The new government’s policy position will become clearer as it lays out beneficiation reforms in the mining sector and gears up to launch a set of privatisations ahead of forthcoming elections.
Work stoppages and outbreaks of ethnic violence at a North Kivu coltan mine suggest growing risk of contagion across the restive province, while also indicating potential violations of mineral transparency codes.
A cabinet reshuffle and deployment of the intelligence services to curb political rivals indicate that the president is seeking an unconstitutional third term, which would frustrate any debt relief negotiations.
Foreign investment has dropped by more than 30% since 2015, when the current government took office; meanwhile local credit growth is collapsing and the prospect of an economic downturn is steadily increasing.
The government is amending the tax code to narrow its budget deficit, yet apparent political motivations for the reforms and intensifying tax-related grievances are likely to galvanise anti-government unrest.
Guinea’s bauxite and aluminium sector is starting to feel the pressure of US sanctions and the government is making discrete plans to force Russian firms to divest from strategic mining and refining assets.
Violent communal unrest and virulent labour action are frustrating South Africa’s new president’s reform agenda and undermining the ruling party’s image shift, yet the government’s ability to curb these challenges is limited ahead of the 2019 elections.
The government is placing new financial and administrative restrictions on online content, with significant regulatory impacts on media, journalism and ICT sectors, by enhancing state surveillance on both private and commercial entities.
In this open article, EXX Africa assesses that water shortages in some of South Africa’s largest cities will pose severe risk of insecurity over the coming months, while export revenues are set to shrink for 2018 and the country’s main political opposition faces a voter backlash at next year’s elections.
- The water crisis will first hit Cape Town in March and is likely to affect the large industrial cities of Johannesburg and Pretoria later in 2018 as water reserves fall to critical levels.
- Any contingency measures now imposed by the national government will be insufficient to mitigate severe risk of insecurity to the city of Cape Town and surrounding towns over the next few months.
- Cape Town’s two main industries, tourism and agriculture, will be most affected, leading to lower employment and tax income, although desalination offers fresh investment opportunities.
- The political backlash from the water crisis is draining support from the opposition that governs many large cities to a revitalised ANC which is set to retain its national governing majority in 2019 elections.
The water crisis will first hit Cape Town in March and is likely to affect the large industrial cities of Johannesburg and Pretoria later in 2018 as water reserves fall to critical levels.
The second largest city in South Africa, Cape Town, is expected to run out of water by the end of March or at least by mid-April when the municipality is due to switch off the water supply to most of the city’s residential districts. The water levels in the six main dams that supply the Cape Town region have plummeted to an average of 26%, from more than 90% four years ago. The so-labelled ‘Day Zero’, i.e. when the City of Cape Town switches off the taps, is currently scheduled on 16 April, but is expected to move closer to March. There is currently no indication of how long the water restrictions will hold, but these may last up to four months when winter rainfall is expected to replenish some water reservoirs and dams. Municipal water supply to agricultural users has already been switched off in the Western Cape Province.
Several other towns in the Western Cape, Northern Cape, and Eastern Cape provinces, including the industrial city of Port Elizabeth, are also facing water restrictions. Moreover, water shortages are being reported in agricultural regions of KwaZulu-Natal and Free State provinces. Most of South Africa, as well as neighbouring countries, are expected to face water shortages over the next year, as water supplies have yet to recover from an El Nino-triggered drought in 2016/17. Most alarmingly, falling dam levels in neighbouring Lesotho threaten the water supply to South Africa’s industrial heartland in Gauteng province and the massive population centres around Johannesburg, which already faced drought conditions in 2016/17.
The Katse and Mohale dams in Lesotho, which supply the cities of Johannesburg and Pretoria, are at ‘very low’ 32% capacity. The water from these dams is meant to act as reserves, but is currently being used to replenish Gauteng province’s water supply. The Lesotho water reserves also serve as a back-up supply for petrochemicals giant Sasol, which is the largest corporate taxpayer in the country and one of the biggest companies in Africa. If water levels continue to fall, Sasol will be forced to suspend operations at its various plants and refineries around Gauteng, causing delays to the supply of fuel products and other chemicals. At least 7% of Cape Town businesses are expected to close in the early phases of water restrictions, with more expected to suspend activities in case of a protracted water crisis, i.e. longer than four months.
Any contingency measures now imposed by the national government will be insufficient to mitigate severe risk of insecurity to the city of Cape Town and surrounding towns over the next few months.
