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 latest transfer to grant non-public operators wider entry to the system as a “once-in-a-generation alternative”. Based in 2013, ARC just lately secured conditional approval to run its trains on nationwide strains, constructing on its current 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 personal rail enterprise on the continent.
Matters mentioned through the interview embody:
Capitalising on South Africa’s non-public rail alternative
Beginning a personal rail enterprise from scratch
Essentially 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 total interview beneath: (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 latest transfer by South Africa to open its railways to non-public 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 non-public participation. On the centre of this method is Transnet, the state-owned transport and logistics firm, which has been stricken by years of underinvestment and mismanagement. Because of this, power 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 instances costlier than rail. In response to ARC, a single litre of gasoline can transfer a tonne of cargo 200 km by rail, in comparison with simply 60 km by highway. Rail additionally clears borders extra effectively and reduces highway deaths and congestion.
The financial prices of South Africa’s railway constraints have been extreme, with industries not solely paying a premium for highway transport but in addition 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 techniques to divulge heart’s contents to non-public participation. Transnet is concentrating on a rise of about 100 million tonnes in annual freight volumes by 2030.
“It’s an enormous, globally important occasion that that is going down,” 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 function at Merrill Lynch in London.
However finance was by no means fairly the place his ardour lay. He needed one thing extra concrete. “With finance, there’s a whole lot of transferring round numbers on a spreadsheet … you generate income, however there’s nothing on the finish of it which you can 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 operating the commodities enterprise, they realised that everybody within the commerce was counting on vehicles. This was regardless of rail being one of the vital environment friendly methods to move bulk commodities like chrome, coal, and iron ore over lengthy distances.
Throughout the area, rail was barely getting used. As an example, Elgonaid notes that Zimbabwe had a rail capability of 20 million tonnes a yr on the time, however was transferring 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 tough as a result of coordination between nationwide rail firms was usually restricted. Confronted with this complexity, most merchants discovered it a lot simpler to simply load their items onto vehicles.
Elgonaid’s firm, nonetheless, noticed a chance in rail. “We have been slightly bit contrarian,” he says. They began through the use of the community in Zimbabwe and Mozambique for their very own trades. Quite than shopping for their very own rolling inventory – locomotives and wagons – the group realised they may get extra out of the capability that was already in place. The corporate supplied operational help to the nationwide rail authorities, serving to them run their networks extra effectively.
They quickly recognised this service could possibly be bought to different companies. “We determined, okay, fairly 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. As an 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. “On account 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 deal with the precise issues holding up their operations. When an absence of overseas forex made it arduous to purchase gasoline, or when sourcing spare components and lubricants turned a difficulty, the corporate stepped in. The group even used its personal workshop to refurbish broken-down locomotives and wagons. It made its a reimbursement by transporting cargo on the additional capability this freed up.
Working with state rail authorities meant treading fastidiously. “Our strategy was at all times to, fairly 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 might 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 gasoline 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 obtained a whole lot 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 considered as a viable logistics possibility for Southern Africa. “We have been swimming in opposition to the tide for a very long time,” he provides. “We needed to be extraordinarily nimble when it comes to 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 vital 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 at the moment in search of 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 vital mineral wealth is situated far inland, placing strain on current overland infrastructure. That is coupled with a rising and more and more prosperous native inhabitants that’s consuming extra merchandise and power.
Regardless of this rising demand, most state-owned rail entities have struggled to seize the transport quantity.
For a personal operator, the area provides a significant logistical benefit: nearly all Southern African international locations use the uniform Cape gauge. This implies trains can transfer simply from one nation to the following with out the complexity of switching strains.
Elgonaid says the plan is to ultimately function throughout the continent, together with his house nation of Egypt, however for now, the main focus is on the quick alternative in South Africa.
