Water risk is business risk

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00:00 – Introduction 

Water scarcity is no longer a distant environmental concern. It’s a live operational risk- one that’s already reshaping how South African businesses plan, invest and grow.

In Gauteng alone, treated water demand has recently reached record levels, exceeding 1,700 megalitres a day, placing growing pressure on ageing infrastructure in the country’s economic heartland.

So acute is the strain that government is now calling on Gauteng to reduce water use by a staggering 40%, a scale of adjustment that would require not just behavioural change, but a fundamental rethink of how water is managed, financed and consumed across the economy.

At the same time, South Africans continue to use far more water per person than many global peers, even as climate variability, infrastructure failure and financial strain in municipalities intensify.

So, what does all of this mean for business?
How real is the risk?
And what does resilience look like in practice, beyond compliance and crisis response?

You’re listening to No Ordinary Wednesday, where we unpack what’s moving markets and shaping economies. I’m Jeremy Maggs.

In today’s episode, recorded following Investec and Proparco’s water resilience event, we’re bringing together policy, strategy and lived business experience to explore how businesses can become more water resilient.  

Let’s meet my guests… Joining me today is Dr Sean Phillips, Director-General of South Africa’s Department of Water and Sanitation, Helen Hulett, water-security advisor, founder of ANDWATR. and co-founder of Resolve Water and Melanie Humphries, Head of Sustainable Solutions at Investec

Thank you all for joining us.

01:55 - Why Gauteng’s water demand is reaching critical levels

Jeremy Maggs: So Dr. Phillips, I'd like to start with you, and as I mentioned in the introduction, we are seeing how Gauteng’s treated water demand exceeding 1,700 megaliters per day record levels by any measures. From where you sit then what does this tell us about the balance between supply and demand in the country's economic heartland?

Dr Sean Phillips: Well, it's correct. The demand has increased. There's been various causes of the increase in demand. The one cause is that there's been an exponential increase in the population in Gauteng, both due migration within South Africa, rural urban migration and also cross-border migration from other countries. But there's been another cause of the increase in demand as well.

That demand is the total demand, which includes water that's lost in the distribution system, and there's been a deterioration in the distribution systems in the municipalities in Gauteng so that the average loss in Gauteng is probably around 35% of the water that is supplied by Rand Water is lost in distribution losses. I know that's the figure for Johannesburg. It probably about that on average for Gauteng.

 

02:57 – Why the government is calling for a 40% reduction in water use

Jeremy Maggs: Dr. Phillips's government then is calling for a 40% reduction in Gauteng’s water consumption. People hear that and ask, why must we cut back so drastically when so much water is being lost through leaks and failing systems?

What do you say to the frustration and what is government doing to reduce losses on the municipal side?

Dr Sean Phillips: We are limited as the national government in the degree into which we can intervene in municipalities and tell municipalities what to do. As you know, in South Africa, we have three different spheres of government and there's separate local government elections.

So the people who ultimately can hold the municipalities to account and to get their municipalities to do things as the local electorates who vote for the councilors, who in turn vote for the mayors. But we are strongly encouraging the municipalities to take measures to reduce the losses in their distribution systems and other measures to reduce non-revenue water and to reduce losses.

For example, the municipalities can reduce losses a lot by doing much clever pressure management. For example, if you keep your pressure high overnight and you've got leaky pipes, a lot more water's going to go out of the pipes and there's no reason in the early hours of the morning to have very high pressure in the pipes.

So you can save a lot of water just by doing much better pressure management and these are the kind of measures which were put in place by the city of Cape Town when they were facing day zero, and they very successfully reduced their demand.

04:20 – How municipalities can fund infrastructure amid high non-revenue water

Jeremy Maggs: Dr. Phillips, at the event you gave us the frightening statistic that half the water supply of the municipalities are simply not generating any revenue.

So where are municipalities going to find the money to implement these new things and to make sure that the infrastructure and the maintenance that was largely not happening for the last decade or so can actually happen?

Dr Sean Phillips: They need to correct that situation where they're getting such a high level of non-revenue water.

There's really no alternative. They need to improve their billing and revenue collection systems. They need to reduce the losses in their distribution systems and take other measures to ensure that that non-revenue water comes down. Money's not going to come from anywhere else. They're not going to get money from national government to make up for the fact that they've got high non-revenue water. National government also has needs, the defence forces, as you know, has cut the bone. We struggled even to provide helicopters to rescue people in the recent floods because the defence forces so cut the bone. Provincial Health and Education budgets are also cut to the bone. It's not practically feasible, and no one wants taxes to be raised to be able to pay for that.

