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South Africa in Crisis

Driven by Many Factors, Making it a Highly Complex, but Very Real Crisis

At its heart is the collapse of government processes, mostly at the municipal level. Left unmitigated, this will eventually see the total collapse of government at localized areas, much like dominoes, culminating in the failure of the central government.

This crisis can be managed, and requires an active citizenry. That citizenry is increasingly overwhelmed by the tsunami of problems that engulf them daily. They need hope so as not to fall into a state of catatonic despair.

The chosen vehicle for that support is Water Shortage SA, as a registered NPO, with full legal accountability for all funds that flow through it.

The epicenter of the national crisis is concentrated in Emfuleni, which was once the industrial and heavy engineering heartland of the continent, where all sewage systems have failed (with close to a million liters of raw sewerage flowing into the Vaal River on a daily basis) and has been de-industrializing at a rapid pace over the past decade. The Emfuleni Sewage Crisis impacts the Vaal River, which in turn directly affects 45% of the total population and 65% of the national economy.

However, we are all united as one in a shared environment still filled with beauty. If we focus on the good that still exists, we are inspired not to fall into the paralysis of despair. This is where the philosophy of hope, enshrined by the Unstoppable Movement for Positive Change (below), founded by Dr Anthony Turton and his Team, has become a vehicle of inspiration for the Agents of Change that will rise up to restore this beautiful country and its people to its rightful splendor.

The local community in Emfuleni has organized themselves and is actively engaging in a positive way to mitigate the impact of this crisis. Work they are doing is credible, positive and likely to succeed. The work that will be done by the Emfuleni initiative will serve as a template that can be leveraged by other communities facing similar challenges with distressed and dysfunctional municipal structures.

The Future of Water & Energy Infrastructure in South Africa

Be Prepared for Two Competing Business Models

© Dr. Anthony Turton 2019

The water crisis in South Africa is entering a new phase, so let me share my thoughts on the dynamics that are likely to be playing out over the next few months of this transition.

To make any sensible prediction, one needs to first understand the fundamental drivers at work These are as follows:

  • The South African economy became water constrained in 2004.
  • The economy became capital constrained in 2013 during the height of the Zuma presidency and the Bell Pottinger campaign against White Monopoly Capital (WMC).
  • We now see significant failure of municipal infrastructure across the country, ranging from small municipalities (Ugu District in KZN) through medium sized municipalities (Makhanda in EC) and large municipalities (Emfuleni).
  • The economic constraints manifest as a fiscal imbalance, so the Fiscus is now constrained, and a Fiscal Cliff is increasingly likely.
  • SOE’s have ratcheted up risk to the extent that failure by one of the larger SOE’s (Eskom) could trigger a domino effect that can literally bankrupt the government.
  • The state of infrastructure collapse is across the board, but most acutely felt in the water services and energy supply sectors, with cumulative debt from dysfunctional municipalities now of such a magnitude that the entire economy is increasingly at risk.

In short, we are in deep crisis. The Titanic has hit the iceberg, but we are still afloat – only just.

How is this likely to play out in the water sector over the next 12 months?

I see two major dynamics at work, each best represented by a Model. Let me give each a name, because I believe we will be seeing greater evidence of both models trying to gain traction, sometimes succeeding, but sometimes facing headwinds and winding backwards again.

This is how I believe each of these models is structured:

SOE Model

The SOE Model is the dominant one currently but is coming to the logical end of its useful life. It is central to the Developmental State thinking, in which the economy is subsumed to the State. The conflict against private capital, initiated by Bell Pottinger, is unfinished, but still lingering in the ashes of a moribund but not yet dead economy. The role of business in this model is reduced to one of tax paying only, so the logical outcome is for companies to divest in order to protect their interests. This is evident as FDI outflow and is thus measurable. I therefore see the SOE model as sustaining its attack against the private sector by excluding active involvement in solution-seeking.

Listed companies are hesitant to contract with bankrupt municipalities, and unlisted companies with deep expertise in water treatment and management, are driven into financial distress because of non-payment. Therefore, the role of the mainstream private sector will always remain marginal in this model.

In preparation for this phase, we are likely to see functional SOE’s expanding into the realm of dysfunctional municipalities, most notably in the areas of water services and wastewater management initiatives. Central to all SOE activity will be the desire to control the value chain, most notably becoming the only gatekeeper in the procurement process.  All contracts involving the private sector will be given to approved companies, so the process of tendering will be inherently skewed.  This increases the likelihood of kickbacks and corruption. The sole source of revenue for this model is the Fiscus, so it is unlikely to be sustainable because of diminishing tax flows, but before it crashes, we are likely to see a concerted effort to gain final control.

Corruption cannot be rooted out in this model, because the absence of ring-fencing regulations in the Municipal Financial Management legislation means that capital put into a specific project, can easily be diverted into a different project, with no means of control. It is this mechanism that has been exploited to divert revenues into patronage schemes, which are inherent to this model. In fact, it can safely be concluded that SOE’s have become nothing more than vehicles for the distribution of patronage by a once legitimate developmental state in the hands of corrupt leadership (refer to State Capture and the Zondo Commission).

