Repost: Exploring opportunities for investing in water and sanitation

South Africa is a water scarce country, with very high variability and unpredictability in water availability. The rainfall is highly variable and is characterised by incidences of extreme weather conditions leading to droughts and flooding. As a result, the water management context of this is driven by these prevailing conditions, which has led to a demand for water exceeding demand by a large margin.

The availability of water resources is also not equitably distributed, with most economic hubs of the country located in geographic locations with very limited water resources, leading to high dependence on physical infrastructure to move water from very far locations.

The country has very old infrastructure, posing a major challenge to basic service delivery. The average age of water infrastructure in 39 years, with poor maintenance records, frequent disruptions in service delivery have become commonplace, leading to drastic measures such as water rationing, especially during drought.

Water management in South Africa has also been characterized by significant lack of capacity among water professionals. Many water professionals have been lost to the private sector, as a result of better working conditions, and South Africa generally suffers from inadequate engineering skills, which is key for infrastructure development.

We conducted a study aimed at develoing understanding on the perceived challenges and constraints faced by the private sector, which prevents them from harnessing the opportunities of investing in the water and sanitation sector in South Africa. The key headline messages from this study are summarised below: –

  • There are significant investment opportunities: Various studies have estimated that the total cost of
    funding requirement for the water sector in South Africa is around R700 billion.
  • Too much focus on new water infrastructure. Financiers are biased towards projects that focus on delivering new infrastructure projects. Such projects are perceived to be more profitable and less risky, as they are often ringfenced or guaranteed by the public sector;
  • Inadequate capacity leading to under spending of allocated funds: Even though the sector is experiencing significant funding challenges, under spending has been reported in some cases, partly attributable to the lack of capacity both at local and national level
  • Private sector is too risk averse to effectively invest in the water sector: The high level of private sector risk aversion in relation to the water sector has hindered their effective participation;
  • More innovative funding mechanisms urgently needed to unlock investments: The traditional mechanism of private sector participation in water management under the private-public-partnerships (PPP), have not yielded any effective outcomes;
  • Insufficient evolution in the political landscape in South Africa poses a challenge. The political landscape in South Africa has not evolved sufficiently enough to allow the private sector to confidently partner with Government in delivering water infrastructure;
  • The absence of an Independent Regulator is a barrier to unlocking private sector investments: The potential establishment of an independent regulator would be an extremely useful mechanism to bolster private sector confidence in investing in water infrastructure

You can download the full report here: Exploring opportunities for investing in water (0 downloads)