The bottom line is that water must be financially self-sustaining. People must pay for water. The municipalities must efficiently build and collect water, and then the municipalities must treat the water function like a financially self-sustaining function. They must run it in a businesslike way. And if you're going to run something in a businesslike way and make it successful, you have to optimise revenue and you have to ensure that your non-revenue water is reduced to the absolute minimum. That's the only way forward and the ball is in the hands of the municipalities. They need to do restructuring to do it, at the moment for example, Johannesburg Water doesn't get all the revenue that's collected from the sale of water. The city of Johannesburg votes for part of that revenue to be used for other functions. So Joburg Water doesn't have the right incentives to optimise to manage its network in a way that will optimise revenue collection. For example, the budget that they get every year from the city will be the same regardless of how much revenue is collected.

So there's no real incentive for them, for example, to make sure that all the meters are working, because if they make sure all the meters working, it doesn't necessarily result in them getting an increased budget. Those kind of structural issues also need to be addressed by the city if they're going to reduce non-revenue water.

To answer your earlier question, I would say to residents who ask, “why are you asking us to reduce water by 40%”? It's important to understand our messaging around the need for people to use water sparingly. We are not saying that someone who's already using water sparingly, someone who doesn't waste water, needs to reduce their water consumption by 40%.

We're saying the average water consumption in needs to go down by 40%. What skews the average is that there are some people who are rarely using water excessively. The municipalities to their credit, are starting to use data a lot more, starting to identify those particular areas where there's very high usage and they need to focus on those areas, getting consumption down in, in those areas.

It doesn't mean that people who are using water moderately and very carefully have to reduce their usage by 40%. It means that those people who are using excessive amounts of water must stop doing so. It means the city must put in place measures to stop that from happening. For example, in Cape Town, when they faced Day Zero, they put in place very strong punitive tariffs for people who used excessive amounts of water, which was quite effective.

07:44 – How business understanding of water risk has evolved

Jeremy Maggs: Helen, let me bring you into the conversation now you work with corporates and investors who are trying to make sense of exactly this kind of system risk. From your vantage point then, how has business understanding of water risk evolved, particularly over the last couple of years?

Helen Hulet: So it actually stood still for a number of years, having been in this space for about 20 years now. Business was very, very much stuck in that water is something that's dealt with outside of their fence line. It's not an issue to them. The only time it ever touched a business was whether it was sustainability, reporting, or reputation.

And you can fight business as much as you want, and they weren't changing this narrative. However, in about the last year, this has changed quite substantially and it's hitting the big industrial players and the banks are getting a very good view into it and they looking at, okay, well it's no longer just a sustainability on ESG issue, it is very much a production continuity issue. So how does it impact our revenues? How does it impact our financing and our asset value? So they're taking a far more practical view of it and now trying to grapple with, well, how do we actually manage these risks that are actually significantly impacting our operations across the country?

And to get back to what Sean was saying, there is South African businesses have historically not treated water well and that is where mind shift has to change at the moment. It's what quality are you putting out there and what volumes are you using? And I think as South Africans, we can be found a little bit guilty in that space.

09:07 – How South African businesses are responding to water risk

Jeremy: And Melanie, this is where I want to bring the Investec lens into our conversation. You're not a water engineer, but you're sitting across the table from clients every day. What are you seeing in terms of how South African businesses are responding to water risk?

Melanie Humphries: Jeremy, I very much echo Helen's sentiments.I think the biggest shift we've seen is an approach towards proactive water management, the management of risk, but also identifying opportunities for revenue generation and cost saving when it comes to water. So a shift towards a similar mindset to what we've seen towards renewable energy and energy resilience.

Firstly, businesses are investing in onsite resilience, water backup systems, water treatment, reuse technologies, smart metering monitoring, very, very important. And also recognition that partnership and collaboration is very important that our clients can't go on this journey on their own, and that engagement with municipalities, with service providers and technical support is critical in terms of helping to solve.

10:50 – What Gauteng’s realistic interim water plan looks like

Jeremy Maggs: Alright, our conversation continues. Dr. Phillips, back to you and major supply projects like phase two of the Lesotho Highlands Water Project are crucial, but they're not a short-term fix.

