Prices, Investment and Efficiency on the Railways: A Sectoral Review of Efficiencies in Administered Pricing in South Africa

by TRUEN, S. et al., 2007
HSRC report prepared for NEDLAC, Trade and Industry Chamber, NEDLAC, August 2007

There has been little change to the operational structure of the South African rail industry over the past century. It remains a state-owned monopoly, run as a division of the same entity that houses the ports. Despite attempts to introduce greater commercial discipline in the 1980s, the industry is still only intermittently profitable and seems to be cross-subsidised via the high returns achieved in Transnet’s ports division. Truen investigates the pricing of the South African rail sector and its impact on the broader economy, and benchmarks rail prices to those of global competitors. Because rail is owned and operated by government, it is important to ensure that price structures in rail are consistent with wider macroeconomic policy goals. This research was commissioned as part of a broader Nedlac project, analysing the impact of administered pricing sectors on South Africa’s competitiveness and ability to attract direct investment. Two companion reports examine the water and ports sectors respectively. The report starts with a brief rundown of applicable pricing theory, followed by a description of the history, policy and market participants in the local rail industry. The next section benchmarks South African rail against three international examples of rail reform – Australia, Brazil and Mexico. The report then provides detail on price formation in the international benchmark industries, and concludes with recommendations for the local industry.