In all probability this will play itself out wherever major revenues are needed (hundreds of millions to billions of Rand), but specifically where these coincide with substantial municipal failure. From a strategic perspective, defined in terms of the number of multipliers and knock-on effects that are likely to arise, the Emfuleni sewage crisis is probably the most significant.

Consequently, an example of a project to watch is Metsi le Temo, which could be tempted to sink its roots into a portion of the R5 billion flow of cash needed to stabilize the Emfuleni sewage crisis (DWS estimates and likely to grow).

This project has proposed that nutrients should not be removed (i.e. partial treatment of sewage to increase the flow through an overloaded plant) in order to be used as fertilizer on the land. This is justified by referring to the cost of building a new plant with greater capacity and next generation technology. It also proposes a different water use license that enables nutrients to be left in the effluent, but it remains unclear how this will be managed without driving eutrophication of the Vaal. This will require public participation in the licensing process where greater clarity can be obtained.

It is in this light that recent media announcements by the Deputy Minister of Water Mr David Mahlobo could be interpreted. One possible interpretation is that he effectively called for a cessation of debate about culpability, to be replaced by a renewed enthusiasm for this proposed initiative that will use enriched sewage effluent to reduce poverty by stimulating irrigated agriculture on a relatively small piece of land. This is probably incapable of creating the number of livelihoods needed to be measurably effective as a poverty eradication program, but the jury is still out until more facts are publicly available.

This model is probably unable to overcome the fact that our economy is water constrained, because it continues to manage water as a stock in a linear economy, so we will continue to see sluggish job creation. This will increase social pressures as people are driven to desperate measures merely to survive. Poverty reduction will probably be used to legitimise the efforts at gaining control over the financial flows, but no measurable impact will occur, and poverty will grow. Astute questioning during the public participation phase of the integrated water use license application (IWULA) will reveal these inconsistencies, so that process is likely to be sidelined – hence the call for unity of purpose by the Deputy Minister to smooth things over in anticipation.

Bankable Feasibility Studies (BFS) and Cost-Benefit Analyses will always be absent in the SOE Model, because information contained in those instruments will show the extent of inefficiency (conversely the quantum of patronage extorted from the taxpaying public).

Beneficiation Model

The Beneficiation Model is latent, with the best example of success being the Durban South WWTW where effluent is treated to a safe standard and then used as industrial process water in the Natref Refinery and a nearby paper mill. This model is a potential instrument for a reinvigorated circular economy, because the Durban South WWTW case has shown that sewage effluent can be safely treated and used in industry, alleviating pressure on potable water. This has also shown that private capital does not mean the privatization of water resources, which is a sensitive issue.

The Beneficiation Model overcomes the contractual constrains arising from bankrupt municipalities unable to pay their bills, by using a legal instrument known as a Special Purpose Vehicle (SPV). These SPV’s have a robust track record in the Public-Private-Partnership (PPP) sphere globally, so they are tried and trusted. The advantage of this model is that existing expertise in the private sector can be rapidly deployed across the water sector, at a greatly reduced cost. The cost reduction is derived from the efficiency of deploying capital, so corruption is limited.

The taxpayer is protected, because wherever money from the fiscus is used, it is accounted for and leveraged with private capital to achieve greater efficiency. Because of the legal protection inherent to the SPV instrument, private capital can enter the system with confidence. This means that the Fiscus is no longer the sole source of finance for any infrastructure project, so taxes can be used to greater effect elsewhere in the economy (e.g. social grants to indigent families). In effect capital constraints can be overcome by making South Africa more investment friendly. Ratings agency status is a critical variable, because a downgrade to junk status will simply raise the cost of capital.

This model could become a catalyst in the transition from a linear to a circular economy, so it unlocks many multipliers if it is allowed to flourish. In effect waste management could become the nucleus of an invigorated economy, centred on beneficiation. Therefore, we can start to add-value in other sectors such as commodities currently exported in raw low-value form to be beneficiated elsewhere. This model is likely to be relevant in strategically important areas where water constraints are acutely felt. For this reason all coastal cities could see this model being deployed in the beneficiation of sewage for industrial process water – Durban being a prime example of the possibility – but also where utility scale sea water reverse osmosis (SWRO) plant could be erected on a sale large enough to make an impact (bigger than package plant). Technology evolution is now pushing the cost down to a point where it can realistically complete cost-wise with water currently supplied from dams. This fact will become evident in any credible cost-benefit analysis made publicly available.

