Water in Africa - Business turns on the tap

www.ethicalcorp.com

June 19, 2009

Business is stepping in where governments fail to provide clean water in Africa, with Coca-Cola, SABMiller and major platinum miners leading the way.

A world running short of water is presenting a new category of risk to businesses that few have begun to appreciate. That was the warning from campaigner WWF and noted research body the Pacific Institute, at the World Water Forum in Istanbul in late March.

Water experts say leading companies are starting to use water more efficiently in their own operations. But they will need to look deeper into their supply chains and at the performance of water regulators if they are to address the growing challenge of water scarcity.

Water remains so basic a commodity that few businesses realise the extent to which disruptions in supply or increases in price - both predicted with increasing frequency - can affect their operations. "If yours is an efficient business sitting in a poorly managed river basin you are still exposed to extremely high water risk," Stuart Orr, freshwater manager at WWF International, told the water forum.

For businesses operating in Africa, the risk of climate change - which threatens the stability of water supplies - is compounded by the inability or the unwillingness of the public sector to create and sustain the basic water supply infrastructure so critical to a well-functioning society and economy. As a result of this amplified risk, businesses in the developing world are themselves increasingly drawn into providing water supply infrastructure in the public sector's place.

In Africa, the space for companies to do so is created by the state, which although having a duty to extend water services and protect water resources, rarely has a financial incentive to do so. Rural communities and the urban poor usually cannot afford to pay for the extension of water supplies and even where the better-off can pay, local and municipal government often lacks the systems to collect equitably the user fees.

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As a result the provision and extension of basic services, such as water, becomes a political issue, something used by politicians to build or reward a particular constituency. This means that the management of water resources tends not to follow long-term plans but lurches from one scheme to another, with scant regard for ecological or economical sustainability. Rural and poor areas get the worst of it because few skilled people wish to live and work there, leaving maintenance or the rehabilitation of run-down systems to non-governmental organisations and foreign donors.

Therefore companies operating in many African countries cannot simply limit their management of water risk to improving efficiency. Often business needs to get involved in the overall management of a regional resource in order to protect the quality of this water and the company's access to it.

Coke town

As one of the largest private sector operators in Africa, Coca-Cola, is having to step in where the state has failed to provide an adequate water supply.

One place Coca-Cola is doing this is Chimoio, a 25,000-strong town in central Mozambique on the main transport route between Zimbabwe and the port of Beira. Coca-Cola built a bottling plant in the town shortly after the civil war ended, in 1997. But the operation's growth soon ran into problems because of limited water supply. When the company celebrated its 10th anniversary in the area and was recognised as one of the major formal sector employers in this region, the government had still not made any progress in rehabilitating the town's water supply system.

So together with development partners US Aid, the Global Environment and Technology Fund and a local NGO, Coca-Cola took over and rebuilt the dilapidated water treatment works of a former textile factory in Chimoio. When this project is completed later this year, it will be the primary source of safe drinking water for the town and will remove the competition between the bottling plant and community for clean water.

In March, Coca-Cola announced it would invest £30m in projects to provide access to safe drinking water through its Replenish Africa Initiative. Community investment that builds up water infrastructure clearly complements the firm's efforts to make and sell drinks in Africa. It secures a clean water supply for operations, and it can win goodwill with urban consumers.

In Maputo, Mozambique's capital, the 10,000 residents of the Barrio 4 suburb received their first safe, piped water after Coca-Cola partnered with NGOs to build a 10km pipeline connecting the area to the mains. And it's not just Mozambique: Coca-Cola has helped repair or build new water infrastructure in Angola, Ethiopia, Nigeria and Rwanda.

Winning goodwill is not always easy. Companies must take care that their charitable projects that support access to drinking water for remote communities do not become the fig leaf of the very activities that fund them. Communities benefiting from clean water provided by mining companies in remote areas of Zambia or Tanzania, for example, have had their original water supply diverted for use in mining or cash crop agriculture only to then become the beneficiaries of clean water or sanitation projects.

In many cases, communities fear business initiatives to unlock new water resources or to improve the management of the resource for fear of corporate control over water. Governments often side with the activists in blocking projects designed to overcome the bottlenecks created by public sector failure.

Challenges, challenges

This leaves companies such as SABMiller's subsidiary in Mozambique, Cervejas de Moçambique, two challenges: improve production efficiencies and embark on conventional development projects. Like Coca-Cola, SABMiller has funded two projects in Maputo, both with the Mozambique Foundation for Community Development, designed to provide clean water for more than 13,000 people whose needs the government so far has failed to meet.

Growth in instruments such as water footprint studies and industry standards for water use and discharges is encouraging, WWF's Orr says. But he argues that business, often together with civil society, should also become involved in urging better water policy and management overall. Companies such as SABMiller and Coca-Cola are taking tentative steps in this direction, but generally worry about how governments react to this kind of lobbying. And with good reason.

Mining companies are well aware of the challenge of working with governments on complex matters such as water infrastructure. The case of platinum mining in Rustenburg, South Africa, highlights the risks ahead for all companies that are heavy users of water.

