, is still the stretch? How confident are you and where do the risks still remain? You know, Jeremy, we've done quite a bit of work this past year on the rehabilitation of the network. You'll see, we will talk about the 23 billion ran that we've invested, particularly in the corridors. And we will continue to do that. We continue to do that work. And we have found that, you know, as soon as we've completed with these annual shots, we see the volumes again moving in the right direction. Of course, we continue to be plagued by a theft and vandalism incidence of sabotage. People criminal is trying to destroy our network. But for the most part, I have to say, you know, the almost 50,000 trans-nators are working very hard to not only protect the network, to rehabilitate it and to make sure that we

4:11move those volumes. Let me pick up on theft and vandalism then as you raise it, still costing Michelle Phillips trance net more than 1.7 billion ran. Why is such a basic threat proving so difficult to beat? We run quite an expensive network. You'll see the round network is over 30,000 kilometers. It covers the length and breadth of the country. So it's quite an expensive and a big network that we have to cover. That being said, we make use, of course, of particularly private security companies. But we do have a country issue when it comes to crime. And it's something that I think we only do work together to try and address. We spend quite a lot of money on securing this network. And I think we see the improvements, but certainly still a lot of work to be done to ensure that we stop this kind of behavior because it more than translated impacts the livelihood

5:14of ordinary people of the country. Talking about bad behavior, almost 4 billion ran in reported irregular expenditure. More than 200 fraud investigations are still active. Michelle, why should South Africans believe the culture at trance net is really changed? I think that if you speak to our customers, you speak to our service providers, you will hear that people are beginning to feel the difference. But I think more than that, you talk about the irregular expenditure. Now, we have to take this in context. The regular expenditure that you speak about relates to multi-transactions that we pick up in the reporting financial year. Now, we have seen, again, quite a reduction in fact in the irregular expenditure that we pick up in the current year. The more than 3 billion round of irregular expenditure comes from previous years. But we still have to deal with it.

6:15And you report it in the year in which you pick it up. Right now, trance net is already all the way back into 2010 in terms of identification of irregular expenditure. That being said, as an organization, we are continuing to put controls in place so that we do not incur further irregular expenditure for this year itself. The irregular expenditure is sitting in the 300 million round. Still a lot, but when you compare two where we've come from in the billions of rounds, I think there's been quite a bit of progress on the trance net side. You talk about your customers feeling the difference. Are they actually experiencing a better service or is the improvement that you're outlining to me still mainly visible in your own numbers? I think the customers are absolutely feeling the difference. Trance net has really opened itself up a lot more to the engagement and the collaboration with our customers. We talk to them every day all the time.

7:17We have a number of in fact, customer-led solutions that we are continuing to implement in our business. I think on the whole, as far as even the culture within the organization itself, there's a lot more understanding of the customer need and the customer requirement and the importance of meeting and exceeding the customer expectations. In that respect, you also say that ports I am proving yet reported contain of volumes have actually fallen. How do you reconcile that? Okay, so you know the number we need to take in context. Overall, in the system, the container numbers have not fallen. You must take into account that we have closed the DGT transaction. Now, for revenue purposes, you'll see that we report a TPPT number, which is the operator number, and that number looks like there's been a reduction. In fact, it has not. Overall, in the system, including the DGT number,

8:20we have actually increased container volumes from 2025 by 7%. So overall, we see container TUs moving upwards, and we believe it will continue to move upwards, but compared to the prior year, the container volumes have actually increased by 7%. However, for revenue purposes, we use the operator number. But for the system, we use the number as contained by the port authority in their numbers, and that number is 4.580 million TUs. So 7% is a huge improvement from the previous financial year. Having said that, the operating costs up nearly 11% or costs undermining the recovery. You know, also, some one-safes. You recall that, I suppose, for the first three years, certainly, we've had provisions that we've had to provide for the net ref settlement

9:24that we entered into last year with the Sassal and Total energies. Now, whilst we released the provision in the previous financial year, in this financial year, we've had to pay the actual settlement. So real cash actually leaving the business. And that five billion rent thereabouts, I think, is probably the largest contributor to what we would say the cost. So it's not something that we will see moving forward. We have saved quite a bit in operating expenditure, but, of course, the one source had to be dealt with. And that was part of the reason why the operating expenditure increased by that number. Just a final question. Transnet is pinning a lot of its hope on private sector partners coming in. Is that because it's the best model or because Transnet can no longer fix the system alone? I mean, you know, we've rode out our reinvented for growth strategy.

