Sitting on the horns of a dilemma

South Africa’s post-insurrection, water-constrained economy

SPVs are being designed to make the water sector investor-friendly

The recent failed insurrection has shown the weakness of government. The South African economy is confronted by a specific dilemma from a water perspective. The two horns of this dilemma are about solving the water shortage problem in the face of a collapsing fiscus.

By Anthony Turton

Adilemma is defined as a conflicting situation in which alternative solutions are equally unappealing or problematic. This is why we refer to sitting on the horns of a dilemma, because if I do this then that will happen, but if I do that then this will happen. A dilemma is technically unsolvable. When government decision-makers have to deal with them, they rapidly become fraught with politics. Our role as technical specialists is to convert that dilemma into a series of sub-problems because a problem is solvable. Stated simply: a dilemma is bad but a problem is good.

The South African economy is confronted by a specific dilemma from a water perspective when framed as a post-insurrection issue. The most eloquent way to present that dilemma is to say that the South African economy is fundamentally water constrained while the fiscal cliff is becoming an increasing reality. The two horns of this dilemma are about solving the water shortage problem in the face of a collapsing fiscus. To get the economy going to the point where it can employ the growing number of angry unemployed people, we need water (and energy), but to do that we need capital that is not forthcoming in an economy that is collapsing and investor-unfriendly. With this as a clear focal point, we can now begin to unpack the two elements of the dilemma – a water-constrained economy (one horn of the dilemma) under threat from the fiscal cliff (the other horn).

First horn of dilemma: waterconstrained economy Billion cubic meters per annum (BCM) is a measurement that we will use to define the reality of South Africa’s water supply. Here are three important numbers: • 48 BCM – the annual average flow of all the water in all the rivers across the entire country • 38 BCM – total volume of water available in all our dams • 63 BCM – the volume of water needed to create full employment by 2035. The annual average flow of all the water in all the rivers across the entire country is technically known as mean annual run-off (MAR). It used to be around 52 BCM two decades ago, but the improvement in mathematical algorithms, combined with the effects of global warming, has now forced a systematic revision down to about 48 BCM. It is unknown if this downward trend will continue as global warming accelerates, or whether it is part of a natural, long-term cycle that might again reverse.

The total volume of water available in all our dams represents the strategic

storage component on which the assurance of supply is built. The currently available 38 BCM – which is shrinking due to siltation – represents about 80% of MAR.

This is highly significant, because it is generally accepted that once one traps more than two-thirds of the natural flow of a river, a series of complex ecological problems arise. Typically, those problems change the river into an open sewer because the ecological functioning of the system is destroyed. This means that the construction of new dams is not an appropriate choice if we want to prevent our rivers from becoming open sewers.

The volume of water needed to create full employment by 2035 or thereabouts (≈63 BCM) is an estimation based on current technologies and may vary up or down.

National water deficit Armed with these three numbers, we can now redefine that specific horn of our dilemma in a simple question. How can we get 63 BCM from a system that only has 38 BCM of strategic storage from an MAR of 48 BCM and is probably declining? This problem statement reveals a shortfall of ≈25 BCM (i.e. 63 BCM needed minus 38 BCM available in strategic storage, assuming all dams are 100% full). This is the size of our water supply problem. We can call this our national water deficit.

Our future depends on alleviating the national water deficit. In effect, we need to create what we can call 25 BCM of new water to meet that national water deficit. This will be made up of a range of different sources not currently being used. Some might come from international transfers from foreign countries. Some might come from the recovery of water from waste. Some might come from groundwater and the rest might come from the desalination of sea or mine water where appropriate. Irrespective of the origin of that new water, the simple fact is that we will need to mobilise about 25 BCM of it by 2035. This is the national deficit, but also the size of a potential market if we can attract capital and technology back into the water sector. Our water supply problem amounts to 25 BCM. Simple to understand. Easy to deal with once we understand it.

Second horn of dilemma: fiscal cliff We can best define this as an imbalance in the national budget. This can be expanded upon by defining it as the point where civil service remuneration, social assistance payments and debt-service costs absorb all of government revenue.

Money needed for infrastructure is not available, necessitating increases in tax revenue. This triggers capital flight and starts to feed into a growing negative sentiment that eventually can manifest as a full-blown tax revolt if not dealt with properly. The dilemma starts to grow because if taxes are too high, then companies cease to invest and the

Our water supply problem amounts to 25 billion cubic metres per annum

A dilemma is defined as a conflicting situation in which alternative solutions are equally unappealing or problematic

capacity of the economy to create jobs continues to decline.

If we zoom into the water aspect of the looming fiscal cliff, we see that a sum of around R1 trillion is needed. If we dig deeper, then we see that this quantum of money will only repair what is currently broken, but not pay for the technology we need to recover water safely from waste and desalinate seawater or mine water where appropriate. If we then contextualise this matter in the reality of the fiscal cliff, we can safely conclude that this quantum of money is unlikely to be forthcoming from government. The national water deficit of 25 BCM will therefore manifest as a persistent constraint – all things being equal.

South African Business Water Chamber This is where the South African Business Water Chamber becomes relevant. The chamber has been working closely with the Public Private Growth Initiative and is fully aligned with Operation Vulindlela, which is designed to stimulate economic growth by prioritising structural reform and infrastructure investment. The problem they are dealing with is the rapidly declining technical skills base left in the water sector, now brought to its knees by cadre deployment, financial mismanagement, corruption and the construction mafia – which are destroying large civil engineering companies listed on the JSE.

Operation Vulindlela aims to save what is left of the technical service provision value chain needed to meet the national water deficit of 25 BCM. They are promoting the range of new water technologies needed to create full employment by 2035. This is being done by closely coordinating with National Treasury, the Presidency and other key stakeholders to create special-purpose vehicles (SPVs).

As specifically designed legal instruments to make the water sector investor-friendly, these SPVs are being designed in conjunction with National Treasury and the Development Bank of Southern Africa – and have a range of potential uses. They solve one of the problems inherent to existing municipal funding by ring-fencing specific revenue flows for defined programmes like water service provision.

One use is the funding of specific projects, such as the conversion of a wastewater treatment plant into a water recovery plant where appropriate. The SPV concept is scalable to a utility-sized desalination plant if needed, but also to the possible use by communitybased interventions into dysfunctional municipalities where service delivery has failed, but existing laws don’t allow for the removal of the officials even though they are unable to perform.

The recent failed insurrection has shown the weakness of government. The need for SPVs to fill the vacuum left by failing units of government is now becoming vital as we rebuild the economy and create employment opportunities for the almost 70% of the youth without any prospect of a job.

Water is an economic enabler. The mobilisation of 25 BCM of new water can become part of our Marshall Plan to rebuild lost confidence and make South Africa a safe investment destination once again. This is a work in progress.

We need to rebuild the economy and create employment opportunities for the almost 70% of the youth without any prospect of a job