Connecting The Drops: The Link Between Water And Socio-Political Impact

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With South Africa’s worst drought in 90 years severely impacting the country’s economic growth prospects and a looming water crisis threatening to further destabilise the economy, the link between water and socio-political impact is becoming increasingly evident. This is especially apparent now as we face a challenging combination of a wheat supply crisis combined with a weak rand. Further, in such an interconnected world, it is clear that the consequences of seemingly isolated events have cascaded across countries and continents, shaping history before our eyes, rippling across the globe, including to South Africa.

Russian and Chinese drought, global wheat prices, security risks in the sub-Saharan African region, and the 2015 terror attacks in Paris may appear to be unrelated, but they are far more connected than you might initially think.

The common thread is the weather. First came persistently low rainfall in the Eastern Mediterranean region, starting as early as 2006, followed by a series of hydrometeorological (to do with the transfer of water between land and atmosphere) events in the 2010–2011 Northern Hemisphere winter.

In 2010, Russia and Ukraine suffered from excessive heat waves, fires and serious drought, causing wheat production in these countries to drop by 33 percent and 17 percent, respectively. On the other side of the Atlantic, cold and rainy weather in Canada resulted in a 14% drop in harvest; similarly, Down Under, excessive rain in Australia diminished production by 9%.

The cumulative result was reduced global wheat supply and major price increases. At the same time, China – the largest wheat producer and consumer in the world – experienced drought in its main wheat-growing eastern region. And, although production wasn’t as hard hit as feared by the Chinese government initially, China’s long history of deep and crippling famines, has made the ruling party hypersensitive to the risk of crop failure. This led the Chinese government to purchase wheat on the international market to compensate for potential losses.

What happened next exemplifies how a regional climate event can have both a regional and a global impact: a potential wheat crop failure contributed to a series of local government actions that influenced economic and political conditions in other parts of the world.

The grain of truth

As only a fraction (6% to 18%) of annual global wheat production is traded across borders, any decrease in world supply contributes to a sharp rise in wheat prices. This has a serious economic impact on wheat-importing nations such as Egypt, the largest wheat importer in the world. Egypt spends 3% of its GDP on wheat subsidies. Higher wheat prices affected the cost and availability of bread in Egypt, which in turn influenced citizen unrest, thus indirectly leading to its regime change.

The Arab Spring dawned with the Tunisian bread riots of December 2010, and unrest spread rapidly across the Arab world, with the Syrian civil war flaring following the 2011 siege in Daraa. At that time, up to 60% of Syria’s land was in the grip of one of the worst long-term droughts in modern history, and had been since 2006.

This drought, combined with the mismanagement of natural resources by then-President Assad, led to significant devastation, displacing 1.5 million people. This triggered civil war, which subsequently resulted in the rise of the militant group, Islamic State of Iraq and al-Sham (ISIS), and, eventually, in terror attacks as far afield as Kenya, Nigeria, Beirut and Paris.

These chains of events and reactions highlight how government effectiveness – or lack thereof – by different countries resulted in various outcomes and reflects how, in today’s interconnected world, natural hazards can influence economic (price), political (government stability), and human systems (food supply) on an international scale.

The truth remains that food prices have major socio-political impacts and that agriculture continues to be the economic backbone for the majority of people in conflict and post-conflict situations.

The local impacts

With the current El Niño effect impacting the agricultural industry in SA, certain areas of the country have been declared disaster areas as crop failure, livestock mortality and unemployment mount. Against this backdrop, long-term topics such as water infrastructure, food security and global warming are themes that have come strongly to the fore.

The outlook is indeed bleak, but, as Churchill famously said: “One should never waste a good crisis” As these types of events in fact pose a good opportunity to address lingering challenges and provide genuine long-term solutions for issues that affect the whole of society, including investors.

SA’s infrastructure challenge

It is evident that water is an increasingly scarce resource and that our water infrastructure needs urgent refurbishing, which, in turn, requires significant amounts of investment – to the tune of over R600 billion.

Waste-water treatment plants have run into disrepair due to historical underinvestment, resulting in large amounts of effluent polluting our waterways. Recent studies have indicated that it is not so much a lack of water, but rather the actual pollution of the limited amount of water we do have that is exacerbating SA’s water crisis. To illustrate the issue, one can say that it only takes one teaspoon of effluent to turn a 1 000 litres of ice cream into a 1 000 litres of effluent.

Good returns and social benefits through problem solving

By investing in efficient water usage the private sector can invest in the financial and physical health of our country, its political stability and its food security.

For agricultural funds, water literally means money, as the main asset in many of these investments is access and rights to water from permanent water sources. For this reason, investments made by agricultural funds involve significant capital outlays to finance dams and irrigation systems. Drip irrigation and new-tech spray installations are examples of measures one can take to use water more efficiently.

This is a good example of converting the crisis into an opportunity for investors, while creating employment for local communities, and making a contribution to a mixed-source energy supply. Further innovation opportunities exist in the area of ecological infrastructure investments, which involves investing in naturally functioning ecosystems that deliver valuable services to communities. Although in its infancy, much co-operative work is being done by key stakeholders in South Africa to map out viable approaches to making institutional-grade investments into our key catchment areas.

As a result of the water challenges facing our country, and given the consequences of the global repercussions we have seen regarding the link between water shortage and food prices, we would like to see more institutional clients embracing these challenges and their corresponding investment solutions, and jointly we can turn these crises into genuine investments that change people’s lives and positively impact the country as a whole.