What's the realistic interim plan for Gauteng? Is it demand management, storage and pumping capacity, pressure management, reuse? Which levers matter most right now?

Dr Sean Phillips: Jeremy you are quite correct. We are currently about halfway through building the second phase of Lesotho Highlands, it's about 50% complete.

It should enable us to increase the abstraction limit for Rand Water from the Vaal Dam by about 2028, 2029. So what do we do in the meantime? Because Rand Water's not allowed to abstract more than it's currently abstracting. And what's happening now is that the demand is occasionally exceeding the available supply of water, and that's when we start getting water supply disruptions.

So what’s imperative in the interim and even in the long term because even when Lesotho Highlands is finished, it's not going to result in that much of a large increase in the abstraction. Limit ran waters built additional treatment capacity. So it'll be ready to treat additional water, but it won't be long until demand starts exceeding supply again.

And then we're going to have to start another huge new capital project. Probably the next one will be to pump water all the way up 600 kilometers up from the Thukela catchment in Kwa-Zulu Natal, which is going to be very expensive. And of course the residents of Gauteng will have to pay for it. So from that perspective, it's also good for businesses and domestic users to use water more sparingly because given that Gauteng doesn't have sufficient of its own naturally occurring water resources, these ways of getting water to Gauteng from the mountains in Lesotho and from as far away as the Drakensberg are extremely expensive and we have to pay for it as Gauteng residents and users.

So the key things that need to happen is that we need to get the municipalities to reduce the losses in the distribution system. Everyone needs to put pressure on the municipalities to do that. We are doing that, but also the electorates in the municipalities need to demand from their representatives in local government that this be a priority to improve the maintenance of the municipal distribution system. To improve the response times to leaks, to take a number of measures to reduce the losses in the distribution system. Then secondly, what you mentioned about investment in reservoir, additional storage capacity and pumping is very important.

And if you look at Joburg Waters turnaround strategy is prominent in there, they have a range of projects to maintain their reservoirs better, to fix the reservoirs. Quite a few of their reservoirs are also leaking badly. Also to increase the size of the reservoirs and to build more reservoirs, and also to build more pumping capacity.

What happens is that demand starts exceeding supply, like for example during a heat wave, when lots of people start putting more water in their gardens, then what happens is that the reservoir level start dropping, and then as the reservoir level start dropping, it means that people living in high lying areas start not getting water because it's gravity fed.

And then when the demand drops a bit, again, it takes a long time for the system to recover because the demand is very close to the available supply. So water is going out of the reservoirs as fast as they can put it in. So in that situation, it'll help a lot if the municipalities and Gauteng can have more storage capacity and more pumping capacity.

If they can have more storage capacity, then they can draw on that additional storage capacity to help to fill the reservoir levels. And if they have more pumping capacity, then they can pump to the higher lying areas.

14:21 – What data companies need to invest smartly in water resilience

Jeremy Maggs: So Helen, when you sit with business leadership teams, you translate complex water challenges into investment aligned strategies.

What are the most important data points a company should be looking at then to inform smart investment into water resilience?

Helen Hulet: So there are three areas that they need to look at, and you need almost different teams in the company to look at this. One is your operational exposure. How does your operation use water?

What quality does it require and how does it treat that water? Need to understand that quite well. The second point is, what does that water supply chain look like? So where is that water coming from? Who owns it, and how reliable is it really? South Africa is very complex in terms of how water actually gets to sites and not many companies actually know where their water is coming from and the different processes that it goes through. So understanding that it's quite difficult because a company that if they have 10 operations across the country, that looks completely different for all of those operations. And then thirdly is it looks like that now, but what is it going to look like in the next 5, 10, 15 years?

As Sean says, there's a lot of infrastructure projects coming on board now. There was a lag for 10 years, but now a lot of work has been done. And there should be some relief in that area and a lot of catchments. But how long are they going to take? What is the business risk until they do actually come on board?

And then don't rely just on supply side, what should they be doing in terms of demand, reducing that demand so they're not just thinking that infrastructure is going to be the silver bullets in the end.

15:44 – How companies can understand where their water comes from

Jeremy Maggs: Helen, you mentioned that it's incredibly important that they understand where their water is coming from. How do you suggest they do that and is there. Any sort of technical know-how or software that is used?

