The African Development Bank (AfDB) has approved a $1 billion loan for South Africa's Transnet to support the struggling logistics firm's recovery plan, the bank and company announced on Thursday.

State-owned Transnet has faced challenges in providing adequate freight rail and port services due to equipment shortages and maintenance backlogs from years of under-investment. This has affected commodity exports and sectors such as manufacturing and retail, weakening Africa's most advanced economy.

The 25-year loan, fully guaranteed by the South African government, will fund the first phase of Transnet's ZAR 152.8 billion ($8.1 billion) five-year capital investment plan.

This plan aims to enhance the company's existing capacity before expanding key segments of the transport value chain. Transnet, with debts of 130 billion rand, reported a loss of 1.6 billion rand for the six months ending September 30, driven by declining rail, port, and pipeline volumes and higher costs.

Freight volumes have dropped to 150 million metric tons in the 2022/23 financial year from 226 million tons in 2017/18. Transnet's recovery plan, announced in October 2023, aims to restore freight volumes and return the company to profitability within 18 months.

The turnaround strategy includes splitting the freight rail subsidiary into an infrastructure management company and an operating unit, reducing port backlogs, and reopening parts of its rail network to private operators after a failed attempt two years ago.