The implications of South Africa's water crisis

South Africa faces a water crisis caused by years of drought and poor water management, affecting everything from social relations to wine production. We consider the short- and medium-term implications for businesses and travel to the country. Cape Town residents queue at one of the city's 200 water collection sites.

Executive Summary

Western Cape's water shortages are damaging the prospects of the country's wine industry, which employs up to 300,000 people The Democratic Alliance, which is intent on further challenging the dominance of the ruling African National Congress (ANC), will likely suffer next year due to the current water crisis Cape Town's large affluent population could face growing security risks, given that many Capetonians have accused them of causing the crisis, while poorer residents bear the brunt of it Municipal authorities decision to launch a new website mapping private residents consumption is an initiative that could add fuel to the fire. Similar tools are likely to expose individuals living in over-consuming households to a growing risk of harassment or physical violence Successive droughts mean that the parched earth will have become less resilient to heavy rains, increasing the likelihood of flash flooding, particularly in hilly areas such as Cape Town

INDICATORS

May 2016: Western Cape declares a three-month water crisis 1 February 2018: Cape Town authorities implement level 7 water restrictions 8 February 2018: Government announces national disaster over water shortages 21 February 2018: Cape Town pushes back day zero to July 2018

Introduction

The summer holidays in the city of Cape Town have been among the worst in recent times. The city's water reserves were at critically low levels the lowest in 133 years at the start of the year, forcing the municipal authorities to implement increasingly strict water rationing orders. A brief summer rainstorm on Valentine's Day gave some hope to Capetonians, with the municipal water department pushing back day zero the catastrophic date when the city's water levels would fall below 13.5 per cent  from 11 May to 4 June ; the municipal government on 20 February said that this had been pushed back again, to 9 July. Despite this, the current drought has been bad for business and will likely continue to strain economic output over the next year. The water crisis is also increasing risks to residents and visitors, notably in Cape Town the most violent city in the country.

THE DROUGHT

South Africa's low water levels are the result of repeated droughts that began in 2014. The provincial government of Western Cape, where the water shortages are most acute, first declared a three-month water crisis in May 2016. It ordered the drilling of boreholes at key points in the city, including hospitals and schools. But water consumption continued almost unabated. This forced the municipal authorities on 1 February to toughen water restrictions as part of their Critical Water Shortages Disaster Plan (See box). They banned residents from consuming more than 50 litres of water per day and imposed strict rules on businesses water consumption. To put that in perspective, the average Briton uses 200 litres a day, and Americans perhaps twice that. This followed previous orders which banned irrigation and the hosing-down of paved surfaces with municipal water. Furthermore, Cape Town has designated about 200 water collection points around the city, each serving about 10,000 people. These will remain in place until the advent of the rainy season, which typically runs from May to August.

Cape Town's Critical Water Shortages Disaster Plan

PHASE 1: PRESERVATION RESTRICTIONS - RATIONING

• City limits the daily supply of water in some parts of the piped water network
• Critical services such as clinics or hospitals largely unaffected

PHASE 2: DISASTER RESTRICTIONS (CURRENTLY IN PLACE)

• Implemented if a high likelihood that dam storage will drop below 10 per cent before the onset of the winter rains
• Strategic commercial areas, high-density areas with significant risk of disease, such as informal settlements, and critical services, such as hospitals, will continue (where possible) to receive drinking water through normal channels. Monitoring and enforcement increase to ensure compliance
• 200 water collection sites set up across the city to supply residents with drinking water, as large numbers of residents would be unable to access it otherwise
• Law enforcement resources deployed across the city to maintain public safety
• Cape Town residents are currently restricted to 50 litres of water per person per day

PHASE 3: FULL-SCALE DISASTER IMPLEMENTATION

• Implementation if the Western Cape Water Supply System no longer has surface water to supply the province
• Non-surface drinking water supplies, sourced from groundwater abstraction from various aquifers and spring water, will be limited to drinking purposes only. The city will distribute this water, supplemented by bottled water, at distribution points
• Critical services, such as hospitals, will be significantly reduced

While media attention has mainly been on the troubles of Cape Town and the surrounding Western Cape, water shortages are also impacting neighbouring Eastern Cape, Northern Cape, and to a lesser extent the agricultural provinces of Free State and KwaZulu-Natal. On 8 February, the Department of Cooperative Governance and Traditional Affairs reclassified the drought as a national disaster. Population centres and industrial hubs such as Durban, Johannesburg, and Nelson Mandela Bay, which includes the coastal city of Port Elizabeth, are also experiencing low water levels, indicating that water shortages will have a considerable impact on the overall economy.

