South Africa shoots itself in the foot

South Africa’s major problems are crises of its own making, the result of years of underinvestment in crucial infrastructure. 

These crises will also continue hindering economic growth, even if the correct reforms are implemented, as they will take at least a decade to fix properly. 

This is feedback from Nedbank chief economist Nicky Weimar, who outlined some hurdles to faster economic growth at an event hosted by the bank and SA REIT. 

Weimar said that South Africa’s major problems, from load-shedding to logistics to crime and corruption, have been well-publicised. 

There has been progress on these three fronts, with the private sector playing a greater role in key network sectors than before. 

However, there is a more fundamental problem at the heart of all three of these issues that can be addressed quickly so that the issues can be resolved. 

The common cause behind the advent of load-shedding, logistical bottlenecks, and crime is the lack of investment in public infrastructure and institutions. 

All of these challenges are self-inflicted due to underinvestment in infrastructure over the past decade. 

“South Africa’s infrastructure has practically imploded over the past decade. That is essentially what happened, dramatically affecting supply and making the economy less efficient,” Weimar said. 

This has been most evident with load-shedding, and Transnet’s rail challenges are beginning to get more attention. 

The solution to both these problems is clear and is already being implemented. Reform will enable the private sector to play a greater role in generating electricity and operating some of Transnet’s rail corridors. 

This will significantly improve the overall efficiency of the local economy. The positive effects have already been seen, with load-shedding being significantly reduced and Transnet’s ports and railway performance stabilising. 

However, these problems will take years to fix to the point where the economy can grow unconstrained by supply issues. 

“Even if demand accelerates due to economic growth, the moment it starts to strain supply, prices will go up, and interest rates will rise. This will slow down demand once again.” 

“You need to create a little bit of space and excess on the supply side to handle the increased demand that comes with economic growth.” 

“That means dealing with all of the issues where we have shortages. The fact is that this is our job for the next ten years,” Weimar said. 

Weimar also said that while crime and corruption are the third focus area of the government-business partnership, water supply is proving equally important. 

Here, the challenge is not at a national level but rather the deterioration of municipal infrastructure that fails to get water from bulk suppliers to the end user. 

Again, this is a symptom of underinvestment, but given the decentralised nature of South Africa’s water supply, it is much more complicated to resolve than the load-shedding and logistics crises. 

Coronation economist Marie Antelme explained that the water crisis is due to municipal mismanagement, poor maintenance, and a lack of planning and investment, and not a lack of water.

This has compounded the lack of expansion in water supply for a growing population, particularly in South Africa’s economic hub of Gauteng.

Gauteng is an example of the failure of municipal infrastructure after years of underinvestment and inadequate maintenance. 

Antelme said around 35% of all treated water in Gauteng is lost before it reaches the end user through leaks or illegal connections. 

The failure of infrastructure exacerbates South Africa’s water scarcity, and the resources must be carefully managed to withstand periods of drought. 

In the case of Gauteng, the water supply system is extremely complex, with over 19 dams and rivers feeding regional reservoirs as part of the integrated Vaal River System. 

Joburg Water has 129 reservoirs and water towers, with the water level in at least 26 of them being very low, critically low or empty. 

Crucially, many of these reservoirs are leaking and desperately need maintenance. Joburg Mayor Dada Morero estimated late last year that of the 80 reservoirs, around 42 are leaking, and only 11 are being repaired.