State-owned freight logistics group Transnet has set aside a R20-billion war chest for mergers and acquisitions (M&A) in South Africa and on the rest of the continent, owing to “limited” prospects for organic growth domestically.

Specific M&A targets have been identified as liquid-bulk terminals and pipelines, railways prospects in the rest of Africa, as well as port terminals.

The move coincides with a material pullback from the group’s near-term capital expenditure (capex) budget, which is set to decline to R25.6-billion in the current financial year to March 31, 2017, from R29.6-billion in 2016. The group reported peak capex of R33.6-billion in 2015.

However, CEO Siyabonga Gama insists that the acquisitive growth strategy is additional to its organic growth plan, as outlined in its multiyear Market Demand Strategy (MDS). However, he acknowledges that the potential for organic growth in South Africa is constrained by the weak growth climate. South Africa is expected to grow by less than 1% in 2016.

In fact, Gama confirms that the economic slowdown is “impeding” the implementation of the MDS, which has resulted in Transnet lowering its seven-year capex ambitions in line with what it describes as “validated demand”.

CFO Garry Pita reports that the seven-year expenditure framework has been reduced to R277.8-billion from R336-billion previously.

Major projects, such as the opening of logistics capacity to the coal-rich Waterberg region, in Limpopo, have been shifted from 2019 to 2022, while capex related to the iron-ore corridor from Sishen to Saldanha Bay has also been deferred, owing to the slowdown in that sector.

In addition, Transnet is aiming to diversify away from its strong focus on mined commodities and to capture rail-friendly market share from road hauliers. In July, the group appointed Gert de Beer as its chief business development officer.

In the six months to September 30, it reported a 12.8% increase in the volume of containers and automotives and it is now focusing on securing a greater proportion of fast-moving consumer goods.

The M&A plan is also associated with an emerging vision to expand Transnet services across the freight logistics value chain. Gama even refers to an aspiration to develop Transnet as a so-called “4PL logistics group”, or fourth-party logistics provider.

“We are implementing an integrated operational philosophy across the length and breadth of our company to make sure that we can leverage our capabilities across rail, ports and pipelines,” Gama reports, indicating that any domestic acquisitions will seek to “close gaps” in becoming a 4PL provider.