Investor warning over water security in South Africa
South Africa’s water security remains one of the most pressing issues for households and businesses, and continues to remain top of mind for investors.
This is outlined in Coronation’s July 2024 Correspondent, where economist Marie Antelme and ESG analyst Leila Joseph say that “water security is arguably one of the most critical risks to South Africa’s social, economic, and political long-term future.”
Households and businesses across South Africa are struggling with water stress worsened by climate change and municipal infrastructure challenges, impacting the availability of sufficient, usable water required to operate.
The fund manager’s study showed that water security emerged as the most concerning environmental issue for their clients, with 78% of respondents indicating that this should be prioritised by investors in 2024.
The Department of Water and Sanitation (DWS) has said that “South Africa is facing a number of water challenges and concerns, which include security of supply, environmental degradation, resource pollution, and the inefficient use of water, which are all among the chief causes of the supply deficit.
Recently released reports by DWS — including the Green, Blue, and No Drop Reports – paint a concerning image of the current state of the provision of the essential resource, showing that at a countrywide average:
- 51% of water provided has poor to bad microbiological water quality status;
- 40.8% of water was lost due to leaks or was unaccounted for;
- 67.6% of wastewater treatments failed to adequately process sewage and other wastes.
According to another study by the department, “water demand is expected to sharply increase over the next 20 years while the water supply is likely to decline, therefore anticipating a projected supply deficit of 17% by 2030.”
On top of examples of poor planning and management, significant underinvestment in infrastructure which has seen it rapidly deteriorate, vandalism and corruption, the water-scarce country’s risk is exacerbated by climate change.
Antelme and Joseph highlight that with an average annual rainfall of just 460mm—less than half the global average—rainfall distribution is uneven and highly concentrated in just 8% of the land.
“South Africa [also] has no navigable rivers, which are traditionally critical to economic and industrial development because they provide a natural source of necessary water and transport.”
The larger rivers—the Orange, Vaal, and parts of the Limpopo—occur in parts of the country where there is little industry, and Gauteng, its economic hub, entirely depends on water from other regions.
This makes the country, especially its economic centres, highly vulnerable to water scarcity and climate shifts.
In Coronation’s 2023 Stewardship report, they state that “water is an increasing business risk for South African companies both from the perspective of climate change exacerbating water stress and deteriorating municipal infrastructure.”
“Water stands as a critical business imperative, indispensable for a myriad of functions including employee-related health and sanitation, as a direct input into business processes, and various aspects within the company’s supply chain,” said Antelme and Joseph.
A ;ack of access to water can severely impact a company’s operations.
The Coronation insight highlights that water security in South Africa is complex due to its scarcity and the intricate systems and regulations governing its distribution.
The DWS regulates water as a national asset, while local governments manage municipal water supply.
Each operates under different legislation, “and one department cannot interfere with the workings and obligations of the other .”
The Minister of Water and Sanitation faces hurdles in intervening in local water services delivery, and local governments must adhere to DWS processes for water resource allocation.
In attempts to ‘simplify’ this, the national government is heading towards the formation of a state-owned enterprise (SOE) for water, which is expected to be established in the first half of 2025.
In March 2024, Parliament passed the consequential National Water Resources Infrastructure SOC (state-owned company) Bill, which looks to create the South African National Water Resources Infrastructure Agency (NWRIA) as a significant public entity and SOE.
The main mandates of the NWRIA are said to:
- Implement water resource management infrastructure as identified by the department’s water resources planning processes;
- Manage national water resources infrastructure;
- Generate and collect revenue from the sale of water as its primary source of income, and
- Raise commercial funding on the strength of its balance sheet and operational cash flows (actual and projected) for commercially viable projects.
Coronation, along with several other companies signed an open letter to the government, written by the non-profit CDP, on the water crisis calling on them to:
- Enhance the 2030 National Sustainable Development Strategies;
- Set ambitious, short-term water targets and provide a clear plan;
- Enact policies to meet targets, encourage private investment, and take impactful actions before 2030 (such as efficient pricing mechanisms);
- Introduce mandatory water disclosure rules following global standards.
*This article has been updated to reflect that Coronation were signatories of the open letter and CDP drafted it.
Read: New state-owned company for water in South Africa coming in 2025
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