Although it may be difficult to make a final assessment of rail concessions in Africa, it is possible to point up the conditions that foster private sector involvement. In order to upgrade infrastructure, it is essential to start with what already exists. State investments and improving productivity remain essential. The diversity of stakeholders is an asset and the presence of investors – albeit small – must be promoted at all costs.
Over the past fifteen years or so, several sub-Saharan African railway networks have experienced more or less extensive privatizations with quite a variety of arrangements but there have, however, been constant features. It would be hazardous to attempt to build a comparative picture of these different railways. Full data is not available, and when data is available, it shows situations that can sometimes be extremely different. It is, however, possible to give a broad outline and the ideal conditions of a rail project involving the private sector – in a sector which has, since African independence, been exclusively reserved for the public sector.
Tailoring infrastructure to real needs
From the Sahara to Limpopo, where there are the greatest development needs, the vast majority of rail networks have narrow tracks, generally with a light-weight structure which only allows low axle loads. Both the coupling and brake systems in use (vacuum brakes) only allow relatively light and short trains to run. Operating conditions are poor and are partly dictated by infrastructure constraints. Railways have seen little development since the end of the colonial era and suffer from a general investment deficit and inadequate maintenance. These different parameters lead to a high cost price per transported ton. There are, in addition, exceptional costs caused by the increasing number of operating incidents. In this case, railways in most of these countries do not play the role that they should as mass transporters and yet their economies have a huge need for this for their development. Although they continue to transport passengers, comfort and safety conditions are poor and the tariff conditions are (far) from covering the real costs of setting up a service.
The relevant African countries tend to tackle this situation by defining their policies for rail transport infrastructure development by looking at external models, with a specific interest – considering the historical relations – in the European model.
As the priority is to set up a “mass” transport method with a high capacity and low cost price, the rail model that needs to be copied is that of North America and which can also be seen in Australia, South America or South Africa. The life cycle costs (LCC), as defined by the International Union of Railways, show that rail networks in the USA have managed to optimize the resources invested in infrastructure development remarkably well. Indeed, the costs of these networks are three times lower than those of European networks, given, of course, the fact that they do not meet the same standards. As for maintenance costs, they are systematically adjusted to objectives: the first remains freight transport, which requires high axleloads but relatively slow speeds. It is clearly this objective that most African railways should first seek to meet. All available resources should consequently be earmarked for reinforcing existing railway networks, without waiting for a possible “technological leapfrog”. Indeed, too many lines are today sacrificed in the hope of benefiting tomorrow from a hypothetical railway with a standard gauge. For African countries, making the choice to conduct this policy, which is certainly ambitious but within the limits of the current gauge, means avoiding the considerable economic cost of a poorly managed transition from one operating system to another. Nothing, of course, must also rule out a possible upgrading to more international standards, wherever and whenever this is possible.
Japan had to face this very same question when its industrial upturn began in the 1950s. It decided to keep its narrow-track rail system and gave priority to transporting freight on it. Japan subsequently developed a separate rail network with a standard gauge intended to serve demand for very high-speed passenger transport. Half a century later, Japan continues to congratulate itself on having made this choice.
An essential interconnection
Outside Southern Africa, transport infrastructure still too often continues to correspond to the maritime corridors that were opened during the colonial period. Even today, the percentage of exports from African countries towards other African countries is much too low. Africa’s economic dependence on markets located several thousand kilometers away stems the capacity to build a production economy. The latter is very often first and foremost based on the availability of a domestic market. And yet for African economies, which do not have the critical size to build a satisfactory domestic market, interconnection is essential. But there must be first something to actually interconnect and it must be of a similar nature. It is indeed here that there is the rub. There is no use interconnecting corridors on which rail operating is moribund and where infrastructure and operating tools are on the verge of breaking point. Priority must consequently be given to upgrading existing rail systems, provided that there is consultation at the regional level on the standards adopted for this upgrading so as to allow future interconnections.
In order to open up rail markets as much as possible, identical standards need to be adopted, first of course for the gauge, but also for the coupling and braking systems and, as far as possible, the system for axle loads and traffic organization.
States must not pull out
Evolving towards a more efficient system using existing infrastructure would therefore appear to be a particularly suitable option for the situation in Africa. It does, however, remain an ambitious and demanding option, which requires extremely high financial resources. The economic balance offered to private investors must take this into account. Yet, the traditional arrangement for the so-called “vertically integrated” concession – including both freight and passenger transport, as well as the infrastructure -, does not make it possible to meet this requirement.
