Cape water crisis could pull plug on SA's GDP recovery - analyst


Cape Town – The water crisis in the Western Cape may delay the recovery of South Africa’s GDP, said an analyst.

Earlier this week ratings agency Moody’s issued a report warning that if the water problem persists, it may have wide-ranging consequences on the City of Cape Town’s finances and economy.

The report also shows that Cape Town's municipal water revenue contribution of R3.9bn equalled 10% of its operating income in 2017.

According to FNB senior agricultural economist Paul Makube, the drought in the province could have far-reaching consequences for the country.

The Western Cape’s agriculture sector accounts for 23% of total agriculture GDP. The current water restrictions have discouraged farmers to irrigate. “They only irrigate where possible as to still supply food,” said Makube.

This will have an impact on vegetables and livestock, because of their high water needs. “Perennial crops as in fruit with a deeper root system might hold on for a bit longer. However, output in terms of yields and fruit sizes will decline,” he explained.

If the drought persists, some fruit trees may have to be uprooted, he warned. “The Western Cape is a major exporter of fruit and wines and reduced output will hurt export earnings.”

Besides the agriculture sector, Makube said the tourism sector, manufacturing and the food manufacturing sector may also be negatively impacted if water restrictions increase.

The Reserve Bank’s head of economic research Rashad Cassim said that the water crisis has not been taken into account in its economic growth forecast. “Developing an estimate is tricky and not straightforward – we are however looking into it,” he said. The SARB projects growth for 2018 to be 1.4%. 

More job shedding

Makube explained that the immediate impact of the drought will impact seasonal workers in the agriculture and tourism sector. “The slowdown in agricultural output will force producers to scale down on activities.

“Western Cape accounts for about 20% of the country’s total agricultural labour force and with the sector having shed 84 000 jobs in the first half of 2017 due to drought, a further contraction will lay more off.”

The loss of jobs will also translate into a loss of tax income, Moody’s said in its report.

Wesgro, the tourism, trade and investment promotion agency for Cape Town and Western Cape, acknowledged in a statement that the drought has far-reaching consequences for the region and the country. The agency has also noted the concerns raised by investors and Moody’s. 

The agency explained it was taking steps to address concerns of existing and potential investors, including the establishment of a water war room. Additionally, the City of Cape Town plans to continue the supply of water to the key economic areas.

To instil confidence, Wesgro plans to host a briefing with the top CEOs in the province in Februar. Long term plans include 24 investment promotion missions around the world in 2019. “These missions will be used to instil confidence in the region, and land new foreign direct investment into the Cape. This will be used to counter any negative perceptions that have emerged because of the drought,” Wesgro said.

Among other proposed solutions, Wesgro will have a roundtable discussion with the film and media industry to determine ways to mitigate the effects of the drought so that the cape will remain a “prime location” for international productions.

“We recognise the difficult position many businesses currently find themselves in, and the potential for our current water crisis to impact investor confidence,” said Western Cape Minister of Economic Opportunities Alan Winde.

He explained that strategies to reduced water consumption were being “ramped up” for a more sustainable economy.

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