Dr Mihalis Chasomeris

chasomerism1@ukzn.ac.za

Trade, Investment Promotion and Economic Development Programme

19 October 2018

mailto:chasomerism1@ukzn.ac.za

Economic Indicators for Trade and Investment

• Measuring macroeconomic performance of an economy:1. Economic Growth – National Development Plan goal 5.4%2. Full Employment - official (narrow): 27.2% or expanded (broad) 37.2%3. Price Stability (- low and stable Inflation rate – SARB target: CPI between 3%

and 6%)4. External Stability – Trade, Balance of payments and exchange rates5. Socially acceptable distribution of income (Gini coefficient, poverty

reduction etc)• Useful resource: See book called Economic Indicators, 2016, by P Mohr

Political and Economic Freedom necessary for Economic Growth and Investment.

• The world by night tour– evidence of economic development:• http://www.nightearth.com/?@30,-

3.42,2z&data=$bWVsMg==&lang=en

http://www.nightearth.com/?@30,-3.42,2z&data=$bWVsMg==&lang=en

Accessing Economic Indicators:Sites relating to domestic economic data and issues

• South African Reserve Bank (www.resbank.co.za)• Statistics South Africa (www.statssa.gov.za)• A website dealing with domestic industrial and trade issues is: The

South African Trade and Industrial Policy Secretariats website: (www.tips.org.za)

International sources include:

• Trading Economics (www.tradingeconomics.com)• Resources for Economists (http://econwpa.wustl.edu)• The Economist (www.economist.com)• CNN Money (http://money.cnn.com)• International Monetary Fund (http://www.imf.org)• The World Bank (http://www.worldbank.org)• African Development Bank (http://www.afdb.org)• International Trade Centre (http://www.intracen.org)• Economist Intelligence Unit (http://www.eiu.com)

http://www.eiu.com/

International sources include (Continued):

• Organisation for Economic Co-operation and Development (OECD)• (www.oecd.org)• European Commission (http://ec.europa.eu/index_en.htm)• United Nations Centre for Trade and Development

(http://www.unctad.org)

Other potentially useful sites include:

• The Mail & Guardian (www.mg.co.za)• Financial Mail (www.fm.co.za)• Independent Newspapers (www.iol.co.za)• South African Financial Forum (www.finforum.co.za)• South African Government Sites

(www.polity.org.za/page/government- contacts)

Rating Agencies

• Annette Houser: the 3 rating agencies with the power to make or break economies -

• https://www.ted.com/talks/annette_heuser_the_3_agencies_with_the_power_to_make_or_break_economies?language=en

• Sovereign credit ratings - Moody’s, S&P, Fitch -A comparison between countries:

• https://tradingeconomics.com/south-africa/rating

https://www.ted.com/talks/annette_heuser_the_3_agencies_with_the_power_to_make_or_break_economies?language=enhttps://tradingeconomics.com/south-africa/rating

International Trade and Investment

• Trade Facilitation and Trade Barriers• https://unctad.org/en/Pages/Home.aspx

• Imports, Exports and Exchange rates:• https://www.youtube.com/watch?v=geoe-6NBy10

https://unctad.org/en/Pages/Home.aspxhttps://www.youtube.com/watch?v=geoe-6NBy10

Discussion: Trumponomics• Understanding the United States trade policy and implications for South Africa

• Trump speech at World Economic Forum:• https://www.youtube.com/watch?v=UT7GlaDc060• (Trump speech from 11 minutes to 27 min)• https://www.weforum.org/agenda/2018/01/president-donald-trumps-davos-

address-in-full-8e14ebc1-79bb-4134-8203-95efca182e94/

• Trump speech at the United Nations:• https://edition.cnn.com/videos/politics/2018/09/25/cnngo-donald-trump-full-

united-nations-speech-september-25-2018.cnn

https://www.youtube.com/watch?v=UT7GlaDc060https://www.weforum.org/agenda/2018/01/president-donald-trumps-davos-address-in-full-8e14ebc1-79bb-4134-8203-95efca182e94/https://edition.cnn.com/videos/politics/2018/09/25/cnngo-donald-trump-full-united-nations-speech-september-25-2018.cnn

INSPIRING GREATNESS

South Africa’s Port Governance and Pricing:Dilemmas and Reforms

Dr Mihalis (Micky) Chasomeris

Chasomerism1@ukzn.ac.za

South Africa’s Seaports

Cape Town Port Elizabeth

Durban

Saldanha

Richards Bay

East London

Gauteng

Mossel Bay

Ngqura

Port Nolloth

Richards Bay

Port Nolloth

Ngqura

Mossel Bay

Gauteng

East London

Saldanha

Durban

Port Elizabeth

Cape Town

Table 1. Public and Private Sector Market Share, A Comparison of 2010 and 2016 Source: URBAN-ECON (2010), Havenga et al.,(2017), Gumede and Chasomeris (2017).

