BY ANTONY CURRIE

Cape Town’s water crisis presents an opportunity, and a potential lesson for other arid areas around the world. As the United Nations’ 26th World Water Day approaches on Friday, the South African city’s taps are now unlikely to run dry this year. But the root causes of the problem persist. Creating water markets can bypass some of these, and help limit the social and economic pain that scarcity causes.

In February the capital city of South Africa’s Western Cape was just two months away from Day Zero, when residents would have to line up at government stations for a meager daily ration of water. The end of the province’s farming season and severe municipal restrictions on use – Capetonians get just 50 liters a day, a sixth as much as the average American uses – have averted that scenario for now.

Yet dams stand closer to empty than last year, so only a very wet winter or new supplies — or both — will do the trick next year.

Political dams

Cape Town ought not to be in such a state. The growing risk of water shortages has been clear for decades. Demand has been rising, not least because the city’s population has grown by 76 percent to some 4 million since 1990, and may add another 2 million by 2030. On top of that, rainfall is declining thanks to climate change.

South Africa has been addressing these trends. Pretoria passed laws to help prepare for water scarcity just before the millennium. It also proposed detailed recommendations for Cape Town a decade ago.

Businesses have stepped up too, according to a survey late last year by nonprofit investor lobby group CDP. Some 90 percent of respondents have completed a company-wide water assessment, integrate water management into overall strategy and have board members fully engaged.

But several years of plentiful rains lulled government planners into a false sense of security. They postponed a number of measures in a 2007 plan for Cape Town, such as tapping groundwater and building desalination plants. That left them unprepared for three of the driest years since records began almost a century ago.

Short-term decisions aren’t the only problem, though. Poor governance plays a large role. The best way to manage the resource is at the watershed level, ignoring political boundaries. South Africa does the opposite. Pretoria determines how water is allocated. It decided in 2016 to keep giving 40 percent of the Western Cape’s water to agriculture, and was slow to declare a drought emergency and release financial aid.

Cape Town, by contrast, has little or no jurisdiction over most potential solutions so is mostly a demand manager. City officials have made some progress: municipal pipes now lose just 15 percent of water to leaks, compared with a national average of 36 percent in 2016, according to the Department of Water and Sanitation.

Poor governance also impedes some obvious solutions from being adopted. Much of the Western Cape’s watershed, for example, is covered with non-native plants, like eucalyptus trees, that soak up some 38 billion liters more water than local foliage — enough to cover almost three months’ supply for Cape Town at current emergency usage rates. If allowed to spread, these invasive flora could siphon off as much as 130 billion liters, according to the Nature Conservancy, a global nonprofit.

Restoring the native shrubbery would take a year or two, but would be far quicker and cheaper than building major dams, water reuse facilities and desalination plants.

Contingent liability

Left unchecked, poor water governance will hinder investment and growth. Emergency measures forcing farmers to cut water use cost over 30,000 jobs last year. Foreign trade accounts for around a third of the Western Cape’s gross regional product, with water-intensive goods like food and wine contributing more than half of that. Lack of water could impact another major industry, tourism. And any pain is not limited to the immediate area: the Western Cape provides around a tenth of South Africa’s GDP.

It’s little wonder that authorities are scrambling to tap aquifers and build desalination plants to source new supplies. Acting smart is as important as acting fast, however: these engineering solutions come with their own risks. Overpumping aquifers, for example, can damage water quality, cause the ground to sink — or both — and render the supply unusable.

The market solution

Two key features of water markets could bring about big changes. First, major users — such as water authorities, agriculture and even other industries — would have the option to buy and sell water according to their needs. Setting a tradable price on a dwindling resource would help clarify its value to each constituent, and force decisions on how, and whether, to use it. They are already in operation, often in small scale, in parts of Australia, Latin American and parts of the western United States.

Water markets could unleash a virtuous cycle. Farmers might decide that it’s better to forgo planting certain crops some years and sell their water to another user. Or they may feel incentivized to upgrade irrigation technology so they use less water each year.

Tech has already helped farmers in the Western Cape cut water use by 10 percent in recent years, and could increase those savings to 40 percent – separate from any government-imposed restrictions. That could boost supply for residents and businesses by up to a fifth. If farmers could use recycled water for 70 percent of their needs, as happens in Israel, they’d save even more. Manufacturing and other industries can make similar calculations.

In areas like Cape Town, water utilities are likely to end up being the main buyers. That raises a major concern: won’t residents have to stump up more for their supplies?

The answer is a qualified no. The price for basic daily needs for drinking, washing and sanitation ought not to change much – unless it is heavily subsidized, which can encourage waste. Otherwise, only non-essential water uses ought to carry a higher tariff – and significantly so. Outdoor residential water consumption like tending gardens and filling swimming pools can soak up a huge amount. It accounted for more than half of Californians’ average use earlier this decade, according to the Pacific Institute.

Integrated watershed-level leadership is the ideal scenario for the Western Cape – and many other regions. The best way to achieve that is to call everyone to account. Setting a tradable price for water is a smart way for businesses and municipalities alike to manage what they’ve got.

First published March 19, 2018

IMAGE: REUTERS/Mike Hutchings