Cape Town is running out of water, and no one knows what economic impact that will have
06.03.2018 - Cape Town / Reservoirs in Cape Town, the jewel of South Africa's Western Cape region, are nearly empty.Amid its worst drought since records began, the city — and the Western Cape province more broadly — is speeding towards a so-called Day Zero. This is when dam levels fall to 13.5 percent capacity, meaning that the taps must be turned off, forcing 4 million residents to instead queue for water. Day Zero is currently projected to fall on July 15, although has been forecast as early as April.
Cape Town's population has been living on 50 liters of water a day, a limit that can be maintained by flushing the toilet just once daily and limiting showers to 10 liters. Plugs have been removed from rooms of luxury hotels to prevent guests from taking baths. Staggered tariffs on water consumption have also been imposed. But, the economic impact of the water crisis is harder to quantify.
Measuring the impact to South Africa's fundamentals
The drought has not been factored into the South African Reserve Bank's economic growth projections for this year. "Developing an estimate is tricky and not straightforward — we are, however, looking into it," the institution told via email.
"We need to get low consumption but we don't want to collapse the economy," Ian Neilson, Cape Town's deputy mayor and head of the water response team, told CNBC via telephone. "It's critical to ensure that there is business continuity," he added.Supporting business is key to South Africa's political agenda, more broadly. New President Cyril Ramaphosa is tasked with resurrecting the country's sluggish economy, which grew at 0.8 percent year-on-year in the third quarter of 2017. South Africa is infamous for its high unemployment, which had risen to 26.7 percent in the fourth quarter of 2017. Youth unemployment in Cape Town itself is higher, measured at 31.7 percent.
"The Western Cape economy is about 13 percent of the national economy, so a 1 percent reduction in Western Cape gross domestic product growth takes about 0.13 percent off growth of the total economy,"
Rian le Roux, South Africa-based strategist at investment firm Old Mutual, told via email last week. But, he added that the hit to growth was difficult to forecast, given the nuanced impact of the natural disaster. "Not all of the province has been hit by the drought and other industries are being stimulated," such as borehole drillers and tank manufacturers, he added.
Rural-urban migration is a contributing factor
Socio-economic factors have played a role in exacerbating the water crisis. Rural-urban migration to Cape Town, South Africa's second-largest city, has been rising in recent years. The population grew 2.6 percent between 2001-2011, and managing newcomers "certainly is a real issue," Neilson admitted.
But for him, the focus remained on practical action. "We're more interested in dealing with the crisis than working out ways to measure it," he said.
Water tariffs have been criticized for hurting the region's poor while the rich are able to pay for more water, though Neilson said that the authorities were focused on making water management an "equitable process."
The local government, run by South Africa's main opposition party — the Democratic Alliance — has been criticized by some for its efforts to deal with the natural disaster. "The city started too late with water restrictions… Tighter restrictions should have started some years ago when dams failed to fill up properly," le Roux said.
On a national level, South Africa's parliament will hold an inquiry into allegations of mismanagement at its Department of Water and Sanitation, Reuters reported Friday. The country's Standing Committee on Public Accounts has called for a criminal case to be brought against the ministry for opening a 2.9 billion rand ($245 million) overdraft with the central bank, Reuters said.
Wine and vegetable production has taken a hit
Wine production, for which the area around Cape Town is world famous, is down by 20 percent. Meanwhile, fruit and vegetable production – including onions, potatoes and tomatoes – has dropped by 15 percent year on year as farmers planted less due to water shortages, Paul Makube, agricultural economist at South Africa's First National Bank told via telephone Friday.
The wine industry in particular is among South Africa's "biggest foreign exchange earners," Makube said.
Cape Town's residents can be fed with crops grown in South Africa's other provinces; food supply and the present drought's effect on food inflation is hedged by favorable conditions inland and a bumper crop last year. But Makube warned that "if there was another season of drought, the impact could be huge.
"Even if sufficient rains come this winter, Cape Town's water crisis is unlikely to be solved for good. Tackling the problem requires a "permanent lifestyle change," Makube said.
Live a Comment
Your email address will not be published.