Service NPAPort Operations

TPT Private Sector

Year 2010 2016 2010 2016 2010 2016

Marine Services 100% 100%

Bulk Cargo Handling 37% 52% 63% 48%

Breakbulk Cargo Handling 78% 69% 22% 31%

Container Handling 97% 98% 3% 2%

Car (on wheel) handling 100% 100% 0% 0%

Revenue Requirement =+ Regulatory Asset Base (RAB) X Weighted Average Cost of Capital (WACC) + Operating Costs+ Depreciation + Taxation Expense + (-) Claw back + (-) Excessive Tariff Increase Margin Credit (ETIMC)+ (-) Weighted Efficiency Gains from Operations

Table 2 Themes on Port Governance

Submissions on the following Review Periods

Requested Tariff Increase Frequencies 18.06% 13.2% 14.39% Σ

Allowed Tariff Increase 2.76% 0% 8.15%1

5.9%2

Theme 2009/10-

2011/12

2012/13 2013/14 2014/15

Current structure inhibits global competitiveness of

ports, and high port tariffs hinder stakeholders’

profitability

38 7 31 10 58

Revenue Requirement Model is unjustifiable and

arbitrary

36 4 5 8 53

Misalignments with international tariff standards

and inconsistent pricing of some port commodities –

User-pays principle is preached but not practiced

13 8 6 8 35

Inefficiency and low productivity of ports 13 13 4 1 31

No accounting for prevailing economic conditions 24 3 2 1 30

Above-inflation increases requested

annually

15 7 1 3 26

WACC, MRP and betas used to assess

risk are all inaccurate

4 10 11 24

Non-compliance with national policies and

inconsistency

13 3 1 3 20

Lack of transparency in reporting or

justifying tariffs

10 1 2 5 18

TNPA practices do not support job

creation

9 5 1 2 17

Regulatory Asset Base is not cleaned up

and it is overvalued

- 3 6 9

Abuse of monopoly power 8 - - 1 9

Poor service delivery 4 - - 1 5

Ports as national asset are used for

profiting, not national economic objectives

- - 2 2 4

Projects from previous financial

year are seldom complete

- 3 1 - 4

Lack of consultation with industry

prior to altering tariffs

- 2 1 - 3

Transition from TNPA to NPA (Pty)

Ltd is still pending

- - 2 1 3

Source: Meyiwa & Chasomeris, 2016

Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17

2010/2011 2011/2012 2012/2013TariffComponents

TNPA Prop. PR Decision TNPA Prop. PR Decision TNPA Prop. PR Decision

RAB(R Million) 45 677 43 165 51 480 48 529 58 490 60 001

WACC 6.02% 5.15% 5.38% 4.71% 8.97% 6.13%Marine RR(R Million)

6 868 6 020 7 641 6 523 9 645 6 150

TariffIncrease 10.62% 4.42% 11.91% 4.49% 18.06% 2.76%

CPI Increase4.3% 5.0% 5.6%

Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17

Table 4. Recalculation of NPA Tariff Application 2014/15 (Chasomeris, 2015)

Scenario 1

Scenario 2Scenario

3Scenario 4 Scenario 5 Scenario 6

Recalculation of Tariff

Application

Change: MRP to 6.3

If βd is considered

If MRP = 6.3 and βd is

considered

If βa = 0.4, MRP = 6.3 and βd is

considered

If βa = 0.35, MRP = 6.3 and βd is

considered

WACC 5.82% 5.48% 5.45% 5.11% 4.57% 4.30%RAB 64 694 64 694 64 694 64 694 64 694 64 694Plus: Claw Back 118 118 118 118 118 118Revenue Requirement 10 940 10 717 10 702 10 480 10 129 9 954

Less: Real Estate 2113 2113 2113 2113 2113 2113FY 2014/15 RR 8 827 8 604 8 589 8 367 8 016 7 841

Tariff Increase 14.29% 11.41% 11.22% 8.34% 3.80% 1.53%Tariff Increase: Less ETIMC

8.41% 5.53% 5.34% 2.46% -2.08% -4.35%

Table 5. Recalculating the TNPA Tariff Application for 2016/17: Changing Market Exposure Risk Assumptions (Gumede & Chasomeris, 2016)

Revenue Required Conclusions

• RR model may incentivise port capital expenditure (investments), operating expenditure and port prices at levels that are not in the best interests of the country

• RR method does not provide appropriate incentives to reduce costs and to improve productivity in the ports.

