Opportunity Issue 88 - Sept-Oct 2018

INFRASTRUCTURE
Lowering
barriers to entry
Can the Luxembourg Protocol reshape the African rail industry?
The ability of Africa’s rail industry
to unlock billions of dollars
of investments from private
investors and create a more vibrant and
competitive industry through increased
freight volumes, could lie in adopting a
ground-breaking new global treaty that
provides a central registry of ownership
of railway assets.
A major stumbling block for private
investors looking to invest in Africa
has always been the need to manage
the risks inherent in cross-border
operations, where there is limited legal
infrastructure, and no common system
for tracking assets and identifying
railway equipment. Cross-border operations
are essential to a thriving African
rail industry, but operators need to know
their rights are protected.
Unlike the aviation industry there
is currently no single global system
relating to the ownership and identification
of railway equipment. The
Luxembourg Protocol to the Cape
Town Convention will change that
through a worldwide legal framework
to recognise and regulate the security
interests of lenders, lessors and
vendors of mobile railway assets. A
central registry, in Luxembourg, will
issue unique identification numbers
for all rolling stock globally at a negligible
cost, ensuring that every creditor
and operator can identify and track
rolling stock wherever it is.
The Swiss based Rail Working Group
is already engaged in discussions with
African rail operators and African governments
with a view to ensuring the
Protocol is embraced by every country
with rail operations. The ultimate goal
is to have the Protocol and the central
registry recognised in local legislation.
By recognising the Luxembourg
Protocol, African countries with rail operations
will provide certainty of ownership
for potential investors, thereby reducing
both creditor and operator risk—and once
risks are lowered, we’ll see a greater pool
of capital finance available for investment,
which will lower the barriers to
entry for smaller operators and ultimately
result in a more competitive and dynamic
African rail industry.
A study commissioned by the Rail
Working Group this year, by economic
consultancy Oxera, suggests that
implementing the Protocol in South
Africa would save the country up to
R20bn in microeconomic benefits,
including the reduced cost of finance
and the knock-on effects of the investment
in new rolling stock.
Reducing finance charges for rolling
stock ultimately translates into a reduction
of freight charges for customers. This
means the rail industry can become more
competitive. It really is one of those steps
that will allow Africa to advance, and
there is absolutely no downside to it.
James Holley, Chief Executive, Traxtion
Group
24 | www.opportunityonline.co.za