Social Development

Confronting South Africa’s water challenge

21 June 2010

South Africa can implement a balanced solution for closing its water demand–supply gap by seizing an array of cost-effective measures available across supply, agricultural efficiency and productivity improvements, and industrial and domestic levers.

South Africa faces a growing gap between water supply and demand. The most effective solutions will cater to the specific agricultural, industrial, and domestic needs of the country’s different basins.  The abridged article below, from McKinsey Quarterly, is adapted from the full report Charting our water future.

Water resource management looms as one of the greatest global challenges of the 21st century. Around the world, businesses, governments, and policy makers alike must work together to move beyond business as usual not only to increase the supply and improve the productivity of current resources but also to reduce withdrawals by reshaping underlying economic activities. In South Africa, the challenge is complex: a semiarid country characterized by low rainfall, limited underground aquifers, and a reliance on significant water transfers from neighboring nations, South Africa will face difficult economic and social choices between the demands of agriculture, key industrial activities such as mining and power generation, and large and growing urban centers. However, a recent report by the 2030 Water Resources Group, for which McKinsey provided analytical support, finds that solutions are possible and need not be prohibitively expensive if they are addressed now.

Exploding growth in world populations and increased agricultural and industrial production are putting a strain on existing water supplies worldwide. According to estimates by the Water Resources Group, global water demand is on track to outpace supply by 40 percent within the next two decades. When compounded with the potential effects of climate change, the stakes are raised even higher. Further complicating this challenge is the reality that there is no singular water crisis: different countries, even in the same region, face very different problems. India, for instance, faces demand fueled largely by the agricultural sector as a growing population increasingly moves toward a middle-class diet that relies more heavily on wheat and sugar. In China, by contrast, a large agricultural sector is coupled with a fast-growing economy that is driving rapid industrial growth and domestic urbanization.

The situation in South Africa is similarly complex. According to our base-case scenario, estimated demand for water in South Africa will reach 17.7 billion cubic meters in 2030. Current supply, by contrast, will equal only 15 billion cubic meters and is severely constrained by low levels of highly seasonal rainfall (about 50 percent of the world average), insufficient aquifers, and a dependency on water transfers between basins and from other countries (for example, South Africa purchases nearly 25 percent of its total water supply from nearby Lesotho). What’s more, the effects of climate change could exacerbate the problem significantly: even a small decrease in rainfall (and a corresponding increase in irrigation requirements) could result in a gap as large as 3.8 billion cubic meters.

In order to understand the water resource problem currently facing business and governments around the world, a sector-level understanding of the supply and demand challenges is useful. In South Africa, the agricultural, industrial, and urban sectors account for a majority of overall demand: 8.4 billion cubic meters, 3.3 billion cubic meters, and 6.0 billion cubic meters, respectively. However, each region faces challenges that are unique to the set of economic activities prevalent in that area. The basins that supply the largest cities (Johannesburg, Cape Town, Durban, and Pretoria) are expected to face severe gaps brought about by increased household and industrial demand. The Berg water management area””which includes Cape Town””must close an estimated gap of 28 percent to meet future demand.

Household demand is driven largely by rising income levels and population growth, as well as a national drive to improve basic living conditions (for example, broader use of showers, toilets, and landscaping in residential areas). Projections for 2030 indicate that household demand will account for 3.6 billion cubic meters, with the wealthiest quintile of the population accounting for half of total withdrawals. At the same time, demand from industries such as mining and power generation will be an increasingly significant factor: by 2030, demand could amount for as much as 3.3 billion cubic meters. Power generation will account for 12 percent of total demand, mining for 18 percent, and manufacturing for the remaining 70 percent. Meeting the demand for power generation poses yet another challenge: much of the additional power generation capacity planned for 2025 will come from coal-fired power plants, located where much of the coal beds are. As local water supplies are typically insufficient for both coal mining and power generation, a reliance on water transfers from other areas will likely develop.

Despite the depth and breadth of the challenge at hand, economical solutions are within reach. Closing the gap across these sectors will involve a sustainable and cost-effective combination of three levers””two of which make use of technical improvements (increasing supply and improving water productivity), while the third is related to the underlying economic choices a country faces and involves actively reducing withdrawals by changing the set of underlying economic activities. For South Africa, the cost-effective measures that are available across supply (50 percent), agricultural efficiency and productivity improvements (30 percent), and industrial and domestic levers (20 percent) form a balanced approach.

The issue of water scarcity is hugely important for businesses and nations the world over. Given the historic difficulty of providing enough water to meet society’s needs, it is clear that governments and the private sector must partner to develop effective policies and sustainable solutions. In South Africa, the challenge will involve tough trade-offs between the competing demands of agriculture, key industrial activities, and large and growing urban centers. Managing these trade-offs based on comparative cost data across all economic sectors will help South Africa achieve the required water savings with minimum downsides to the economy. The blend of solutions will include technical improvements to increase supply (as well as measures to enhance productivity and efficiency), to balance competing demands on a finite resource, and to ensure that the country is able to meet its water needs both today and in the future.

Read the complete article Confronting South Africa’s water challenge and view the accompanying graphs on McKinsey’s website.