South Africa offers lucrative water treatment market

According to the firm’s findings, seven million South Africans do not have access to safe water, and 20% of the population lacks adequate sanitation facilities.

The South African government reached a milestone last October when it announced it had provided access to safe water to another seven million citizens, Frost and Sullivan said. But the marketing group also said the country might have trouble sustaining water and wastewater services because of increasing pollution and decaying infrastructure.

Water resource management in South Africa is organized on three levels: policy formulation by the Central Government; water treatment and sanitation by provincial governments or water boards; and distribution and revenue collection by local governments.

The Water Services Act, ratified in 1997, and the National Water Bill, enacted in 1998, serve as the cornerstone for the expansion and development of water supply and sanitation services, with an aim of covering the entire population by 2007. This also paved the way for private sector participation (PSP) in an industry that had been fully under the public domain, said Frost and Sullivan.

Concession contracts have been the most favoured PSP route in South Africa. While the public sector retains the asset ownership, the private participant is responsible for operation, maintenance, and investment enhancement. Not surprisingly, Frost and Sullivan said, the major European water companies have established a clear lead here.

While the function of these initial privatisation agreements will be keenly watched before they are emulated by other municipalities or water utilities, there are several underlying issues that could well determine their success and viability, Frost & Sullivan predicted.

For example, there is stiff resistance from various sections of the society, including trade unions and nongovernmental organizations, to private sector involvement in water service that is deemed as a public good, according to the research.

Irrational increases in water charges could well become a politically sensitive issue, leading to non-payment of water tariffs or difficulties in collecting them. According to Frost and Sullivan, there is a need for these private operators to balance between the social responsibility of the government and commercial expectations of its shareholders.

Private operators have the added responsibility of educating domestic consumers regarding water conservation and perhaps reuse, since there are widespread concerns regarding excessive wastage, mainly due to its current low cost, Frost and Sullivan reported.

As the government moves toward privatising water services in the rural areas, private operators will face the reality of poor infrastructure. These improvements would need huge investments, but the returns may not be very attractive. Frost and Sullivan said the government agencies and private players should bundle the urban and rural services to make them viable.

Apart from other internal opportunities, establishing a base in South Africa would also act as a gateway for exploring the market potential in other southern African countries, where the demand for water and wastewater services far outstrips the supply.

Despite the economic and political hurdles, those companies that are willing to formulate long-term strategies are likely to succeed in this evolving market place, Frost & Sullivan said.