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Unlocking SA's water investment
It is now widely acknowledged that South Africa is facing a water crisis.
Politicians and officials may easily blame the drought, ageing infrastructure,
and a shortage of funds as the root causes. But does a funding gap or a
shortage of money really exist?
By Helgard Muller, Pr Eng
L
et us remember that South Africa is
a middle-income country. Are the
funds correctly applied? Are banks
willing to fund water and sanitation
projects? Let’s examine this.
The Department of Water and
Sanitation (DWS) estimates that the
country needs R90-billion per annum
to address the capital needs for water
and sanitation infrastructure. The
amount currently budgeted for this
purpose is only R 56.5bn per year and
of this budgeted amount, only R50bn
is actually spent (See Figure 1). This
leaves a funding gap of approximately
37%, running to a total of more than
R333-billion over a 10-year horizon.
This funding gap can unfortunately
grow as a result of increased costs due
to poor project planning, construction
delays, bad contract and financial
management, unrealistic expectation
of users, and unexpected risk events
such as natural disasters, vandalism,
and theft of infrastructure. If the right
policies and processes are followed,
it will be possible to reduce the gap
through various interventions, including
better regulation, cost efficiency
measures, and the management of user
expectation and demands.
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Several politicians have expressed
the opinion that the private sector must
step in and fund this gap. Are the banks
and other funding institutions able
and willing to do this? A project run by
the National Business Initiative (NBI)
called Kopano ya Metsi, meaning the
‘Unlocking of Water Investment in South
Africa’, is researching exactly this. A
number of reports have already been
published (see www.yametsi.co.za). Here
are some of the findings and opinions
as discussed at a recent round table
meeting organised by the NBI:
• The global opinion is that financial
institutions are not knowledgeable
enough about the water sector,
and water managers often lack
financial wisdom.
• The water sector is more than 10
years behind developments in the
energy sector (such as private
sector funding of renewable energy).
• Money is available for loans
in Africa. For example, it was
reported on 11 April 2018
(www.infrastructurene.ws)
that
the Emerging Africa Infrastructure
Fund (EAIF) has secured a total
of USD385-million in its latest
fundraiser. Among the investors is
Water Sewage & Effluent May/June 2018
•
•
•
global insurer Allianz, which is set to
become the first large commercial
lender to commit long-term funding
to the fund with a 12-year loan of
almost USD120-million.
The private sector is willing to
fund water projects, but the
problem seems to be a shortage
of bankable projects. Institutional
investors stated: “We don’t find
enough good quality water and
sanitation projects”; and “There
are not enough projects being
developed.” (www.yametsi.co.za)
It has globally been established that
political and governance risks are
the key risks that investors look at. As
was said at an international forum:
“It is the socio-political aspects of
water that deter investment, along
with low tariffs” (www.yametsi.
co.za). Project preparation and
bankability are reduced because
of poor collection and political
interference.
Water is not accurately priced
in South Africa and is not viewed
as a strategic asset. Political
interference occurs in both tariff
setting and procurement. There
are concerns regarding municipal