Advertise with fastmoving.co.za
 
 

Cape Town’s water crisis is likely to have far-reaching consequences, not only on the local economy but on the national GDP.
Cape Town’s water crisis is likely to have far-reaching consequences, not only on the local economy but on the national GDP.

Water crisis threatens not only Cape, but SA economy

ECONOMIC NEWS

By Yolandi Groeneweld - Feb 8th, 10:16

Cape Town’s water crisis is likely to have far-reaching consequences, not only on the local economy but on the national GDP. The water crisis threatens further downgrades from ratings agencies, hampering much-needed investment, economists have warned. 

In a statement last week, Moody’s Investor Services indicated that the water crisis poses a credit risk to Cape Town’s debt rating, which is currently at the lowest level of investment grade – Baa3.

Moody’s added that the city was on review for a downgrade. The ratings agency also said that due to the marked income inequality in the City, Cape Town’s water crisis posed a possible threat to social order. It said the crisis would have wide-ranging consequences for the city finances and economy.

Rian Le Roux, Economic Strategist at Old Mutual Investment Group (OMIG) said that it was important to acknowledge the knock-on effect that the Western Cape water crisis is likely to have on South Africa’s overall growth in 2018.

The Western Cape accounts for approximately 13% of the national GDP. Le Roux explained that a 1% reduction in the Western Cape GDP equated to a 0.13% reduction in the national GDP.

“Therefore, if the rest of the economy grows by 1.5% in 2018 and the Western Cape grows by 0%, the national GDP will be up by only 1.3%.”

Last year Cape Town’s R3.9bn water revenue represented 10% of its total revenue. As water usage decreases so will the city revenues, Le Roux said.

On top of this revenue shortfall, the city will need to spend more on emergency services and infrastructure, placing additional financial strain on funds, he pointed out.

Moody’s also stated in its report that the city’s expenditure would increase due to higher operational costs associated with the crisis management and water-supply augmentation projects.

Le Roux explained that water demand was increasing at a higher rate than population growth because as the income level of towns rise and demand for food and services increase. But in Cape Town, the water is running out.

“Water availability is declining due to competing demands for agriculture and industry, and from deteriorating quality and climate change.”

Rest of the country's struggles

Further denting the economy was other regions' battle with water shortages as well. Le Roux said the water crisis was not exclusive to the Western Cape.

“The Eastern Cape is experiencing a severe water crisis too, and Gauteng currently has Level 1 water restrictions in place,” he said. “Rand Water has also recently placed a limit on its water supply in order to stay within permissible limits, having exceeded the allowable license limit."

Risks and opportunities

Le Roux believed that especially companies that are highly dependent on water for the production of goods or delivery of services would suffer.

“In the Western Cape, which is a water-stressed region, the tourism and agricultural sectors are the two biggest consumers of water and are most likely to be hardest hit by the crisis,” he said.

But in-between the doom and gloom, opportunities did exist for new business. Jon Duncan, Head of Responsible Investment at Old Mutual Investment Group, said businesses could cash in, particularly for industrial firms able to take businesses and homes “off grid”.

Over the long term, he predicts that there will be emerging opportunities for unlisted infrastructure debt and equity in bulk wastewater treatment and desalination plants.

Duncan said Public-Private Partnerships could potentially offer a meaningful long-term solution for the City of Cape Town and other metros by bringing financial resources and technical skills which would otherwise be challenging to mobilise.

He agreed, however, that the current levels of revenue collection and pricing of water remain problematic.
Fin 24 

Related News

The drought will slow growth, warns Kaap Agri boss
20/02/2018 - 13:54
Agriservices specialist Kaap Agri — which has a strong retail offering — expects prolonged drought conditions in certain farming areas of the Western Cape to slow earnings growth in the first half of the financial year to end September 2018.

How Small Businesses are gearing up to survive the drought
15/02/2018 - 16:43
Nationally small businesses are now being advised to prepare for future water scarcity. With small to medium sized businesses contributing over 65% of South Africa’s employment and 50% of the country’s GDP, their survival is essential to the economy.

Plastics Industry helps South Africans save water and deal with drought impact
15/02/2018 - 11:50
It was once said that innovation is not born from a dream but from a struggle. As a nation facing the impact of drought and water shortages in many of our provinces, this sentiment has proven to be particularly true for the South African plastics industry.

SA's bulk exports rise almost 90% to record in January
13/02/2018 - 08:37
SA’s bulk export volumes shot up 88.8% year on year in January 2018 to a record 25.4-million tonnes, data from the Transnet National Ports Authority (TNPA) showed on Monday.

Rain boosts kiwi harvest
12/02/2018 - 10:55
South Africa is dealing with a lot of drought-stricken regions but there is some good news. In the Natal Midlands of KwaZulu-Natal, there are farmers who say they’re having a fantastic rainy season, even if this January has been a bit on the dry side.