• If the RR method continues to be used, then the value of the components in the RR model need to be reviewed, including the adoption of an asset beta lower than the present 0.5, and the inclusion of a debt beta.

NPA Tariff Application, 2018

NPA Tariff Application, 2018

VoA Calculation and Consequence• NPA (2018) estimated that the Port Regulator VoA reduces the NPA’s

calculated opening RAB value at 1 April 2019 by approximately R45 billion from R83.5 billion to R38.1 billion.

• This reduced the calculated Allowable Revenue attributable to RAB by R3.8 billion/ 46% from R8.2 billion to R4.4 billion for FY 2019/20 and every year thereafter perpetually.

• NPA state: Given this significant revenue reduction, together with the commitments of the Authority, the financial sustainability of the Authority would be at risk.

SA total port costs deviation to global average

Source: Ports Regulator of South Africa

Chart1

AutomotiveAutomotiveAutomotive

ContainersContainersContainers

CoalCoalCoal

Iron OreIron OreIron Ore

Deviation

Commodities

2012/2013

2013/2014

2014/2015

7.4376

5.8879

5.41

8.742

4.1339

3.8823

-0.5003

-0.5776

-0.597

-0.0528

-0.3404

-0.4563

Sheet1

2012/20132013/20142014/2015

Automotive743.76%588.79%541.00%

Containers874.20%413.39%388.23%

Coal-50.03%-57.76%-59.70%

Iron Ore-5.28%-34.04%-45.63%

To resize chart data range, drag lower right corner of range.

Ports Regulator of South Africa, 2014

Ports Regulator of South Africa, 2014

Ports Regulator of South Africa, 2014

Ports Regulator of South Africa, 2014

Ports Regulator of South Africa, 2014

Table 6. Distribution of Ports Costs among Port User Groups

Port User Groups 2017/18 PR Proposed

Cargo Owners 55% 35%Tenants 24% 29%Shipping Lines 21% 36%

Source: Author created from TNPA Tariff Application for 2018/19

Ten Year Gradual Shift in Port Cost Allocation

Source: Author generated from Ports Regulator data.

Chart1

601822

57.519.822.7

5521.623.4

52.523.424.1

5025.224.8

47.52725.5

4528.826.2

42.530.626.9

4032.427.6

37.534.228.3

353629

Year

Cost contribution

Cargo oners

Shippig lines

Tenants

Sheet1

Cargo oners6057.55552.55047.54542.54037.535

Shippig lines1819.821.623.425.22728.830.632.434.236

Tenants2222.723.424.124.825.526.226.927.628.329

100100100100100100100100100100100

Sheet1

Cargo oners

Shippig lines

Tenants

Sheet2

Sheet3

Tariff Strategy (Ports Regulator, 2017)

Ports Regulator’s tariff trajectory (over 10 year period): • Cargo Dues – 5.2% real price decrease on an annual basis; • Shipping Lines – 7.2% real price increase on an annual basis; and • Tenants – 2.8% real price increase on an annual basis.

The allocation envisages the following: • Steep price reductions for Containers and Automotives; and • Marginal increase for Dry and break bulk commodities.

NPA Proposed Tariffs for 2018/19:

• An average 10.00% increase for Marine Services tariffs applicable to shipping lines with:

• Port Dues tariff to increase by 14.05%;• Berthing Services tariff to increase by 11.15%; and• Other including Pilotage, Towage, VTS to increase by 7.04%.

• An average 7.88% increase for cargo dues tariffs with:• FULL containers import and export tariffs to increase by 7.50%;• Automotive converted to unitary based tariff structure increasing by 5.00%;• Bulk tariffs increasing by 9.00% except:• Coal to increase by 10.00%; and• Ores and Minerals: Magnetite to increase by 10.00%.• • Other cargo dues increases by 8.45%.