The emergence of this model will be characterised by the ability of the private sector partners to withstand the onslaught from the gatekeepers in the SOE Model, most of whom feel threatened by the potential loss of control over patronage flows. This will be contested terrain and some corporations might shy away. As a result, this Beneficiation Model will only succeed where it can make a clear case to the broader society about the benefits inherent to their approach. To succeed it therefore needs an Independent Water Regulator (IWR), so the battle space will be manifest in the debates underpinning that process currently underway – those opposing the IWR also probably being those that directly benefit from the SOE Model.

The preferred instrument of the elites in this model will thus be a publicly available Cost-Benefit Analysis that enables different models to be evaluated, along with different technological configurations, to achieve the biggest nett benefit to society. This will be a central element to the Bankable Feasibility Study (BFS) that is needed to raise private capital from any credible financier.

These are the two models that I see playing out over the next year. Some variations are likely to arise, but at the core this is the way I see things panning out over the next year.

At their heart is the issue of poverty. The SOE Model will claim that poor people must be given free services funded by the taxpayer. The Beneficiation Model will be predicated on the dual assumption that in order to achieve the taxes needed to sustain social grants, a healthy economy will be needed. Furthermore, it contends that the best way to eradicate poverty is to give poor people jobs at a fair wage that enables them to pay for services provided by the state. At heart this will be an ideological debate about the role of the state and its relationship with the private sector.  Water will either remain a constraint, or become an enabler, in a binary outcome.

CLOSE ACCORDION

The contest will be intense because it’s about the future of our economic well-being.

I hope that my analysis has enabled the public to make savvy decisions about the use of their taxes in future. We need an active and engaged citizenry to overcome our structural constraints. Let’s have an open and honest debate about the merits of each model.

A 3-Part Strategy for Success

To address the calamities facing South Africa, a holistic, realistic and global strategy was developed; we cannot do it on our own… It must have the following three components;

1 - A Philosophy of Hope

Unstoppable Movement for Positive Change

A theory or attitude that acts as a guiding principle for behavior, that will unite people in the peaceful pursuit of a common vision…

We need a vision for a better world – one filled with hope rather than alarmism – so that different entities can each do their own thing but align with the philosophy.

  • Unstoppable – A tsunami so powerful that Government must listen.
  • Movement – Alignment with a movement. A movement is bigger than an individual because it represents an idea for a better future. Being part of a movement protects front-line activists from being targeted by vested interests that resist change. A movement has no single leader, just many entities each aligned but focusing on the core issue that is important to them.
  • Positive – People respond well to an inspirational vision, so the foundation is about healthy lifestyles that cut across all traditionally divisive messaging found in politics.
  • Change – Reject the status quo as being a road to disaster and demand change for the better. But change within the framework of the law. The law must be applied without fear or favor, rejecting vigilantism that seeks to enforce the law. Simply put: Government must govern properly so that the citizenry doesn’t demand regime change, just a change in attitude.

Dr Anthony Turton

2 - The Structure

The United Movement for Constitutional Accountability

A philosophy without structure is like driving a vehicle at night without lights…

  • United – Formation of an effective, constructive and productive partnership between the public- and private sectors, seeking to build, renovate and rehabilitate, rather than to remain vexed in the current quagmire of corruption, mismanagement and finger-pointing.
  • Movement – Alignment with a movement. A movement is bigger than an individual because it represents an idea for a better future. Being part of a movement protects front-line activists from being targeted by vested interests that resist change. A movement has no single leader, just many entities each aligned but focusing on the core issue that is important to them.
  • Constitutional – In no uncertain terms, this coalition is vested firmly in the Constitution of South Africa.
  • Accountability – With a clear mission to replace a culture of corruption, mismanagement and maladministration with transparency and accountability at all levels within both private- and public sectors.
    • It forms the basis for the coalition of entities that are facing similar challenges.
    • It creates an effective framework to unite the multitudes of community- and private-centric initiatives, to reverse the downward spiral into chaos, destruction and civil unrest.

3 - Agents of Change

Special Purpose Vehicles

Leaders are like eagles… they don’t flock. You’ll find them one at a time. Knute Rockne

At ground-level, create the operational capacity that will give effect to the change envisioned for achieving the vision.

Create a non-profit organisation to serve as a Special Purpose Vehicle (SPV) between the public- and private sectors, with the sole purpose to repair, rehabilitate and restore the community to its former glory, and to give effect to the dreams and goals we all aspire towards.

The first SPV is Emfuleni for Change (EfC), wrapped around an ICT web-architecture that will pro-actively support the rapid deployment of similar entities throughout South Africa, and the world.

CLOSE ACCORDION

Visualize the Enterprise

Visualization of this enterprise is essential to understand how the individual components will uniquely and collectively play its role in the ‘big picture’:

A picture is worth a thousand words. Frederic R. Barnard

Create Your own SPV Now!

This is a practical, replicable model that can be cloned in under 10 seconds, and within 1 week we can help you set up your own SPV, with your own corporate branding and custom content.

So, if you need positive change in your community, let us help you to join the structure, and in so doing we will pool resources and coordinate effort, rather than duplicating cost and effort.

Get in touch, we will get you going fast!

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