Youssef Elgonaid
Interview with Youssef Elgonaid
CO-FOUNDER and CEO, AFRICAN RAIL COMPANY
For many years, South Africa’s freight rail community has been tightly managed by the state. Youssef Elgonaid, CEO of African Rail Firm (ARC), describes the current transfer to grant non-public operators wider entry to the system as a “once-in-a-generation alternative”. Based in 2013, ARC not too long ago secured conditional approval to run its trains on nationwide strains, constructing on its present operations in neighbouring international locations.
How we made it in Africa editor-in-chief Jaco Maritz spoke to Elgonaid about his journey of constructing a non-public rail enterprise on the continent.
Subjects mentioned through the interview embrace:
- Capitalising on South Africa’s non-public rail alternative
- Beginning a non-public rail enterprise from scratch
- Probably the most profitable cargo for rail transport in Southern Africa
- His hardest moments in enterprise
- The potential for rail in the remainder of Africa
Watch the complete interview under: (Solely accessible to How we made it in Africa subscribers)
Interview abstract
“A once-in-a-generation alternative.”
That is how Youssef Elgonaid, co-founder and CEO of African Rail Firm (ARC), describes the current transfer by South Africa to open its railways to personal operators.
ARC is amongst 11 profitable bidders for slots to privately run trains on South Africa’s rail community.
South Africa’s railways have for many years been state-controlled and largely closed to personal participation. On the centre of this method is Transnet, the state-owned transport and logistics firm, which has been suffering from years of underinvestment and mismanagement. Because of this, persistent delays, poor upkeep, gear shortages, and rampant cable theft have severely undermined the community’s reliability and efficiency. Rail freight volumes fell from 226 million tonnes in 2017 to 152 million tonnes in 2024. The decline has pushed extra freight onto vehicles, which is in lots of circumstances costlier than rail. In response to ARC, a single litre of gas can transfer a tonne of cargo 200 km by rail, in comparison with simply 60 km by street. Rail additionally clears borders extra effectively and reduces street deaths and congestion.
The financial prices of South Africa’s railway constraints have been extreme, with industries not solely paying a premium for street transport but additionally unable to function at full capability. Mining, agriculture, and manufacturing are among the many hardest-hit sectors. In response to some estimates, the poor efficiency of the nation’s freight logistics, together with ports, is costing as a lot as R1 billion (about $61 million) a day in misplaced output.
Spanning roughly 30,000 km, South Africa’s rail community is among the many longest on this planet – and one of many few large-scale, state-controlled programs to divulge heart’s contents to non-public participation. Transnet is focusing on a rise of about 100 million tonnes in annual freight volumes by 2030.
“It’s an enormous, globally vital occasion that that is happening,” Elgonaid provides.
South Africa’s 30,000 km rail community is among the many longest on this planet. Supply: ARC
Recognizing the rail logistics hole
Elgonaid was born in Egypt however spent a part of his childhood within the UK. Though he studied engineering, he moved into finance after college, touchdown an funding banking position at Merrill Lynch in London.
However finance was by no means fairly the place his ardour lay. He wished one thing extra concrete. “With finance, there’s a variety of shifting round numbers on a spreadsheet … you earn a living, however there’s nothing on the finish of it that you would be able to go and … ‘See, okay, I did this, I constructed this, I constructed that.’ And I feel for me, I wanted one thing a bit extra tangible,” he explains.
That pull ultimately took him again to Africa, the place he and a enterprise associate arrange a enterprise buying and selling mining commodities in Southern Africa.
Whereas working the commodities enterprise, they realised that everybody within the commerce was counting on vehicles. This was regardless of rail being some of the environment friendly methods to move bulk commodities like chrome, coal, and iron ore over lengthy distances.
Throughout the area, rail was barely getting used. For example, Elgonaid notes that Zimbabwe had a rail capability of 20 million tonnes a 12 months on the time, however was shifting lower than 2 million tonnes.
