e-Tolls: “An example of how to cock things up” – economist Dawie Roodt (with input from SANRAL’s Nazir Alli)

e-Toll Tuesday is behind us. Instead of the bang promised, the public’s reaction was cautious. Many of those who can afford to pay are playing wait-and-see, driving on the toll roads without buying their tags. Among them is economist Dawie Roodt who reckons there’s a good chance e-tags are unconstitutional and therefore illegal. So, like OUTA’s Wayne Duvenage, he doesn’t believe he’s breaking the law. In this fascinating CNBC Africa interview, Roodt offered some logical reasons why, as currently structured, e-tolls are economically unsound. During the interview we linked up with SANRAL’s chief Nazir “Mr e-Tolls” Alli for an update on what was happening on the roads themselves. He says lower usage is the result of people still weighing up their personal cost-benefit analysis. Are they happy to spend hours in the kind of gridlock that alternative routes experienced today? Or pay up for the lighter traffic on toll roads? If Alli is right and the average cost for most people runs to no more than R100 a month, road traffic patterns may well soon revert to normal. Or not. – AH 

To watch this CNBC Power Lunch video click here

ALEC HOGG:   With the e-tolls in place and the petrol price going up at midnight, road users are being hit hard.  We take a look at the economic impact of e-tolls with Dawie Roodt, Director and Chief Economist at the Efficient Group.  I love the piece you wrote about it today Dawie, and particularly the conclusion, “this is an example of how to cock things up” – not polite language, but I guess pretty apt.

DAWIE ROODT:   Yes, I think they did everything as wrong as possible.  Clearly, what stands out for me with our political party, is that there are some questions that need to be answered.  Let me give you a simple example.  There were numerous court cases, but one of these court cases…just before the court delivered its verdict the ANC – nogal – and COSATU, said that they were against the toll roads.  The courts then also stopped the tolls at that stage.  How is it possible that the ANC, the ruling party – which actually implemented the toll roads – were against the tolls at one stage?  Clearly, there was a serious lack of political leadership in this whole process.

ALEC HOGG:   Well, the feedback (I was watching various DSTV channels this morning – particularly eNews), and they were looking around and talking to various people.  The chief traffic cop for Johannesburg said the roads are in chaos outside of the e-tolls, and the e-tolled roads are very quiet.  Then you talk to the politicians who were interviewed…the Gauteng MEC for Transport said everything is running smoothly.  Perhaps nothing has really been learned about this.

DAWIE ROODT:   Well, I was on the roads this morning.  My impression is we don’t really know what’s going on.  I can’t really come to some sort of conclusion because the schools are closing down.  It was fairly easy.  The roads were busy.

ALEC HOGG:   Were you on a toll road?

DAWIE ROODT:   Yes, I was on a toll road.  I do not have one of these tags, by the way.

ALEC HOGG:   So you were on a toll road, without a tag.  Well, the people who haven’t bought tags, who are scared of having to go to court or being fined, weren’t on the toll roads.  That’s why it was easy for you.

DAWIE ROODT:   I guess so, but there were one or two hiccups on the road.  It wasn’t plain sailing all the way.  I’m not going to break any laws.  I’m going to wait for them to send me normal correspondence.

ALEC HOGG:   Aren’t you breaking the law by not having an e-tag?

DAWIE ROODT:   No, you’re not.  There’s no law forcing you to buy an e-tag.  Remember, the moment you buy an e-tag, they have access to all your bank particulars and I promise you: there is going to be an increase in the toll levy within a year or two.  One can expect that because of inflationary reasons.  Then they have access to your bank accounts: how easy is that going to be?  I’m not going to buy the tag.  I’m going to wait for Sanral to send me a proper list.  They have to prove that it’s going to be my car, and then eventually I will have to pay for that and I will pay for it.  I’m a law-abiding citizen, but what I think is happening here, the reason for this huge outcry against the tolls…  It’s not really about the tolls.  I think there’s something else going on.