Water and Sanitation Minister Nomvula Mokonyane has confirmed that the national government has no plans to allocate additional funds for drought alleviation in Western Cape Province, although Deputy President Cyril Ramaphosa is expected to announce contingency measures in the next few days. Any such emergency measures will be too late to mitigate severe risk of violence around water collection points in Cape Town. Municipal authorities will begin to set up 200 collection points around the city in the next few weeks, which will be guarded by police officers and a military deployment. Once the water supply to residential areas is switched off, Cape Town residents will be restricted to 25 litres per person per day. The municipal supply of water to hospitals, some large businesses, and the central business district of Cape Town are expected to remain active, although there are serious questions on how this will be successfully implemented.
There remains serious confusion on how the water rationing system will operate and there is widespread fear in Cape Town and other cities of insecurity and mismanagement of the water collection points. Firstly, there is no guarantee that police and military deployments will mitigate risk of robbery, carjacking, sexual assault, and other forms of violence around collection points. Secondly, water theft will become more common, especially in case of a protracted crisis or mismanagement in poorer areas. Thirdly, there will be heightened risk of targeted attacks on affluent residents, who are being accused by some vocal activists of having caused the crisis in the first place due to their perceived excessive use of water. Such attacks would take the form of home invasions and killings in a city which is already the most violent in the country. Luxury hotels, conference centres, and businesses that are perceived to be consuming water excessively will also be at risk of industrial action, protests, looting, and invasions.
Cape Town’s two main industries, tourism and agriculture, will be most affected, leading to lower employment and tax income, although desalination offers fresh investment opportunities.
We project that the economy of the Western Cape Province is set to decline between 0.2% and 1.2% in 2018. The Western Cape accounts for 13.3% of national GDP. Moreover, the Western Cape drought could reduce the nominal trade balance by as much as USD1.5 billion this year. The province produces approximately 21% of South Africa’s agricultural output, but accounts for between 45% and 60% of the country’s agricultural exports. The output of the province’s wine sector, which is the seventh largest in the world, is already at a ten year low. There will also be massive job cuts in the agricultural and manufacturing sectors. Over the course of the first three quarters of 2017, the Western Cape agriculture sector lost 91,000 jobs, which is almost half of the formal agriculture sector’s workforce.
There will be investment opportunities for desalination technology on the back of the water crisis. There are currently plans for eight water desalination plants to be built around the city of Cape Town, producing an estimated 108 million litres of water a day. Tenders are in place to further increase the city’s supply by 40%, which will almost certainly drive up the city’s operating costs and may require a substantial increase in municipal water tariffs. Credit ratings agencies perceive the water crisis as credit-negative, as it will reduce revenue while the city has to boost spending to ensure emergency supplies. Borrowing costs for the city’s bonds are expected to rise, while the city may lose its investment grade rating from Moody’s.
The political backlash from the water crisis is draining support from the opposition that governs many large cities to a revitalised ANC which is set to retain its national governing majority in 2019 elections.
The political ramifications will be most damaging for the main national opposition Democratic Alliance (DA) party, which governs many of South Africa’s largest cities. In Cape Town, which the DA has held since 2006, the party is seeking to oust Mayor Patricia de Lille, who it has charged with misconduct and non-compliance with party decisions. She also faces corruption and cronyism allegations, which she has denied. De Lille is likely to be removed as mayor before ‘Day Zero’ hits Cape Town. In other large cities facing water restrictions, such as Port Elizabeth and Johannesburg, the DA governs in coalition with smaller parties and could also be ousted in votes of no-confidence. In many of these cities, the DA already faces a voter backlash for failing to deliver on pledges to improve public services. Last year, the DA was ousted from Mogale City northwest of Johannesburg. The reversal of the DA’s fortunes has been dramatic since August 2016 when it gained 27% of the vote in municipal elections and for the first time took control of several of the country’s largest cities.
Meanwhile, the African National Congress (ANC) party, which dominates South African politics, is due to replace the unpopular Jacob Zuma with new party leader Cyril Ramaphosa as national president in the next few months. The ANC is now set to contest the 2019 national elections as a revitalised and more united party, with a strong advantage over the divided opposition. Ramaphosa will appeal to middle class urban voters, who have steered away from the ANC in the past few years. The election of Ramaphosa as ANC party leader has also opened the possibility for rapprochement with the radical left-wing Economic Freedom Fighters opposition party led by Julius Malema, who was previously expelled from the ANC. Malema would bring a vital urban black constituency in provinces such as Gauteng and Northwest that would be valued by the ANC.
SEE COUNTRY OUTLOOK: SOUTH AFRICA
New President George Weah will have to balance the political interests of his predecessors and his main coalition partner to ensure a stable government that can turn around the distressed economy and continue to attract foreign investors.
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