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The Asset Class: Tshipiri Meudi · Strictly Business

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  I think it was a few decades ago a book was written about water and I think the
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  whole subject of the book was the next world war would be
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  fought over water.
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  Well I don't know about that but certainly there seems to be a growing global water
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  crisis and certainly
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  South Africa is part of that crisis.
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  Let's find out why and what can be done about it with Chapiri Mwedi.
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  Managing Director, SA Infrastructure at 91 in Cape Town.
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  Is it bad in South Africa, Chapiri?
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  Well, it's very serious.
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  It's extremely serious and the issues are very much systematic.
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  So I think most people would know that South Africa is already a very
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  water-stressed country.
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  In fact, in a recent webinar,
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  the DG of the Water and Sanitation Department indicated that
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  The water supply is currently imbalanced with existing demands on a national scale.
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  However, beyond that, the real issue that we have is how efficient is the system,
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  the system has become,
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  with nearly half of all the treated water being lost through non-revenue water, that
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  is through leaks,
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  through theft, through poor billing and also some metering issues.
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  So access is also uneven, particularly when you compare you
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  the urban areas to the rural areas as well as the township.
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  So the challenge is that it isn't just about having enough water.
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  It's about whether that infrastructure is getting the water reliably to the people
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  and to the industries
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  where it's needed.
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  I've got a person that I interview a couple of times a week, Chipiri, and he's
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  very well known.
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  I won't tell you who it is, but he lives in the northern suburbs of Johannesburg,
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  and very regularly he said, Says Lindsay,
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  I didn't have water for four to five hours this morning.
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  I look out my window and there's water pouring out of a water main and running
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  down the street.
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  And I think of him and I think of his privileged position.
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  And then I think of the rural areas.
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  And it seems to me that it's across the country.
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  And you've sort of confirmed that in your commentary just now.
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  No, it is indeed across the country.
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  And I think one of the challenges in the rural areas, for example, where in the
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  village where I grew up, where I come from,
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  in terms of, you know, the government statistics, they will say there's existing
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  pipelines, piped water coming to the houses.
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  But the reality is that no water has been flowing in those pipes for probably
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  decades.
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  So I think.
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  The measure itself as well can be a bit misleading to who has access to water and
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  who doesn't have access
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  to water.
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  You know, it's being elevated to a national conversation because this problem
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  is suddenly now flowing to the urban
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  areas, as you are indicating with your friend who's always complaining from
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  Johannesburg that they don't have water.
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  The rural areas have been living like this all their lives.
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  Yeah, so that's a sobering sentence you've just given me.
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  And when I think of a water crisis in South Africa, I think of two things.
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  I think, well, maybe it's climate change and the weather patterns are changing.
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  So some areas are getting water that don't need them and some areas that do don't,
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  etc.
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  And also, I think of the mismanagement of the water infrastructure, not just by the
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  current administration,
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  but also previous administrations that have just neglected it.
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  Is there a case to be made for both of those arguments, Chapiri?
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  No, there's definitely a case to be made for both arguments.
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  I don't think anyone can deny the impact of climate change.
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  I think one of the biggest examples of that was Day Zero in Cape Town a few years
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  ago.
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  The Western and Eastern Cape towards the Garden Route have been experiencing severe
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  droughts,
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  whereas the other areas in the north are having flooding.
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  So recently, if you look at the Limpopo Basin, look at the places like
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  Venda, like Giani.
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  You look at the Kruger National Park and some parts of Mpumalanga,
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  they've had way so much rain that there was flooding.
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  It was a crisis course, didn't open on time.
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  So climate change, we cannot refuse that it's here.
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  It is here.
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  If you look at Deben over the last five years, they've made a lot of instances of
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  flooding,
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  which also continues to damage, you know, the already, you know, challenged
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  infrastructure.
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  of water that we have in the country.
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  So there is a case of climate change that is impacting the water sector.
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  However, on the other hand, there's also an issue,
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  a case for poor management of that same infrastructure.
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  Some of the water infrastructure that we have in the country is as old as from the
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  1970s and without any...
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  refurbishment and rehabilitation.
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  And if that is mixed with municipalities that are not allocating sufficient funding
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  to the
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  maintenance of already that very old infrastructure,
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  then things start to fall apart in some areas.
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  So I think, you know, both cases are affecting South Africa.
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  But I think You know, in most of the areas, especially inland,
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  it's mostly the impact of the municipalities not doing what they're
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  supposed to do with their water infrastructure and
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  delivering water to the people.
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  Of course, you've touched on anyway the social impact of water that is just simply
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  not getting
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  to people that need it.
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  And that's been a case for decades now.
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  But also we've got to think about investors.
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  And again, when I think of a water shortage, I think of an industry.
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  that uses a lot of water.
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  It might be a mining industry, it might be a chemical industry, I don't know.
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  But what does it matter that there's a water crisis looming in South Africa for
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  investors?
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  I think it matters because, you know, water is one of the co-enabling
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  infrastructure in the country.
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  Without water, you know, they always say water is life.
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  So without water.
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  Not much can happen, whether it's your mines, whether it's your industries,
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  whether it's us as people,
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  we cannot really live without water.
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  So I think, you know, what we are seeing in the sector,
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  especially post the 2026 State of the Nation address,
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  as well as the budget in February,
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  what we saw was water being elevated to the national.
