Cape’s water crisis ‘likely to stunt GDP, economic growth’

THE WESTERN Cape water crisis has far-reaching consequences for the national gross domestic product (GDP) and is likely to affect South Africa’s overall growth in 2018, according to Old Mutual Investment Group economic strategist Rian le Roux.

In a statement last week, Moody’s Investor Services said the water crisis posed a credit risk to Cape Town’s debt rating, which was at the lowest investment grade, Baa3.

Le Roux said it was important to acknowledge the knock-on effect the Western Cape water crisis was likely to have on the country’s overall growth in 2018.

“The Western Cape accounts for approximately 13% of the national GDP, and a 1% reduction in the Western Cape’s GDP equates to a 0.13% reduction in the national GDP. Therefore, if the rest of the economy grows by 1.5% in 2018 and the Western Cape grows by 0%, the national GDP will be up by only 1.3%.”

According to Le Roux, revenue collected from water usage in Cape Town comprises about 10% of the city’s budget, and, as water usage decreases, so will the city’s revenue.

In addition, the city would have to spend more on emergency services and infrastructure, placing additional financial strain on its funds.

He said although water demand was increasing at a higher rate than population growth, water availability was declining due to competing demands for agriculture and industry as well as deteriorating quality and climate change.

Le Roux said the water crisis was not exclusive to the Western Cape.

“The Eastern Cape is experiencing a severe water crisis too and Gauteng has Level 1 water restrictions in place.

“Rand Water has also recently placed a limit on its water supply in order to stay within permissible limits, having exceeded the allowable licence limit.” – African News Agency (ANA)