Helen Hulet: It's a great question. Having been a consultant in this space, how it usually works is that you will have a facility or have an area and you'll get a consultant in and they'll do all the digging.They'll pull up the data and they might use old reports, or the reports might have been updated. So what we currently doing is we developed a solution which we're relying on all government information that we are using LMS to consolidate all of that information and geospatially locating it so that you'll be able to click on a location and see where your water coming from. What's the quality, what are the latest reports, what's the latest media releases for that specific location so that our company or bank would be able to test their portfolio to say, okay, yes, for my portfolio, these are the key risks that we need to look at for each of those facilities.

16:38 – How businesses should think about the return on resilience investment

Jeremy Maggs: Alright, Melanie, how should companies then think about the return on investing in resilience, especially when municipality performance is uncertain and trust is low?

Melanie Humphries: Our water crisis has consistently been ranked as one of the threats with the highest likelihood of impact on South Africa's economy and on businesses and corporates, and the return typically comes from protecting, continuity, from avoiding a higher cost base, and also from safeguarding revenue generation.

And so the companies that invest early don't just avoid disruption they also gain a competitive advantage because resilience doesn't just become a driver of efficiency and reliability. It also becomes a driver of long-term growth.

17:20 – What water solutions businesses are pursuing and where gaps remain

Jeremy Maggs: Alright, Melanie, what kind of solutions then are clients pursuing and where are you seeing the biggest gaps between intention and implementation?

Melanie Humphries: I like to say that the financing of these solutions is the easy part. I think technical know-how and where to start is much harder and one single intervention isn't enough. I really like practical guides like the CEO's Guide Toward Resilience that was produced by Wesgrow and Green Cape. It sets out step-by-step actions with relevant cost savings that corporates can achieve in order to drive their water resilience journey. So firstly, companies need to understand how much water they use. I think Helen referred to this. What types of water they need and where some of their risks are. Secondly, and most importantly, it is about reducing your demand.

You know simple efficiency upgrades can actually go a long way. And often these things aren't about massive capital investments. It's about the low hanging fruit that has impact

Jeremy: Maggs  like toilets,

Melanie Humphries: like toilets, and, and we spoke about, you know, simple meshes around double flush toilets that even a household can install in order to drive water efficiency.

Thirdly, organisations can reuse water on site. And so whether that's a grey water, rainwater, harvesting and even desalination becomes a viable option in in certain instances. And then to diversify your supply and to find alternative sources of water and then fifthly something we spoke about at the water event is water stewardship. You know, the partnership that is required between businesses, government, NGOs, as well as the various service providers in order to provide these solutions. And so together with a step-by-step approach, we really recommend that corporates reach out to experts in their journey and to help them navigate their water resilience risks.

19:16 – How Investec supports technical partnerships on water resilience

Jeremy Maggs: And Melanie, under Investec Sustainable Solutions, do you offer any assistance when it comes to the technical know-how and partnerships?

Melanie Humphries: Absolutely, at Investec Sustainable Solutions we are a bunch of bankers and so often we know just enough to be dangerous about the technical solutions that is required here, but there's a deep acknowledgement and that is often what we need to unlock.

And so we have various partnerships that help us help clients navigate that journey so that we create infrastructure solutions that make sense from an operational point of view as well as a technical point of view. And then of course, from a commercial point of view, which is where we come in with funding support.

19:59 – Where private sector involvement adds the most value

Jeremy Maggs: Dr. Phillips, one of the key themes that came across in this event was the need for collaboration across private sector, across government, across NGO, civil society. From your perspective then, where does private sector involvement genuinely add value?

Dr Sean Phillips: Well all I heard at the event and in this interview is music to our ears, and it shows the point that there's always opportunity and adversity and there's opportunity in crisis.

We've been hearing in this discussion that there's been a change in the private sector over the past year. The private sector is now focusing on water issues as a major risk and implementing measures on a wider scale than it did in the past to address the risk and which essentially involves reducing their demand, but also increasing their resilience. Now by the private sector reducing demand it helps us enormously, especially in Gauteng at the moment, our key problem until we can get additional water resources in, is this challenge to reduce demand. So I'm thrilled to hear that the private sector is now playing this role of reducing demand.

