Bloomberg News

South Africa’s $40 Billion Water Gap Threatens Economy

October 15, 2012

Farmer Nico Greeff

Farmer Nico Greeff said, “Sometimes there are breakages on the canal system which interrupts supplies. We can have a lot of damage to our crops.” Photographer: Mike Cohen/Bloomberg

Concrete patches on the canals snaking through Nico Greeff’s vineyards betray constant repairs to an outmoded irrigation system that’s the lifeblood of farming in South Africa’s arid west.

“The water infrastructure is about 60 years old and the lifespan of a surfaced canal is about 40 years,” Greeff, 55, said on his farm near Vredendal, north of Cape Town. “Sometimes there are breakages on the canal system, which interrupts supplies. We can have a lot of damage to our crops.”

Crumbling canals, dams and pipelines and a lack of funds to expand, replace and maintain them threatens to stymie economic growth and efforts to tackle a 25 percent unemployment rate in Africa’s biggest economy.

Water infrastructure requires investment of 670 billion rand ($76 billion) over the next decade, the Department of Water Affairs said in an Aug. 17 study. That’s almost double the available funding, leaving a gap of 338 billion rand. The report says businesses need to anticipate supply disruptions, higher bills and more regulation in a country that gets less rain than neighbors Namibia and Botswana, famed for their deserts.

South Africa’s platinum and coal industries, two of the country’s top four exporters, are already struggling to secure water supplies for new projects.

“Water is certainly one of the major risks that we look at,” said Paul Skivington, group executive for strategy and risk at Impala Platinum Holdings Ltd. (IMP), the world’s second- largest producer of the precious metal. “It’s not something you can generate. It’s either there or it’s not.”

Supply Shortages

Leaking pipes and inefficient irrigation already wastes at least half the clean water in some areas, according to the study. While rains over the past 16 years have helped avert shortages, the government expects demand to outstrip supply by 2025-2030, constraining farming and mining.

The dilemma is shared around the world as the United Nations projects that about 30 countries will be water-scarce by 2025, compared with 20 in 1990. Chinese officials in February said water shortages are growing, with two-thirds of the cities suffering a dearth. Concerns over water have led farmers in India to block roads and rail lines, even committing suicide, to protest coal plant construction that affects irrigation supplies. Water shortages and grazing land disputes in Kenya, East Africa’s biggest economy, have led to deadly conflicts.

In South Africa, water use has surged since apartheid’s end in 1994. The economy has more than doubled in size and 95 percent of the 50.6 million population now has access to potable water within 200 meters (656 feet) of their homes. From 1995 to 2005 municipal water use per capita rose by 38 percent, according to the UN Food and Agriculture Organization.

Power Shortages

Investment in water infrastructure has lagged behind as the government focuses on other spending priorities, including new power plants to avoid a repeat of electricity shortages that shut mines and factories in 2008.

Power projects account for about 61 percent of 3.2 trillion rand worth of infrastructure projects the government is considering implementing by 2020, while water accounts for just 2 percent, according to the National Treasury.

“There’s no water for expansion,” said Greeff, a third- generation farmer who exports table grapes and provides jobs for 20 families. “Industries and towns get bigger and bigger and then they take water away from the farmers.”

Farming uses about 60 percent of South Africa’s water, while about 5.5 percent goes to mines and factories. The country is the world’s biggest orange exporter and matches the U.S. as the world’s largest grapefruit exporter, U.S. Department of Agriculture data shows.

Export Generator

While most mines have sufficient water, platinum operations in arid areas risk running dry, Nikisi Lesufi, senior executive of health and environment at the Chamber of Mines, said in an interview. Platinum mines employed 182,000 people in 2010, 37 percent of the mining workforce, Chamber data shows.

Water scarcity constitutes a “very real” threat, Johannesburg-based Anglo American Platinum Ltd. (AMS), the world’s largest producer of the metal, said in a 2011 report.

Impala needs additional water for its Afplats project and the company is trying to cut use at all its mines and plants, Skivington said in an interview from Johannesburg.

Insufficient water could prove the biggest constraint to mining coal in the Waterberg region, Exxaro Resources Ltd. (EXX) said on its website. Waterberg, in Limpopo Province, has about 75 billion metric tons of it, or 40 percent of South Africa’s coal resources, state power utility Eskom Holdings SOC Ltd. says.

Water Needed

“The coal resources in this province without further water supply will not be able to be exploited,” Xavier Prevost, an industry consultant, said from Pretoria.

South Africa’s biggest water consumer is Eskom, which generates about 95 percent of the country’s power. Eskom has started a 500 billion-rand expansion to avoid blackouts, placing pressure on resources as it is given priority.

“We see water costs more than doubling in five years,” Nandha Govender, Eskom’s general manager of water and environmental affairs, said from Muldersdrift, north of Johannesburg.

The government seeks to curtail demand and waste and is pushing for greater use of groundwater, recycling and desalination.

“We don’t want development to be held back,” Helgaard Muller, deputy director-general at the water affairs department, said in Pretoria on August 27. “We can stretch what we have.”

Greeff doesn’t have faith in government plans even after President Jacob Zuma pledged in a February address to expand the Clanwilliam dam on which he relies.

“It will take donkey years,” Greeff said.

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Jaco Visser in Johannesburg at avisser3@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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