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  discussion similar to what they had done with the energy sectors when we had a lot
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  of you know load
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  shedding.
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  So now I think with the establishment of the National Water Crisis Committee a
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  number of reforms going into that
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  sector like the establishment of the National Resource Implementation, Water
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  Resource Implementation Agency,
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  Water Partnership it's starting to become a national agenda point that this issue is
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  a
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  crisis.
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  However, with that, the flip coin to the investor is that it creates opportunities.
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  This is how also in energy you saw that once, you know,
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  those discussions came at a national level and, you know,
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  the politicians started to think about the structural reforms of that sector, the
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  investment followed.
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  So for the investors, there's a big opportunity that we see coming through.
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  These reforms that are going on in the water sector and those investments are not
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  only in the raw and bulk
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  transfer infrastructure,
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  we see a lot of possibilities in terms of the downstream value chain of the water
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  sector,
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  in the water treatment works, in the reticulation infrastructure around the
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  municipalities,
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  in non-revenue water initiatives and other initiatives that will require funding.
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  to be delivered through investment into infrastructure.
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  There's so many problems, but what I'd like you to do, if you would,
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  is identify the biggest problems and then move from sort of pessimism to optimism by
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  looking at the
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  opportunities in the system, if you would, Shapiri.
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  Thanks for that question.
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  So for me, one of the, maybe the two or three biggest issues, I think,
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  you know, the raw water.
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  And the bulk transfer infrastructure,
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  they're in a way already bankable with organizations like the TCTA
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  driving investment in that sector.
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  Where the opportunity lies is where the municipality is responsible.
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  So the water treatment works, the waste treatment works, the non-revenue water,
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  the rehabilitation of those pipes.
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  That's where the opportunities lie.
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  I mean, if you look at the reports by the Department of Water and Sanitation,
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  it's estimated that about 47%
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  of the potable water produced in this country is lost through non-revenue water.
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  So we see a lot of projects and pilots being developed specifically to
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  address those kind of issues.
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  Because if you don't need to, it's much more expensive to implement.
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  large raw water dams, raw water projects,
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  than to fix what you already have in the municipalities and make sure that you just
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  cut down on those losses.
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  Even if it's a 10% reduction, it's still
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  10% more water the municipalities can sell to the people.
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  There is also an opportunity with regards to the way...
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  The Department and National Treasury are thinking about restructuring,
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  starting from the metros in the way water entities within municipalities operate.
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  There's an initiative that was launched this year where there's a grant that
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  National Treasury has
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  created to incentivize municipalities to start to re-influence that water they
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  collect
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  from the revenue they collect for water and sanitation.
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  in that way.
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  It means that, you know, it will be easier to implement projects as the lenders and
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  investors can see the flow
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  of revenue into that
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  sector and how it can be utilized to repay any investment that will be made into that
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  sector.
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  So there's a lot of opportunities coming from municipal side, but I think maybe it
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  will take time because reforms,
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  you know, they are announced to this year.
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  They will still take a bit of time before it becomes the norm, it becomes the way
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  South African does things in the sector.
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  When you put all this together, Jipiri, I personally think to myself, this is a risk
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  story.
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  I mean, I sort of lean towards pessimism, so I think this is a risk story for the
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  country at the macroeconomic level, government level,
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  right down to the socioeconomic level.
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  But on the other hand, you've also brought in an opportunity factor here.
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  And there's an investment opportunity.
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  Is it a tale of two stories there, risk and opportunity?
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  Definitely.
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  I mean, you know, any infrastructure projects,
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  any infrastructure development inherently has a risk that it comes with.
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  And I think the water sector, what I've spoken to, obviously, it's, you know,
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  it's the structural risk in terms of the way municipalities operate or are managing
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  the system.
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  So for me, you know, when you consider the reforms that are coming through,
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  it's slowly turning that risk into opportunity for a lot of investors.
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  And I think, you know, it's something that 91 is keenly following and keenly, you
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  know,
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  anticipating that it will start to see a number of projects coming through from the
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  market
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  given as a result of those.
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  reforms instead of the usual
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  TCT, air and water type of investment that were being done in the country.
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  So I think it's beginning to become exciting in that, you know,
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  investors in the private sector will start to play a bigger and bigger role into
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  investing in this really
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  challenged sector in the country.
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  I don't think it's perfect.
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  I don't think any sector where you've got government and it's not entirely...
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  It's not entirely private will be perfect,
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  but I think those risks can be mitigated to an extent where investors can start to
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  play a role.
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  Sounds as though we need to do another podcast quite soon, Jipiri.
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  Thank you very much for your time.
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  Interesting subject.
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  That was Jipiri Mwedi, Managing Director, SA Infrastructure at 91 in Cape Town.
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  The views and opinions expressed in these podcasts are those of Lindsay Williams and
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  various contributors and do not reflect the policy,
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  position, or opinion of any other agency, organization, employer,
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  or company associated with Strictly Business Podcast.com.
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  Assumptions made on the analyses are not reflective of the position of any other
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  entity other than the speaker or the author.
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  And since we are critically thinking human beings, these views are always subject to
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  change, revision,
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  and rethinking at any time.
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  Please do not hold us to them in perpetuity.