In response to the drought, Cape Town has invested heavily in emergency desalination plants. The municipal authorities in Cape Town have so far tendered eight plants, which they expect will increase the city's water supply by 40 per cent. As a result, this will likely increase tariffs, potentially growing the operating costs of businesses in the area. Furthermore, municipal borrowing costs will likely increase due to the probable issuance of bonds aimed at paying for the projects, which authorities expect will be up and running in March. That will probably worsen the city's credit-worthiness and overall investment outlook in the medium-term. Credit rating agency Moody's Investors Service has already warned that the water shortages were credit-negative and would threaten Cape Town's already low investment rating

In response to the drought, Cape Town has invested heavily in emergency desalination plants. The municipal authorities in Cape Town have so far tendered eight plants, which they expect will increase the city's water supply by 40 per cent. As a result, this will likely increase tariffs, potentially growing the operating costs of businesses in the area. Furthermore, municipal borrowing costs will likely increase due to the probable issuance of bonds aimed at paying for the projects, which authorities expect will be up and running in March. That will probably worsen the city's credit-worthiness and overall investment outlook in the medium-term. Credit rating agency Moody's Investors Service has already warned that the water shortages were credit-negative and would threaten Cape Town's already low investment rating.

ECONOMIC IMPACT OF THE DROUGHT 

It is likely that the water crisis will have a short- to medium-term impact on the national economy. Western Cape accounts for 13.3 per cent of national GDP. The province contributes about 21 per cent of South Africa's agricultural output, and accounts for 45-60 per cent of agricultural exports. In particular, the water shortages are damaging the prospects of the country's vineyards, which employ up to 300,000 people; in the first three quarters of 2017, the industry cut 91,000 jobs. VinPro, a wine-industry body, projects that this year's grape harvest, which typically falls in February or March, will be the smallest since 2005. That will not only impact the secondary sectors of viticulture, such as the juice industry, but also the tourism industry in Western Cape, which attracts wine enthusiasts from around the world.

Furthermore, Cape Town is one of South Africa's main tourist destinations, attracting about two million visitors out of the country's total of 10.7 million international arrivals every year. According to the World Travel and Tourism Council (WTTC) tourism directly contributed 3 per cent of GDP in 2016, while supporting 9.8 per cent of direct and indirect employment. In total, the WTTC estimates that the sector generated USD8.7 billion, or 9.9 per cent, of total exports in 2016, while attracting 8.1 per cent of investments worth about USD4.7 billion (based on 2016 average exchange rates).

Socio-political ramifications

With a little over one year left to general elections, the water crisis will also have socio-political ramifications. Opposition party the Democratic Alliance (D.A.) holds both Cape Town municipality and Western Cape province. Mayor of Cape Town Patricia de Lille has come under intense fire both from other parties and from within her own. On 15 February, de Lille barely survived a no-confidence motion which had been tabled by the D.A. two weeks earlier. The D.A., which is intent on further challenging the dominance of the ruling African National Congress (ANC), will likely suffer next year. The D.A. has built a track-record of good local governance in recent years, particularly in Cape Town, and increased its support in local elections in 2016, as we had forecast. While local elections in South Africa have over the past decade served as a prediction of voter mood in the subsequent general elections, a report by the auditor-general in January gave a damning assessment of de Lille's municipal government. What's more, the deterioration appears to have come over the past two years. Some of the red flags the auditor raised included bias relating to public tenders, irregular expenditure and allegations of financial misconduct. These are all issues which will likely favour the reinvigorated ANC which, through its newly inaugurated president, Cyril Ramaphosa, will likely attempt to capitalise on these concerns. Fears of an apocalyptic situation in Cape Town, wherein organised crime groups would run water cartels, have been overstated. However, it is worth highlighting that Cape Town is the most crime-ridden city in the country. In 2016, it saw an increase of 8.1 per cent in violent crime, according to official statistics. Given this trend, it is not inconceivable that criminals could become motivated by water-related crime in the future. What is more likely is that affluent residents, and heavy consumers of water such as upmarket hotels or resorts, become increasingly targeted by civil-society organisations and citizens initiatives. Nine of South Africa's richest suburbs are located in Cape Town, and many Capetonians accuse their residents of causing the crisis of which poorer people have to bear the brunt. It surely did not help that Cape Town authorities in mid-January decided to launch a new website that mapped residents water consumption, highlighting households water-metered and estimated consumption. Similar tools could pose a serious risk of harassment or physical violence against affluent individuals in the city.

ASSESSMENT

While the immediate urgency of Cape Town's water crisis appears to have been somewhat averted, the risks remain in the short- to long-term outlooks. In the immediate term, managers of facilities in South Africa should closely study the instructions of local authorities to minimise the risk of fines or forceful corrective measures, such as the installation of water management devices. Businesses should raise awareness among employees and customers to facilitate behavioural change, and regularly carry out water audits and assessments of facilities water infrastructure. For instance, one of the reasons for the huge water consumption in Cape Town has been leaking pipes.