10:30And in addition to that, a government itself has approved the freight logistics roadmap. We understand that if Transnet were to do this on its own, we probably would not extract the value that we would want for the country. And therefore, it is important that we partner. We partner because there are capital resources in the private sector. There are skills in the private sector. There's automation, digitization, solutions that they can bring into our business. And that's why we partner. It is a deliberate strategy of ours that we employ in order to improve not only the Transnet business, but the contribution that Transnet is able to make to the country. So it's a deliberate strategy. And, you know, this is what the private sector does. And I don't think that, you know, there's anything wrong with government partnering with private sector in order to ensure that it extracts the best value for the country ultimately.

11:34Michelle Phillips is the Group Chief Executive at Transnet. You're listening to Money Web Admit Day. The Southern African Agri Initiative is calling on government to privatize under-deport biological products. It's the state-owned company responsible for producing critical animal vaccines. Now it argues that years of production failure, shortages and weak management have left farmers exposed particularly during the current foot and mouth disease crisis. Dr. Theode Yachha is with us, Executive Director of the Initiative. Theo, welcome to you. What evidence then shows that privatization would fix the problem faster than a properly managed state turnaround? Jeremy, thank you for inviting me again. You see, the turnabout which we would all hope for would cost hundreds of millions of

12:34friends and not only do we need to fix what they failed to maintain. We also need to get to the leading ages of new technologies and we fell behind. So what we are saying is the money is not in the state to do that. And even the money that was allocated to eat half a billion rent got lost. No one knows what happened to it. No one had been held responsible. Why put another few hundred million in there? Rather have private sector to invest in it. And we do have enough private laboratories who would be interested. And let them manufacture the vaccines which is currently the intellectual property of understood words. Let them do it at scale and at the pace which we need to combat these runaway diseases. Not only food and health, also avian influenza, also the diseases ravaging the

13:38pork industry. You say there are private laboratories. What kind of private ownership then are you actually proposing? And perhaps more importantly, how would you prevent a private operator from simply replacing a state monopoly with a commercial one? Well, it does not need to be one single entity. Hey, open the market. Let there be proper competition. We already see it with the vaccines. Remember, honestly, poor it is not the manufacturer of food and health disease. Vaccine that is the agricultural research council. But it gets managed via OBP. So OBP is currently the monopoly importer of the Latin American vaccines. And it also grabbed everything that was imported from Turkey until we had this judgment in our court case. But now that more companies can import, can distribute and can apply the vaccines.

14:39We see a big take up, 800,000 of the Turkish vaccine, 4.5 million of the Latin American one that goes through the private sector channels. What safeguards, though, would keep essential vaccines affordable for farmers? Because surely that's the biggest issue you would be facing if you were to follow the route of privatization. Well, the only real safeguard we can hope for is the forces of supply and demand and open competition. The reason why there is problems with OBP at the moment around food and health diseases because they added profits to the vaccines. We know that both the vaccines coming in from Turkey and from Latin America will cost 45 rent per dose, delivered anywhere in the country that excluded. But the fact that government paid 71 rent up to 150 rent per dose is because that additional

15:43profits was added by OBP. We are not protected through a single channel government owned entity. It is best to search your prediction from open competition in the market. How do you know that profit margin was added by OBP? We've got original documents. We've got invoices. But apart from that, both the Dunevaks agency importing Bolvett from Turkey and the original agency for the biogenesis published their prices already in November and early in January. It is when at the end of January, OBP took over the agency for the biogenesis that we saw the amount quoted both in the media and in answers in parliament and shooting up to up to 150 rent per dose.