The area’s railways had suffered from an absence of funding and operational points. Shifting cargo throughout borders was particularly troublesome as a result of coordination between nationwide rail firms was usually restricted. Confronted with this complexity, most merchants discovered it a lot simpler to only load their items onto vehicles.
Elgonaid’s firm, nonetheless, noticed a possibility in rail. “We had been just a little bit contrarian,” he says. They began through the use of the community in Zimbabwe and Mozambique for their very own trades. Reasonably than shopping for their very own rolling inventory – locomotives and wagons – the workforce realised they might get extra out of the capability that was already in place. The corporate offered operational help to the nationwide rail authorities, serving to them run their networks extra effectively.
They quickly recognised this service could possibly be offered to different companies. “We determined, okay, slightly than having rail as a price, let’s have rail as a income.”
ARC acted as a coordinator between cargo homeowners and the rail authorities. Groups on the bottom dealt with duties like loading and cross-border logistics. For example, they made positive a locomotive was ready on the opposite facet of the border when wagons arrived so cargo didn’t sit on the crossing for 2 weeks. “Because of that, you’re squeezing much more out of the capability, you’re sweating the property much more on behalf of the rail authorities,” Elgonaid explains.
ARC additionally helped the rail authorities sort out the precise issues holding up their operations. When an absence of international forex made it exhausting to purchase gas, or when sourcing spare components and lubricants grew to become a problem, the corporate stepped in. The workforce even used its personal workshop to refurbish broken-down locomotives and wagons. It made its a refund by transporting cargo on the additional capability this freed up.
Working with state rail authorities meant treading rigorously. “Our strategy was at all times to, slightly than be seen as a competitor, to be seen as a associate … we’re not stealing enterprise that you have already got … we’re bringing new enterprise that may in any other case not come,” Elgonaid notes.
With that strategy in place, ARC took the mannequin into Botswana, Malawi and Zambia.
Recurring bookings from merchants gave the corporate the boldness to begin leasing its personal rolling inventory.
ARC’s fleet now stands at seven locomotives and greater than 400 wagons. The corporate claims to be the most important mover of gas by rail in Botswana, Mozambique and Zimbabwe. Mining commodities, reminiscent of chrome and copper focus, are additionally a major a part of the enterprise.
ARC manages a fleet of seven locomotives and greater than 400 wagons.
Shifting investor sentiment
“I’ve received a variety of gray hair. I’ve earned my stripes. It’s a very difficult enterprise,” Elgonaid notes.
Elevating financing was one of many hardest challenges he confronted, primarily as a result of non-public rail wasn’t seen as a viable logistics possibility for Southern Africa. “We had been swimming towards the tide for a very long time,” he provides. “We needed to be extraordinarily nimble by way of how we deploy our capital – how we reinvest our earnings and all of that.”
Sentiment in direction of the sector, nonetheless, is shifting. That is partly pushed by demand for Southern Africa’s important minerals like lithium and copper, in addition to the inputs wanted to mine them, reminiscent of sulphur and diesel.
“We’re seeing an enormous distinction in urge for food for dialogue round funding our enterprise,” he says. ARC is presently searching for to lift $170 million to purchase locomotives and wagons to function in South Africa.
The Southern African rail alternative
In response to ARC, Southern Africa is ripe for a rail increase. A lot of the area’s important mineral wealth is positioned far inland, placing strain on present overland infrastructure. That is coupled with a rising and more and more prosperous native inhabitants that’s consuming extra merchandise and vitality.
Regardless of this rising demand, most state-owned rail entities have struggled to seize the transport quantity.
For a non-public operator, the area provides a serious logistical benefit: virtually all Southern African international locations use the uniform Cape gauge. This implies trains can transfer simply from one nation to the subsequent with out the complexity of switching strains.
Elgonaid says the plan is to ultimately function throughout the continent, together with his residence nation of Egypt, however for now, the main target is on the instant alternative in South Africa.
