South Africa’s water crisis has been bubbling away under the surface for some time. Already a water scarce country, South Africa’s water woes have been further compounded by not only the rising impact of climate change on the region’s water security but also its failing infrastructure and investment in water. Encouragingly, however, as the crisis has become increasingly tangible, with the disastrous effects being felt most recently in areas such as Johannesburg, water security is finally being taken seriously as a significant national risk in need of policy reform, investment, and public-private sector collaboration.
World Water Day is one year older than South Africa’s young democracy. When the United Nations family observed this moment on 22 March 2025, the focus was on preserving glaciers. That’s a strong, strategic planetary imperative, but far removed from the more basic challenges facing water-stressed South Africa. Here, our risks lie in water supply disruptions, ageing infrastructure, corruption, sewerage, and acid mine contamination.
As investors in local listed markets, it is critical that we closely monitor the issue of water scarcity in South Africa due to the profound impact it can have on the financial performance and long-term viability of existing and potential investee companies. Water is a vital resource for numerous sectors, including agriculture, mining, energy production, and manufacturing.
Companies that depend on a reliable water supply may face operational disruptions, rising costs, and even supply chain bottlenecks. Water scarcity can also trigger regulatory changes and force businesses to invest in costly water management solutions. Staying informed about water in our country enables us to better assess risk, forecast more accurately, and make proactive investment decisions that protect against potential financial losses and market volatility.
Contingency plans underway
Given the risk that water scarcity presents to our portfolios, we have been encouraged to note that this multi-pronged crisis received some attention during President Cyril Ramaphosa’s 2025 State of the Nation Address. “Starting this year, we will work with our municipalities to establish professionally managed, ring-fenced utilities for water and electricity services to ensure that there is adequate investment and maintenance,” he said.
This sort of high-level attention has been a long time coming, including the promise of a licensing system for water service providers. Thanks to the 2020 structural reform initiative Operation Vulindlela, it is now easier for companies and mines to obtain a water licence. While as part of the government’s projected R940 billion infrastructure spend over the next three years, water and sanitation projects have been earmarked for attention, from dams to waterways.
There are already big water projects underway, including the Polihali Dam in Lesotho and the uMkhomazi Water Project in KwaZulu-Natal, which form part of the multi-dam Lesotho Highlands Water Project. Upgrades are ongoing to increase the storage capacity of Hazelmere Dam in KwaZulu-Natal, Clanwilliam Dam in the Western Cape, and Tzaneen Dam in Limpopo. Yet water infrastructure projects like the R5.5 billion 40km Giyani pipeline from Nandoni Dam in Limpopo have been bedevilled by corruption and delays since it was announced in 2009.
It starts with policy
Despite this recent progress, water still currently stands at the same critical juncture that electricity ignored in 2009. However, unlike energy, there is no alternative life source to water. South Africa cannot afford a repeat of the electricity loadshedding saga that brought the economy to its knees in 2022/23. However, the state’s ability to solve the crisis is limited.
As the loadshedding crisis has taught us, large-scale public infrastructure and resource management cannot be effectively handled by the government alone. It is imperative to bring the private sector into the picture and consult widely among all stakeholders, from village leaders and municipalities to fund managers, international investors, the construction industry, environmentalists, and water experts.
The National Water Resource Infrastructure Agency Bill, which Ramaphosa approved in August 2024, will enable the creation of a new state-owned water infrastructure agency responsible for, amongst other things, the funding of new water and sanitation infrastructure projects as well as attracting private investment. While the Department of Water and Sanitation retains its role as the regulator, the newly established agency will be responsible for the management of South Africa’s bulk water infrastructure, as per the water sector reform strategy under Operation Vulindlela. This could well be a positive step. After all, we saw the impact the National Energy Crisis Committee (NECOM) had on simplifying and accelerating action in the electricity space. A NECOM-style approach may also streamline the implementation of water projects and help to identify and resolve blockages.
As investors, however, we need a clear policy framework under which the private sector could be brought in to build out South Africa’s water and sanitation infrastructure. Will this take the form of concessions, where private companies like South African Water Works manage water systems in areas like Mbombela and Ballito? Will the private sector have a role to play in distributing water, and if so, where does that leave municipalities? What about desalination plants and dam construction? What about pricing - will the cost of water be enough to ensure a return on investment above the cost of capital?
Right now, details are unclear, and in the face of policy uncertainty, investors will continue to keep their hands in their pockets. However, the interest is there, and it remains our role to closely monitor opportunities and gauge the associated risks.
What does this mean for investment decision-making?
As with most investment managers, we continually scan the environment, taking into account media pronouncements, budget allocations versus actual spend, tender notifications, and policy reforms. Collaboration is a core part of what we do, so we invite engagements across both the private and public sectors in an effort to position our clients favourably while still making a positive social and economic impact. We see the construction sector as natural winners of a water infrastructure project pipeline, but the social and environmental dividend of water security is what all South Africans can benefit from.
Yet, for the responsible investor, the decision-making process does not end with the opportunity. That’s really only the beginning. For sustainable and impactful investment, it is necessary to measure a company’s social and environmental license to operate. For instance, we analyse water intensity and usage as well as the level of recycling across our investee companies, but more so sectors facing water risk like mining and across the food producers value chain We also engage highly exposed companies on their long-term water security strategies and measure this against their sustaining capital expenditure framework, with the ultimate goal of ensuring a sustainable future for the companies we are invested in, for our own investors and society as a whole.
As we cautiously anticipate more private sector participation in water storage infrastructure, recycling, and desalination projects coming on stream through Operation Vulindlela, we will continue to apply this strict level of assessment. A pipeline of projects to drive long-term water security is in the interest of all stakeholders, private capital included, but the one thing missing right now is consultation and a coordinated effort that extends beyond government to the entire South African water catchment value chain.
If there was ever a time to bring all the relevant parties around the table to agree on the most optimal way forward, it is now. Over two decades ago, we failed to have sticky, difficult conversations about energy security, and look how that played out. It would be devastating if we were sitting here in a decade’s time with water-shedding impacting the lives and livelihoods of South Africans. We can’t afford 10 years of stop starts. We must create a shared future vision around water where everyone has a voice and a role to play.