16:45And when you put this to OBP, what was the response? Jeremy, we took it to the previous minister. He said that this was this information and he even called the Mischief Maker in Chief. But when we put the same documents before Willy O'Cump as new minister, the first thing he did was he suspended the executive head of OBP and he ordered thorough investigation. And we are not that much concerned yet about the prices which were paid by the farmers. It is these intra-governmental transactions where OBP sold to the provinces that we are concerned about because ultimately it is the taxpayer paying but for how long we know exactly what the budgets are for the Department of Agriculture in each province and national. And there is no money for fighting the footnote disease to the

17:49scale we need. Ultimately it will come from the pockets of the farmers. Is this concept of privatisation simply that a concept or do you think that you can realistically make this happen? What kind of response have you had to the feelers that you've put out? Jeremy, there are different levels of privatisation, hey, we are calling for the wholesale privatisation of this company which is actually a private company wholly owned by the state. But already we see some movement amongst the politicians saying shouldn't we just privatise on a licensed basis the intellectual property of of of understood by allowing some of these private laboratories to manufacture the vaccines which cannot at this stage service the demand. Something like for example African horse sickness which by law every horse owner outside the Western Cape must

18:52vaccinate the animals on an annual basis. But for quite a while this cannot be done because OBP did not manufacture enough of it. We say little little private laboratories didn't manufacture that and distribute it. So we can maybe start off by privatising the right to manufacture and eventually we believe the best would be if we privatise the the the whole institution. And the idea I just want to circle back very quickly to the point that you made at the beginning of our conversation about something in the region of 400, 480 million Rand allocated not being accounted for. What evidence supports that and which authority do you believe should be investigating what happened to that money? Look this money was allocated by Parliament in 2011 after a number of veterinarians and scientists warned in 2007 and 2008 that the the deposition in in at OBP

19:58is such that it's going to cause a national disaster. But then in the run up to the 2014 elections this this money disappeared and the order to general pointed it out. Until this day we don't know what happened to it. When John Stienaison became minister in his acceptance speech you already refer to this money and vowing to get on its trail and and and still until today we don't know what what what happened to it. But it will today cost much more than that to get OBP to the cutting edge of new biological technology again. And it's it's not enough to say we must manufacture to to scale again. We must become one of the best again because every farmer is every day in competition with the best as a farmer in the world. All right I'm going to leave it there. Dr. Thierry Acher appreciate your time. You are the executive director of the Southern African Agree Initiative. Money will be admitted day for all your up to date stories. Now the possibility of merging

21:03Johannesburg, Twine and Ekoroleni into a single Houteng Megatropolis as it's called is opened I think a wider debate about where the bigger local government would actually mean better local government and what this might mean for business. Casey Sprayk has applied her mind to it. She's a market strategist at AG Capital and argues the real priority should be fixing governance rather than redrawing municipal boundaries. Casey welcome to the program. Why should anyone believe then that a bigger municipality will work better when as we all know and there's documented evidence to that effect that existing ones are already struggling. No I mean that's 100% and I think if we look at what the ANC is proposing I mean Johannesburg, Twine and Ekoroleni themselves are already established metropolitan governments each with its own sort of distinct economic base, electorates, administrative machinery infrastructure burden and different fiscal positions as well. So we

22:05would say that the political sort of contestation only really raises the stakes so again as you mentioned making that proposal to collapse them into single entity I think is deserving of formal scrutiny from us as a collective base. I mean it's quite as simple as that changing boundaries does not create some management capability it's not going to fix all the issues around billing systems to stop theft and corruption or maintain pipes and substations collecting revenue etc or even more importantly actually imposing consequences on the officials who are failing us. So the argument that a single metro could make decision making simpler and more effective is just pie in the sky. I would say so I think you know we run a real danger here that we confuse size with competence. I mean we do have have over time particularly in the last recent years sort of reduce the number of municipalities sort of on the promise that a a large municipal footprint would bring efficiency and stronger finances and better services and sometimes consolidation may be