It's a bit similar when we experienced terrible electricity, load-shedding as a response to that, because there was a risk that your business might not be able to continue because of the electricity load-shedding. A lot of businesses put in place their own electricity solutions and put in place solar, etc.

But by doing that, they also helped solve the national problem because they helped to reduce their electricity demand, which in turn reduced the electricity load-shedding. So I think just what's happening naturally in the private sector is a response to the water crisis is hugely helpful to us. One of the big risks though is that, and there was a similar risk in the electricity sector, is that some people in municipalities might oppose this because they might say we can't allow people to reduce demand, or we can't encourage people to reduce demand.

We can't encourage people to produce their own water because that would result in a revenue reduction for us. And when there was the electricity load-shedding challenges, there were similar arguments from some municipalities and from some people at Eskom that we can't allow the private sector to generate electricity and we can't allow households to put solar panels on their roofs because that would reduce revenue for municipalities and reduce revenue for Eskom.

So that's going to be a challenge, and we have to overcome that like it was overcome to enable much more diverse electricity generation, and we would like to work with the private sector to address that problem, to engage with municipalities and to win that argument that it's not a really a progressive argument. It’s too narrow focused. It doesn't take the bigger picture into account and actually it's in the long term interest of the municipalities to allow businesses to do these kind of demand reduction measures.

22:38 – What CEOs should stop and start doing about water risk

Jeremy Maggs: Before we wrap up this conversation, I'd like to leave our audience with some practical guidance.

So, Helen, if you were advising a chief executive today, what's the one thing they should stop doing and the one thing they should start doing when it comes to water? Also, what's one behaviour that signals a business is taking water resilience seriously.

Helen Hulet: The first thing they need to stop doing is waiting for someone else to solve this problem. It’s all of our responsibilities. The second thing that they should do is figure out their biggest critical dependency and stress test it. It's an easy thing to do. So take your most important water source and play a scenario in what happens if this was restricted for three months, how would that impact production revenue and contracts?

And you'll quite quickly figure out just how exposed you are, and it'll also force you to start to gain knowledge in terms of where that water source is coming from. Because the companies that build resilience don't try to solve everything. If they look at what they need to solve to keep their production going, and they also just gain knowledge in terms of where their water is actually coming from.

23:42 – What government needs most from business in the next five years

Jeremy Maggs: And Dr. Phillips, from a national perspective, then what role do you need business to play most urgently, let's say in the next five years?

Dr Sean Phillips: I think to continue as they are doing and as Helen said, to recognise that this is everybody's problem. Sometimes when we as government say that the rest of society needs to play a role, the demand comes down.

People think government is absolving itself of its responsibilities, blaming other people for a crisis that they created, there's some truth in that, but we try to consistently say, government needs to sort itself out. The municipalities need to address the leaks, but that alone isn't going to be enough. We must also bring demand down if we're going to reduce water supply disruptions and business. From what I've heard today, the private sector is on the right track in terms of making their contribution.

24:31 – Closing reflections on partnership and opportunity

Jeremy Maggs: And Melanie, from your side, any closing thoughts?

Melanie Humphries: Yeah, just listening to the conversation, it's wonderful to see the public sector and the private sector come together in partnership to solve the issue that is water.

We certainly ready to play our part and you know, we view infrastructure as a fundamental building block to the growth of South Africa's economy. It is about mitigating risk, of course, and creating water resilience, but most importantly, it's about helping our clients identify the opportunity for revenue growth and cost saving when it comes to the matter of water.

Jeremy Maggs: And that is where we are going to leave it. Dr. Sean Phillips, Director General of South Africa's Department of Water and Sanitation. Helen Hulett, Water Security Advisor, founder of ANDWATR. and co-founder of Resolve Water and Melanie Humphries, Head of Sustainable Solutions at Investec. Thank you all for joining me on this episode of No Ordinary Wednesday.

It's been a fascinating and I think a valuable conversation. So please join us again in two weeks as we continue to explore money trends shaping your world now. If you haven't yet added us to your podcast feed, search for Investec Focus radio SA wherever you get your podcasts and hit that follow button.

Until next time, goodbye from me, Jeremy Maggs and the entire Focus radio team.

Disclaimer: The views expressed are those of the contributors at the time of publication and do not necessarily represent the views of the firm and should not be taken as advice or recommendations. Investec Limited and subsidiaries authorised financial service providers, registered credit providers, and long-term insurer.

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