Investment plans are needed in order to make up for the decades of underinvestment, lack of maintenance and, at the same time, develop the basic parameters (axle loads and speed). Yet these investments are often too high for a classic commercial company. The generally accepted debt/equity ratios will not be reached unless equity is increased unreasonably. This hypothesis makes no sense if the return expected by an investor will not materialize. In addition, supposing the financial resources required can be mobilized, the depreciation of the investments that are made is generally a drain on the company’s balance sheet throughout the concession period. Moreover, underused infrastructure does not justify being financed by the private sector alone. The situation is quite different for relatively short lines that are used intensely (as is the case for mining projects).
It is generally highly recommended that States do not pull out of the rail sector completely as their participation in financing infrastructure is essential. Whatever the privatization arrangement selected, States continue to own the infrastructure and they can make their investments over periods that are longer than the concessions. In most cases, the financial cost of the debt that is consequently mobilized could be borne by the private operator, for example in the form of a fixed and/or floating concession license fee. Private partners, for their part, must bear the cost of investments for rolling stock and other operating equipment. These investments are by nature more flexible and can be adapted to the development of transport demand.
The social factor is also highly determining for the operating balance of a private rail company. In practically all cases of privatization, private operators have had to take over a labor force that was overmanned, aging and with long years of service. Its productivity was well below sector standards and the conditions those of the former State-owned companies. Yet it is essential for States and social partners to understand that African railway companies will only reach an adequate level of performance and service quality that meets user expectations by improving the productivity of their human resources. Moreover, it is essential for high-quality governance and business culture to be established. The improvements in rail sector performance thus made possible will eventually create indirect employment.
All these developments cannot be achieved without a minimum of adhesion on the part of governments. Railways in African countries conserve a high value of national identification. Opening to private partners, particularly when they are not local, consequently carries major implications. If an operation is to be successful, it is essential for it to be accepted by the railway activity’s social and political environment. The public authorities’ attitude is consequently a decisive factor. When the decision to privatize is taken, responsibility for such a decision must also be assumed. It is never good, for example, to give the impression that it has been imposed by external circumstances, or that it has been dictated by the country’s technical and financial partners.
Investors seriously lacking
It is always advisable for several types of private players to take part in a rail project: the diversity of both their respective activities and interests can help create a positive balance, although badly managed interests can lead to conflict. There are three main categories of private player: technical operators, industrial partners and, finally, investors – some may have one or all of these capacities. The technical operator is a company with experience in managing railway companies in environments and contexts that are comparable to the countries in question. This operator must be independent: it will have no ties with equipment suppliers and rail services, or again with activities which are themselves dependent on the rail service. Industrial partners, for their part, can de facto be highly dependent on the rail system and services. But their presence during investment rounds is a guarantee of stability, performance and that market requirements will be met. It is, however, necessary to ensure that the conditions of the partnership and their representation in the capital do not create an over-exclusive dependence on them.
As for investors, they are generally companies or partners with activities that have no real connection with the rail sector and have no vocation to be operators. They are mainly seeking to invest equity in projects that create value and guarantee a return on the equity invested. Unfortunately, they may be essential, but they too seldom find their place in most rail privatization projects in sub-Saharan Africa. It is undoubtedly true that privatization arrangements will have become viable and sustainable and will have struck the right balance when strictly financial partners start to seriously consider the possibility of investing in rail activities. In an industry that consumes extremely high amounts of equity, this is a challenge that needs to be met. The only other solution is to have to depend on the capacity of States alone over the long term to mobilize the investments required to develop Africa’s railways from institutional donors.
It is premature to draw final conclusions from these first experiences of privatization in Africa’s rail sector. Different arrangements have been experimented; they have admittedly shown their limits, but they have also helped make considerable headway in putting Africa’s railways back on the track of recovery. Although most projects have not yet managed to strike a balance between the expectations of private interest and those of public players, it would be wrong to conclude that this balance does not exist. With the goodwill and intelligence of all parties, it will be possible to very rapidly design rail projects in sub-Saharan Africa that will be at the same time realistic, ambitious, attractive for private players and that meet the legitimate expectations of African populations and public authorities.