How does SA come up with new water infrastructure plans given the credit rating downgrade?

Without heavy debt-capital investment, the government will battle to realise a better water security future for  South Africa.

How does government  come up with  new plans for water  infrastructure that not only takes into account the complexity presented by the ratings downgrade, but sees opportunity in the changing paradigm in the water sector globally?

Moody’s downgrade plunges SA’s dam and related plans into deep water

The aloe plant made an appearance in the budget speech earlier this year, meant to symbolise a continuing challenge in our country, that like the aloe economic growth will be slow, painstaking and vulnerable to scarcity.

“For the Aloe Ferox to grow to its full potential, we need to do things that will help in the medium to long run”.

A long-term view supported by an economic resilience strategy is therefore key. The finance minister went on to mention the importance of the right amount of “water”, that our money must be invested carefully. With that came the announcement that government would inject R10bn into the infrastructure fund over the next three years to support the R200bn capacity that is to be built under the Development Bank of Southern Africa.

The National Treasury document, titled economic transformation, inclusive growth and competitiveness, offers some appreciation for the relationship between water and the economy. The economy must invest in water security for further economic growth. The document cites the 2019 Budget Review, noting that water infrastructure projects have been allocated R90,4bn between 2019/2020 and 2021/2022. That number is now R106,9bn, allocated for the term 2020/2021 to 2022/2023, though the national water and sanitation master plan is costed at more than R1-trillion. Recognising this, the government has touted the idea of not only private-sector participation in the water sector, but now also private-sector funding.

The downgrade of SA’s credit rating by Moody’s recently to subinvestment grade, as well as the further downgrade by Fitch Ratings, presents serious constraints to the government’s fiscal plans to fund water infrastructure. The effect of the downgrade is expected to be significant. The water master plan’s comprehensive approach to realise a better water-security future for SA is driven by a funding model that is highly susceptible to the sovereign credit rating.

Large infrastructure projects like Lesotho phase II and the Umzimvubu dam have debt-capital funding models with state guarantees. The contagion effect of a subinvestment grade rating is obvious and puts the institutions as well as the projects at the mercy of the markets and the development finance institutions. This puts at risk our ability to deliver on the social projects, like the sustainable development goals, as well as making water available for economic growth and development.

The economy must invest in water security for further economic growth.

Then there is the domain of new technology and innovation. The fourth industrial revolution (4IR) toolbox has the potential to take our planning, monitoring and control systems to a completely new level. Earth observation and remote sensing, combined with smarter management of big data, will enable real-time water and wastewater management, prompting efficiency of use, better and more sustainable access and much higher levels of water security. The “brown revolution”, with new waterless and low-water toilet systems feeding into nonsewered decentralised waste treatment, has the potential to not only ensure SA’s ambition to meet the goal of universal access to safe and dignified sanitation, but also for us to supply a global market in which the shortfall in sanitation access is more than 2-billion people.

If we add to this the great science that is enabling the beneficiation of human waste to produce high-value products — energy, chemicals, proteins and lipids — we have the genuine possibility of a new industrial platform with high-performing businesses feeding a global market and creating new jobs and livelihoods for South Africans. These have already been recognised as priorities in the industrial policy action plan. But to get these off the ground requires substantive capital investment local and foreign. This enterprise is also greatly affected by the knock-on effects of a subinvestment sovereign credit rating.

The question is how we avoid what water scarcity could cost us in terms of GDP, which the World Bank has estimated could be up to 6.6% in some regions of the world. The issue SA’s government must contend with is how to come up with a new model for water resource planning that not only takes into account the complexity presented by the ratings downgrade, but sees opportunity in the changing paradigm in the water sector globally, and thus water resource planning.

It is clear from Mboweni’s formulation that we need to invest our money properly and wisely. If this is to be true in water, a more robust and collaborative strategy is needed, which may include a much more dramatic review of our institutional framework.

This opinion piece was written by Dhesighen Naidoo - CEO of the Water Research Commission and Xhanti Payi an economist and founder of Nasence advisory and research and it was first published here