Across the developed world, industries and entire economies rely on rail to move vast volumes of goods efficiently and cost-effectively. In recent years, we’ve seen significant investment in Africa’s rail infrastructure in an effort to tap into rail’s ability to unlock huge growth potential. But if we’re going to create the flourishing rail industry this continent needs, we have to think of new ways of making our industry more relevant.
One of the major barriers to a booming African rail industry is the lack of third party access to the continent’s rail infrastructure. Today, state-owned rail companies commonly own both the infrastructure (the permanent railway) and the assets that operate on this infrastructure (the locomotives and rolling stock). Where there is a shortage of trainsets, a capital shortage to invest in these trainsets, or no investment appetite for a particular cargo, this infrastructure remains underutilised. With each train slot that is not utilised, an opportunity to generate material revenue flows is lost.
With fixed costs being the highest proportion of total costs, railways need large volumes to survive. The variable costs associated with granting third party operators access are minimal, and as a result, the revenues generated through access fees represent incremental cash flows that otherwise could not be earned. The benefits are plain to see.
The lack of third-party access means most goods in Africa today are trucked by road. And there’s no doubt that right now, road transport has an unfair advantage. In most cases, the superstructure is heavily state-subsidised, and the fact that the road network is more developed allows trucks to run door-to-door. On top of this, the road transport industry has relatively low barriers to entry and uses highly versatile and fundable assets.
The low barriers to entry in the road transport industry means road quickly adjusts to meet industry demand. By contrast, the high barriers to entry in the rail industry, including the high capital cost of additional trainsets, means rail capacity generally lags industry demand in Africa. Through third party access, additional trainsets would be introduced, and managed correctly, this would be a catalyst for growth and development – and an more competitive logistics offering for the country concerned.
To make this happen, a few key elements need to be put in place – starting with regulatory stability and user-friendly access agreement regimes. There will also have to be some work done to create clear and thorough safety regulations, which will attract the kind of quality operators that the infrastructure owners should demand. There is precedent for this in some pockets in Africa and across the world.
The ultimate goal is to create a thriving African rail industry that benefits not only all rail operators, but broader industries and economies. To do this, though, we are going to have to drop our barriers to participation. The early signs of a bright new, collaborative approach across the industry are already there. Now it’s up to us to turn them into a brighter future for the entire continent.
James Holley is CEO of Traxtion Group (formerly Sheltam)
With the incorporation of Traxtion into the Sheltam brand, we bring deep financial capacity to invest in rolling stock and track infrastructure, enabling us to offer even greater expertise and benefits to our clients. We’re passionate about all things rail and locomotive related – and equally passionate about providing world-class quality and safety. Above all, we are committed to bringing fresh prospects, progress and new horizons to the people of Africa.