The recent boom in platinum mining made Rustenburg the fastest-growing urban area in South Africa and the influx of formal and informal residents gradually stretched the water supply infrastructure beyond what it could deliver. The system can no longer treat the effluent of abattoirs and chicken farms, reducing overall water quality.

In response, South Africa's exasperated platinum miners formed a producers' forum. Its aim was "to address issues of mutual concern - chief among them securing an adequate supply of the right water quality", according to Anglo Platinum sustainable development manager Steve Bullock.

The producers' forum, which includes NGOs and various levels of government, meets quarterly to review the progress of the agreed projects, and began looking at the entire Rustenburg region as a single water supply area.

Increased recycling

The miners helped free up freshwater for domestic purposes by finding ways to treat water partially so that recycling was increased. But in the end it has been accepted that Rustenburg needed another pipeline to import water. Bullock says: "No matter how great the efficiencies are that the companies can achieve, the reality is that the population increase of the past few years forces us to import more water."

The trouble is that Rustenburg, even if it were to partner with neighbouring towns, cannot finance such a pipeline. So it might be up to the platinum miners to provide seed funding for the pipeline. Even if they do, much of the water is likely to be siphoned off illegally by local residents.

Up to a quarter of Rustenburg's drinking water disappears to unmetered users who live in formal and informal housing that was developed without concern for the town's service infrastructure. The town's senior water manager says that what she needs most is thousands of water meters, to give the municipality the capacity to collect the income from that unmetered water usage. But somehow water meters never quite make it into the town budget, probably because they are politically unpopular, since many of the water users have connected themselves illegally to the system.

Mindful of such challenges, an activist investment company, Frater Asset Management, has begun assessing the role of water as a business risk to various mining companies.

Platinum miners Impala Platinum and Lonmin, which also participate in the producers' forum, have had similar experiences with the smaller municipalities in the greater Rustenburg area. Both are now driving particular infrastructure projects. Lonmin, for example, has in the last five years upgraded and expanded all its sewage treatment works.

Having developed regional water use plans in consultation with the municipalities, the forum is approaching national government, less susceptible to such local political agendas, in order to find resources for the meters. "The forum," quips a utility engineer from Impala Platinum, "is the way to get things done."

Public-private tension

Private sector companies will have to tread carefully in these efforts, as the last thing a government official wants is to be shown up. The Rustenburg producers' forum certainly has to put time into consultation, time that to an outsider seems incomprehensible in the face of obvious solutions to glaring problems. Often the most benign response to unsolicited proposals to upgrade water supply infrastructure is that "an upgrade is planned for" or that it "should be done in partnership". Partnerships can range from a passive presence of a municipal structure on a water project steering committee, all the way to active intervention in favour of particular suppliers or political agendas.

Sometimes the issue between companies and government lies in divergent priorities. Foreign multinationals may focus on the communities from which they draw their resources or their labour in a way that government believes disregards its development priorities or clashes with the agendas of local politicians.

Occasionally the response can be more extreme, as Anthony Turton of South Africa's state-owned research organisation, the CSIR, found out. During 2008 Turton raised the alarm about the country's water quality, suggesting in a presentation that if unchecked it could lead to civil strife. Then in November he was suspended for "bringing the CSIR into disrepute".

It is for this reason that companies seeking to address constraints in developing country infrastructure often partner with NGOs to get things done. This is Coca-Cola and SABMiller's preferred way of operating. Partnerships with NGOs not only allow companies to manage the political risk from above but also improve project sustainability through community buy-in.

Building capacity

Since lack of technical or financial resources is usually the main reason for a government's failure to deliver effective water infrastructure, it makes sense for capacity building to form part of any private sector intervention.

Development institutions, such as the Development Bank of Southern Africa, have begun deploying technical staff into troubled municipalities to ensure that they keep their end of the service delivery bargain when they receive loans for infrastructure projects. The platinum producers' forum is considering similar steps for its projects.

The provision of scholarships in water treatment engineering could be another long-term intervention but it remains susceptible to poaching by the very private sector that would have initially built up the public sector capacity.

Few in business would want private sector interventions to improve water infrastructure to replace the role of a properly functioning government. Any such intervention will always run the risk of being seen as a bid for control of a public resource. WWF's Orr argues: "It will be better for business to be seen making a positive contribution to public policy processes over water in a climate of water shortages rather than as a powerful player interested mainly in grabbing or defending its share of water."

But participation in policy processes and advocacy can only do so much. In the end someone will need to muster the resources to manage a project, administer its funds in line with the budget, and ensure its sustainability afterwards.

Running dry

  • 41% of the world's population lives in a river basin under water stress.
  •  By 2025, two-thirds of the world's population could face serious water shortages.
  • Climate change will exacerbate water challenges, leading to droughts, rising sea levels and floods.

Source: WWF 

 
 

WE WERE THE FIRST SOUTH AFRICAN INVESTMENT MANAGER TO SIGN THE UNITED NATIONS PRINCIPLES FOR RESPONSIBLE INVESTMENT

WE ARE COMMITTED TO THE CODE FOR RESPONSIBLE INVESTING IN SOUTH AFRICA