Recent commentary of looming ‘water-shedding’ in South Africa got me thinking. Water is a global issue and tends to not get the attention of its other ESG peers. How do we contextualize it and what are the risks and opportunities?

First, for my global readers, we are not talking a ‘watershed’ which is an area of land that drains water into a specific waterbody. We are talking of chronic water shortages impacting the lives of millions. The moniker is an evolution of ‘loadshedding’ which is the term used to describe brownouts or rolling blackouts in South Africa due to the chronic energy shortage.

With that out the way, lets dial it back and look at the global picture first:

Water is scarce

Among its global peers, South Africa is known to be one of the most water stressed countries on the planet. Outside of the desert filled Middle East, South Africa ranks poorly, with neighboring Botswana ranking in the top 20 most water scarce countries.

Global water scarcity map

Chart source: Bloomberg

South Africa also happens to share its watersheds with its many neighboring countries meaning that the water resource which accrues to South Africa is also split regionally. There are some good examples of regional cooperation, and the Lesotho Highlands Water project is one of them.

That said, while explicit water shortage because of natural forces and climate change are an issue, so is the infrastructure story behind it. This is a blog post so I won’t go into the reams of detail on specific projects, etc. Suffice to say, if you require more detail, feel free to contact me for a bespoke research request.

On a planet with 71% water, only 1.2% is potable. This signifies how scarce a resource water actually is and why it should rise to the top of policy and investment agendas. Roughly 3 billion people are affected by water shortages and freshwater availability has plunged by around 20% over the last 20 years. For a detailed report on the state of play of global water, check out this CDP report here.

 

Don’t be a drip

Water scarcity is a function of supply and demand. It is also a function of failing infrastructure in some geographies. It is also a function of our relationship with water and how water is priced.

Globally the average household of 4 uses around 45 000 litres of water a month. This is roughly 1500L per day. The average efficient shower uses around 10L per minute. Older showers can use almost double that. An average loo flush uses 5L in an efficient low consumption toilet. Older toilets can use around 15L. This simple example shows how water efficiency can be brought into our day to day lives and cut usage materially.

But how is water priced?

In South Africa, (I use JHB as an example), there is a sliding scale of progressive pricing which makes high water usage punitive. For the average use outlined above, your bill would average around R1500.00 per month. Bear in mind that there is a ‘free’ tier up to 5kL to accommodate less fortunate households.

Progressive pricing is necessary to incentivize efficiency but in an of itself it, is not sufficient. Ensuring that new constructions are built in not only an energy efficient but also a water efficient manner is likely an extreme but increasingly necessary step.

For example, the island nation of Bermuda, which has no fresh water springs, rivers or lakes, yet is water self-sufficient. There is no ‘mains water’ and there are no ‘water rates’. This is achieved by ‘how’ they build. Check out this old but relevant BBC article here. This type of ‘out the box’ thinking is what we need to try to control the demand side of the equation.

Leaky pipes

On the supply side, unfortunately, the efficiencies (or inefficiencies) of the various levels of government come into play. There are varying degrees of responsibility. Globally, it is usually national or federal governments that take care of building large scale dams. The responsibility for ‘transmission’ of bulk water usually sits with the provincial or state level entities. The transmission to the end consumer sits at a municipal level.

The cost of water and sanitation tariffs in South Africa have risen by over 1200%
since 1996, slightly ahead of the rise in electricity tariffs and well ahead of headline inflation. Unfortunately, this rise in tariff has not translated into a tangible increase in water security and investment. It is time for municipalities to stop hiding shortcomings by inflating the cost of necessary utilities by using them as cash cows. Investment needs to happen and its needs to happen NOW! In fact, its already behind the curve.

Water under the bridge

Globally, as governments failed to address the growing challenges of water demand, the private sector has also entered the fray. Water is and should be an inalienable human right. That said, when and if the private sector can assist, regulations and frameworks need to be put in place to allow their participation and to protect the foundational rights of consumers too.

There are tons of listed companies operating in the water and sanitation space globally. Some are regulated and some aren’t. They also play at different parts of the value chain ranging from infrastructure roll out, to water tech, to consumer facing. There are also water stock ETF’s and there are also water futures.

No, I am not advocating the outright commercialization of water. I believe in socio-capitalism. This is the right to make an honest profit while also doing the right thing. People can live without electricity, but water is an existential threat. It is also one of the largest opportunities for both governments and the private sector to ‘get it right’. This is and can be a viable model for the future especially in capacity constrained states.

What we need is for regulation and politics to ‘get out the way’ and allow for ‘water under the bridge’.

 

These blog posts are commentary. There is ALOT more beneath the surface.

For more detailed and in depth analysis of macroeconomic and markets drivers, and what they mean for your business and strategy, please reach out at moe@moe-knows.com to discuss your needs.

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MK White

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