Water shortages threaten South African businesses

Access to water has emerged as the third-largest business risk in South Africa, according to the World Economic Forum, and not much progress is being made to mitigate the problem. 

Kasief Isaacs, head of private markets at Mergence Investment Managers, and Gundo Maswime, a professor in civil engineering at the University of Cape Town, shed more light on the issue.

Isaacs and Maswime spoke to CNBC Africa about the risks a lack of access to water poses to South African businesses and potential solutions. 

South Africa is the 30th driest country in the world, so it has to be extremely efficient in its treatment, collection, and distribution of the resource. 

However, local governments have proven to be highly ineffective managers of water infrastructure.

Some parts of South Africa are wholly reliant on water tankers for water and do not have a potable water supply. 

Moreover, some municipalities lose up to 50% of their water between the bulk water supply and the final consumer. 

According to Isaacs, this is what is driving South Africa’s water crisis and poses a substantial risk to businesses. South Africa cannot afford to lose water between where it is treated and used. 

Thus, the country has to invest in infrastructure to limit these losses and the impact on businesses, said Maswime. 

South Africa has a unique problem in that it has both very old infrastructure and a lack of infrastructure which pushes the country to simultaneously upgrade existing infrastructure and extend the reach of water supply. 

The process of upgrading existing infrastructure and extending supply has been estimated to cost roughly $47 billion by 2030 and will require private sector investment. 

Private sector is ready to step in 

The private sector has declared its appetite for investing in infrastructure projects in partnership with the government. However, not much progress is being made.

There have only been two long-term public-private partnerships in South Africa relating to water, and both are from 1999. 

Isaacs, whose company Mergence invested in both those partnerships, has urged the government and the private sector to replicate these partnerships. 

However, there are significant challenges with water supply in South Africa being decentralised, unlike electricity which is highly centralised in one utility, Eskom. 

Thus, the challenge, according to Maswime, is governance-based and not a lack of innovation or willingness from private companies to invest. 

With water supply often crossing municipal boundaries, infrastructure projects are heavily delayed due to political manoeuvring. 

Solutions are limited by political boundaries, which make them highly ineffective and more capital-intensive than necessary, said Maswime. 

He called on the government to open up water infrastructure to private investment in a similar way to how electricity generation has been through independent power producers. 

The legislative framework needs to change, with water not being considered part of the ‘goods and services’ category but a general public ‘works’. 

This inhibits private investment in the sector as the procurement process is burdensome, and water’s classification makes it difficult to monetise and define a return on investment. 

However, there is progress being made with a new Procurement Bill in the consultative phase in Parliament, which promises to streamline the procurement process for infrastructure projects, particularly water. 

South Africa is also setting up an office to facilitate private investment in the water industry in a bid to arrest its collapse.

The Water Partnership Office is being set up by the state-run Development Bank of Southern Africa, and initial funding for its establishment may come from the Green Climate Fund, a more than $12 billion international financing facility.

“What the Independent Power Producers Office did for renewable energy”, the WPO wants to do for water, Catherine Koffman, group executive for project preparation at the Johannesburg-based lender, said in an interview.

The new office is another sign that South Africa’s government is trying to lure more private investment to arrest a decline in the quality of services of everything from energy and water to freight rail and ports.