Economic costs and investment challenges of water infrastructure in South Africa

Abstract

South Africa is facing significant water infrastructure investment challenges, at the levels of both water resources and services. Principles for water use pricing, charges, tariffs and use are enshrined in South African legislation, but implementation thereof is a major problem. This research paper addresses (a) economic costs, (b) efficiencies, (c) investment challenges and (d) the application and maximisation of economic tools. A total of 269 municipalities were sampled, and the research exemplified that South Africa was losing approximately US$0.617–1.033 billion/annum to various inefficiencies: (a) water use underpricing was approximately US$0.413 billion/annum. Water use charges and/or tariffs closer to cost-recovery levels would provide and ensure financial sustainability. (b) Return on capital investment inefficiencies contributed approximately US$0.926 billion/annum. Revenue far lower than the asset value is illustrative of unsustainable revenue for investments. (c) Non-revenue water was 36.8% and approximately US$0.402 billion/annum. Investments in water infrastructure maintenance projects will minimise distribution losses. (d) The multipliers were varied and substantially high – namely, 3–27. This illustrates the extent and seriousness of prioritising the implementation of water conservation and demand-management measures. (e) The capital investment gap was estimated at US$2.258 billion/annum for the next 10 years (2019/2020–2029/2030). Under-capital investments have serious downstream implications for socio-economic development and growth.