23:07unavoidable where municipalities just simply too small or too weak to function and we have quite a long legitimate historical president for municipal agitation in South Africa we saw the sort of great restructuring of the late 1990s in early 2000s but that project had a particularly sort of compelling constitutional purpose it was about building a single you know democratic local state from a deliberately divided one inherited from apartheid but I think that historical precedent does not automatically validate a halting sort of mega tropless as they're calling it. In fact I think it's actually a rather poor fit for haltings presents circumstances and problems. Look I understand the conversation that we're having is in the realm of speculation and conjecture but let's assuming this goes down the line a little bit because there is certainly a push from members within the African national congress that this could or should happen what would business want to see before supporting a merger like this do you think? Well that's really key I mean here at ag go see we're looking at

24:11the investor implications and they're quite substantial I think from you know the business community at the moment just really needs or believes the cutting economy needs or depends on predictable tariffs you know reliable utilities transparent procurement and sort of credible infrastructure planning and I think a merger such as what is being proposed or proposition would really sort of raise immediate questions over debt tariff harmonization contact staffing gosh let's go thought I'm thinking you know asset registers and revenue collection and this is all central to municipal credit worthiness and the cost of capital really so we really need to see better coordinated planning I would say across transport and sort of bulk services and general economic development but there is again that that caveat is that there's meaningful difference between coordination and centralization. What does meaningful difference mean do you think in again with from from a business perspective? I would say that those functions that I sort of just mentioned now particularly within sort of

25:12infrastructure space and land use they need to be coordinated through shared agencies and sort of ring fence utilities which would sort of hopefully you know bind that intergovernmental arrangements and sort of well structured private public partnerships as well without sort of collapsing again those three midges into single political entity I think that is that is actually really the direction that we need to go to. Are you concerned that this debate is really about politics over economics and there's a danger that the suggestion of changing the map is simply a distraction or dog whistle from fixing water power roads buildings potholes the list goes on and on. Oh no 100 percent I think it's quite difficult with this to sort of ignore the timing right I'd say within November elections sort of foster approaching our local governance has become really one of the central political battlegrounds particularly within the likes of say the ANC and the DA and that coalition instability the poor service delivery and municipal financial distress that sort of become

26:17part of our sort of daily political argument I would say with all of this you know in any environment I think any proposal to alter these sort of municipal boundaries must be subjected to an especially high standard of proof from from us as voters. Just for the sake of argument I'm trying to find holes in your thesis and I'm just wondering whether the mega city as has been proposed might make us more competitive internationally in other words people would see more strength and perhaps more more comfort in the bigger entity. I would say you know there's always an argument made in that regard but it's become sort of a mood point if we're not seeing you know basic service delivery sort of on the ground it's my firm belief that in general the broader halting municipal recovery is really going to actually depend on practical institutional repair you know again I'm mentioning those credible financial control stronger revenue collection ring fence infrastructure functions and more importantly transparent procurement and partnerships

27:19that's the brings operational expertise and capital into those central services financial markets international investors more broadly will take more heed from that than just this one congregated mess of problems that's just going to basically be centralized. So as we end then pushing that aside what do you think would make the biggest difference to how tang's economy over the next five years to actually get us moving into some position of positive growth. Well like I mentioned before again it's just practical sort of institutional repairs at the moment it's just getting the stronger oversight and controls and better coordination at the moment it's very sort of separate we need to have those ring fence institutions that buy in from private sector partnership credible financial controls is probably the first of the last we see now I mean all three of these metrics have been in unstable conditions since I think the last local elections in 2021 again stronger revenue collection and that transparency in government processes I think is really

28:22what's going to do and just get that basic solution to real on the ground let's get roads working in have traffic lights working etc all ahead of the November local government elections they couldn't come at a more critical time. Casey sprake thank you very much indeed you're a market strategist at ag capital appreciate your time and on that note we are going to finish today's program you have been listening to money web at midday we're here every weekday at noon with the latest in current affairs the economy and policy you can always catch the podcast version a little later thank you for making us part of your day until next time goodbye. Listen to the daily livestream of money web at midday or download episodes and money web that's here today the money web app Apple podcast and Spotify or follow money web news and social media for more updates money web your trusted source for business and investment insights