ALEC HOGG:   What?

DAWIE ROODT:   That has to do with taxes basically, because if you look at what’s been happening with our taxes for the last couple of decades – in fact, more than that – the taxes just kept on going up.  Especially in the last, say 15, 20 years or so Government expenditure is spent basically on two things:  on current expenditure, which includes social expenditure.  Of course, that’s very voter-friendly – social expenditure items.  However, they’re also supposed to spend on capital and we – you and I – we’ve been getting used to this that we pay our taxes and part of our taxes is used to maintain the capital and to reinvest in new capital.

ALEC HOGG:   The old story about consumption expenditure versus capital expenditure – it’s always broken up in the budget.

DAWIE ROODT:   Yes, one can expect the state to spend more on social…  I accept all the social reasons etcetera.  In the meantime, what happened is that we did not look after infrastructure.  Eskom is an excellent example.  The whole thing fell apart and it was only when there were blackouts all over the place that we really started realising ‘we didn’t invest enough in Eskom’.  The same is happening to the roads, to an extent, but in the meantime, that money has been earmarked for something else now, so all of a sudden the money’s not there anymore.  We need the resources.  The tolls are nothing but the privatisation of an additional tax – a new tax.  What we’re seeing today is a tax revolt.  That’s what we’re seeing.

ALEC HOGG:   A tax revolt.  Just before we go more into that tax revolt story, I was under the impression that when our petrol price was being taxed, that the money that was being generated for the roads.

DAWIE ROODT:   Initially, we had something called a Road Fund.  We had the fuel levies and the fuel levies were earmarked specifically for infrastructure – especially road investments.  Now like all taxes, and this is something that happens all over the world: if there’s a specific tax the politicians come to us and say ‘listen, we’re going to tax A, B, and C, and we’re going to use it specifically for this and that’.  What happens is, as time goes by there’s a spot of money – a spot of honey – lying there, they start running out of money somewhere else (the politicians), and then they change the law and the make it part of the bigger pot.  That is exactly what happened to the so-called Road Fund.  The fuel levy is no longer earmarked for road infrastructural investment.  It’s just part of the pot.  It’s like income taxes, company taxes, or rescind taxes etcetera.  It just goes into this one big pot now.  Therefore, now that we’ve used this money for something else, we need extra money.

ALEC HOGG:   Dawie, we’re going to be picking up more on the subject in a moment.  Joining us now on the line to explain how the e-toll system is handling its first day, is Nazir Alli, who is the Chief Executive of Sanral.

NAZIR ALLI:  Nazir are you happy, or are you a not-so-happy man today?

ALEC HOGG:   Well, it’s not a question of whether or not I’m happy about this thing.  We are very pleased to note that the system is working, it has been well tested, and people are using the system.

ALEC HOGG:   Many people aren’t.

NAZIR ALLI:  Well, I don’t think you have the numbers to say that ‘many people aren’t’, you know.  Let me explain this to you.  We have about one million users every day.  Of this million, over 800,000 have already registered.

ALEC HOGG:   Just give us an understanding, on a normal day on the toll roads – or what are now the toll roads – what the usage was like and what it’s been like today.

NAZIR ALLI:  Okay, we have seen that there’s been a bit of a drop in traffic, but I don’t have the actual numbers.  We’ll analyse that later on.  What I do believe is happening, is that people are doing what I want to term ‘a cost-benefit analysis’ for themselves.  Some will be using alternative routes to see whether that is more economical for them to use or not, or whether to use the toll road.  All our studies, including that of the Road Freight Association, show that it is more economical to use the toll road than to use the alternative toll roads and face the congestion, the additional wear and tear on your car, and the fuel cost etcetera. 

ALEC HOGG:   Certainly, when I was listening this morning to the head of the local traffic cops talking, she was saying that there was great congestion outside of e-tolls, less people were using the old toll roads, and more people were using alternative routes.  Do you think this is just a knee-jerk and eventually everyone is going to come into line?

