• Saturday, June 15, 2024
businessday logo

BusinessDay

Rail needs innovative risk-sharing structures to thrive

Rail

African railway owners and operators should consider linking freight and passenger rail services as a way of diversifying the risks and rewards that have become evident in these systems on the back of the Covid-19 crisis, says Development Bank of Southern Africa transport, logistics and bulk water infrastructure finance principal Nangamso Maponya.

Speaking at an Africa Rail webinar, hosted by event organiser Terrapinn, Maponya said she would like to see how the railway sector and its investors could diversify or mitigate the risk of revenue loss on one system while using the revenues from the other side to balance the scales.

She noted that, since the Covid-19 crisis gained traction, with lockdowns in various African countries being implemented, passenger rail had had a reduction in business of between 50 percent and 90 percent.

Read also: Covid-19: FG approves final evacuation of Nigerians from US

“There has been a massive reduction in passenger rail because of low economic activity, as well as physical distancing protocols.”

Heavy revenue losses resulted in some railway systems becoming unsustainable, thereby placing the burden on government to inject additional funds to keep the systems operating.

“This kind of risk that came with the virus was not well thought through in advance. No one saw this coming and we were underprepared for the impact it would have on the transport system.” She stated.

The webinar agreed that, in the case of Covid-19, the transport sector was particularly affected because it became an unwitting primary enabler of viral transmissions across the country; therefore, the transport sector’s risk profile should be reconsidered in future.

“We are forced to become more resilient from a socioeconomic perspective, and Africa’s leaders will have to rethink many prior assumptions to find new balances for individuals and the collective,” commented Winston Cluff; managing director at Cluff Trade & Investment.

Switzerland- based Rail Working group managing director Howard Rosen added that global collapse of commodity prices and general reduction in trade resulted in railway sector facing these same challenges globally not just in Africa, notwithstanding Africa’s generally having less developed infrastructure and less financial resources at its disposal for infrastructure development.

Rosen noted that, from 2010 to 2018, debt to gross domestic product ratio increased from about 40 percent to 59 percent across Africa. This had only been worsened by Covid-19.

“We know we need to invest in the future of railways, but how are we going to do it when governments’ resources are increasingly constrained because of the outcome of the Covid-19 crisis”.