Proposed long term end state cargo dues base tariffs

Sector Measuring Unit Rate/Unit (R)

Dry Bulk Tons 6.53

Breakbulk Tons 31.03

Liquid bulk Tons 15.21

RoRo Imports Unit per size category in line with TPT’s vehicle category classifications

51.30

RoRo Exports 26.65

Container Imports Twenty foot Equivalent Units (TEU) 651.53

Container Exports TEU 325.77

Tariff deviation from the base

Chart1

Container ImportContainer Import

Container ExportContainer Export

Actual Tariff 2013-14

Base Tariff for 2013-14

Containerised Cargo

1866.23

651.53

614.35

325.77

Sheet1

Actual Tariff 2013-14Base Tariff for 2013-14

Container Import1866.23651.53

Container Export614.35325.77

Deviation of Commodities from Proposed Cargo Dues Base tariffs

-200%

-100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

0 50 100 150 200 250

Breakbulk Imports Breakbulk Exports Dry bulk ImportsDry bulk Exports Liquid bulk Imports Liquid bulk Exports

Number of Commodities

Deviation

from Proposed Cargo

Dues Base tariffs

Source: Gumede and Chasomeris (2017).

Commodities below and above the proposed cargo dues tariff base

Breakbulk Dry-Bulk Liquid-Bulk Total

Import Export Import Export Import Export

To increase

39 47 2 8 2 2 100

To decrease

38 40 39 33 7 7 154

Min (%) -76 -91 -21 -55 -62 -81 -91Max (%) 303 232 801 575 287 190 801

Source: Gumede and Chasomeris (2017).

Tariff Structure Conclusions

Of the 254 commodity cargo dues examined by Gumede and Chasomeris(2017):• 100 are below the base tariff and therefore being cross subsidised and may

experience a relative increase in cargo dues over the next ten years, and

• 154 are above and therefore subsidising other cargoes and may experience a relative decrease in cargo dues over the next ten years.

The Ports Regulator proposed tariff structure appears to be an improvement, however:

• TNPA and the Ports Regulator need to be transparent on the calculation of the base tariffs and provide access to information to allow stakeholders to make a more meaningful contribution towards governance, regulation and the pricing of South Africa’s ports (Gumede & Chasomeris, 2017)

Port Tariff Incentive Programme • “To support Beneficiation, Industrialisation, and Localisation

through Port Tariff Regulation.• To create a mechanism in which cross-subsidies can be

introduced that are in ‘the public interest’.• The PTIP was published on 31 March 2016 for public comment

and widely consulted including government departments.• Currently in the final development phase.• Publication and awareness programme October/November

2017• Expected implementation: January 2018”Source: Ports Regulator 2017.

Any Questions?

Contact: Dr Mihalis Chasomeris

chasomerism1@ukzn.ac.za

�������Dr Mihalis Chasomeris��chasomerism1@ukzn.ac.za��Economic Indicators for Trade and Investment�Political and Economic Freedom necessary for Economic Growth and Investment.�Accessing Economic Indicators:�Sites relating to domestic economic data and issues�International sources include:�International sources include (Continued):Other potentially useful sites include:Rating AgenciesInternational Trade and Investment �Discussion: Trumponomics South Africa’s Port Governance and Pricing:�Dilemmas and Reforms ��Dr Mihalis (Micky) Chasomeris��Chasomerism1@ukzn.ac.za�South Africa’s SeaportsTable 1. Public and Private Sector Market Share, A Comparison of 2010 and 2016 Source: URBAN-ECON (2010), Havenga et al.,(2017), Gumede and Chasomeris (2017).��Revenue Requirement =� Slide Number 15Slide Number 16Slide Number 17Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17Table 3. Historic differences between the figures proposed by TNPA and those allowed by the Ports Regulator, 2010/11 to 2016/17Table 4. Recalculation of NPA Tariff Application 2014/15 (Chasomeris, 2015)Table 5. Recalculating the TNPA Tariff Application for 2016/17: Changing Market Exposure Risk Assumptions (Gumede & Chasomeris, 2016)Revenue Required ConclusionsSlide Number 23Slide Number 24VoA Calculation and ConsequenceSA total port costs deviation to global averageSlide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31Table 6. Distribution of Ports Costs among Port User GroupsTen Year Gradual Shift in Port Cost AllocationTariff Strategy (Ports Regulator, 2017)NPA Proposed Tariffs for 2018/19:Proposed long term end state cargo dues base tariffsTariff deviation from the baseDeviation of Commodities from Proposed Cargo Dues Base tariffs Commodities below and above the proposed cargo dues tariff baseTariff Structure ConclusionsPort Tariff Incentive Programme ������Any Questions?��Contact: �Dr Mihalis Chasomeris ��chasomerism1@ukzn.ac.za�������