NAZIR ALLI:  I don’t think it’s a knee-jerk.  That’s what I was just saying a moment ago, that I think people are doing a cost-benefit analysis for themselves.  Once they’ve done their own analysis, and they actually see the benefits, people will come back to using the toll roads.

ALEC HOGG:   What if they can’t afford to?

NAZIR ALLI:   Firstly, we’ve shown that 83 percent of the road users will pay no more than R100 per month, but that is your option.  You’re either going to use the toll roads and enjoy the benefits, or you’re going to be stuck in congestion.  A study in 2007 done by the AA, showed that we were spending 40 hours per month – one whole week per month – being stuck in the traffic.  The second study had shown that we were losing 50 million rand per day being stuck in traffic, so one way or the other; people will have to bear the cost. It’s far more beneficial to use the toll road, than to use the alternative road.

ALEC HOGG:   Nazir Alli is the Chief Executive of Sanral.  Well, you heard what Nazir had to say.

@alechogg This 4 August Sanral press release says 2.5 million users, Alli says 1 million. Pork pie? pic.twitter.com/Y106JvIBNJ

— Martin Tagg Himself (@martintagg) December 3, 2013

DAWIE ROODT:   I have a lot of sympathy with him.  I think the last couple of years must have been difficult for him, because the toll roads were on, then they were off, there was political pressure, we didn’t know what the price was going to be for the toll roads, it really took us some time, and in the meantime, we do not have all the information.  I would really like to know what’s going on within those transactions.  Who built it?  Who’s going to get the benefits?  What are the collection costs?

ALEC HOGG:   Some of that is confidential information.

DAWIE ROODT:   Why should that be confidential?

ALEC HOGG:   I’m asking you.

DAWIE ROODT:   I’m the taxpayer.  I’m the user.  It’s a public project.  Of course, I should have total access to that.  Remember, if you want to determine the price of beer, it’s quite easy because you have brewers and consumers.  It’s a supply and demand thing, like many other products in the economy out there.  However, in the case of public goods or so-called collective goods, for example a toll road…there aren’t two toll roads between Johannesburg and Pretoria where I can pick one or the other.  I only have one, and that means that the rules behind it are slightly different.   For that reason, we need to get proper – total – access to the information behind it, the cost behind it, and the costing behind it to see what the collection costs are etcetera.  I don’t care if foreigners are making money out of this, but I want to know it is fair.  Since it’s confidential I don’t know, and knowing our government, there is always something that they’re hiding somewhere.  I have some questions and I wonder what’s really going on with those numbers.  I want our total…  In fact, the way I understand it is that according to the Constitution of South Africa, it should be completely transparent.  We are supposed to know exactly what is going on in those transactions.

ALEC HOGG:   So the legal challenges might not be over.

DAWIE ROODT:   Well, I spoke to Adv. Paul Hoffman this morning.  He said there are going to be some significant legal challenges, and the way I understand the law behind this, is that they really haven’t exhausted all the possible legal issues out there yet.

ALEC HOGG:   So people might be using the toll roads, but they could still be reversed in the future.

DAWIE ROODT:   As an economist, I realise it is so important to have toll roads.  It is so important to price everything correctly in the economy, because if you don’t price something correctly, then you misuse it.  You don’t allocate that specific resource as optimally as possible.  Toll roads are good.  However, look at what they’ve done now.  They’ve undermined the benefits by, for example, allowing taxis to use it, buses not to use it, or actually capping the tolls because you shouldn’t cap it.

ALEC HOGG:   That’s politics.

DAWIE ROODT:   I know that’s politics, but they’re undermining it.

ALEC HOGG:   Economists and politics don’t always agree, Dawie.  Thank you for giving us those insights.  That was Dawie Roodt the Director and Chief Economist of the Efficient Group.