ALASTAIR HERBERTSON: El Niño could bring drought back to Cape Town

Capetonians remember well the three-year drought that brought the city to within a whisker of running out of water in 2018. It was only through an unprecedented partnership between communities and the government that a catastrophe was averted. Since then, regular winter rainfall may have lulled residents into complacency, but the warning signs are flashing, brighter than ever before.

“Day-zero” was apparently a one-in-590-year event based on historical statistics, but shifting climate patterns including changes in rainfall, temperature and wind, and a likely increase in the intensity and frequency of extreme weather events, means one cannot rely on the past to predict the future, particularly as another El Niño event is looming.

The World Meteorological Organisation warned in July 2023 that El Niño conditions were developing in the tropical Pacific for the first time in seven years. This sets the stage for disruptive weather and climate patterns. It was also the signal to governments around the world to mobilise preparations to limit the effects on our health, ecosystems, and economies.

If this was not enough of a clarion call, the extreme temperatures experienced during this northern hemisphere summer should be. Global average sea surface temperatures reached unprecedented levels in May and June, and June and July air temperatures suggest that 2023 will be the hottest year on record. An El Niño on top of this extreme weather has unknown but potentially devastating effects.

For Capetonians the likelihood of reduced rainfall in 2024, 2025 and possibly beyond is high. And it’s not just those in the Western Cape who will be affected. The negative effect of the 2015/16 El Niño on SA’s agricultural production, human health and food security was well documented by scientists from the Agricultural Research Council and the SA Weather Service.

Across the country it is no longer wise or viable to rely solely on rainfall, levels of which are unpredictable and unevenly distributed. Also of concern elsewhere in SA is the overall decay and mismanagement of water infrastructure. In Johannesburg, for example, the issue is so dire that whole areas of the city are routinely without water for weeks, and “water-shifting” — the liquid equivalent of load-shedding — has been implemented. 

In the Western Cape, while infrastructure and management are not an issue, the rain-fed water supply system cannot be relied on to deliver water within acceptable levels of probability. To protect communities, and indeed the regional economy, it is imperative that we think differently about water.

We all agree that fresh water is a finite resource whose supply must be urgently augmented; what is shifting is the recognition that the way we manage and use water is a collective responsibility. In Cape Town, city officials have developed a detailed water augmentation strategy to increase available supply by more than 300-million litres per day over the next 10 years.

Several of these augmentation investments have already been implemented, including investments into the Cape Flats aquifer, the Table Mountain Group aquifer and the Atlantis aquifer. The Cape Town city council has also approved phase two of the R2.3bn Berg River Augmentation Scheme with the department of water & sanitation.

Other opportunities include local sanitation and water re-use schemes, and bigger infrastructure projects such as desalination and extending the Western Cape’s dam storage capacity. But we cannot stand back and expect the government to shoulder the entire cost burden. The Cape Town city authorities have estimated that in 2018 terms it would cost R5.4bn to increase Cape Town’s daily water supply by 300-million litres. This figure could grow exponentially should climate conditions necessitate greater augmentation.

Fortunately, there has been a fundamental shift in how we think about delivering these projects. This is where private sector expertise and capital have a vital role to play.

For more than two decades Ninety One has invested in infrastructure, recognising its powerful multiplier potential in an economy. We secured grant funding to develop a network of solar powered boreholes in Senegal, to deliver reliable water for irrigation and drinking water to more than 1.5-million people at a fraction of the existing cost.

We also structured a $40m loan to construct and operate a 40,000m³ a day bulk water facility in Rwanda, which comprised a well field, pumping stations, pipelines, storage reservoirs and a treatment plant. The investment was the first public private partnership in the country and received numerous international accolades. 

Closer to home we have provided finance to the likes of the Trans-Caledon Tunnel Authority, known for successfully delivering millions of cubic metres of raw water to SA’s economic heartland, and Rand Water, SA’s largest bulk water utility. Rand Water has developed a comprehensive capital expenditure programme requiring R28bn in funding between 2022 and 2026, which we look forward to supporting with debt capital.

At the end of the day there is going to have to be a smorgasbord of solutions for our communal water needs and these will require funders who can consider a range of alternative investment structures and the underlying business cases.

• Herbertson is MD of emerging market  fixed-income at Ninety One.