Johannesburg - Businesses need to take heed of the fallout effect the drought will have on them as the impact spreads beyond the agricultural sector.
South Africa is in the midst of the worst drought in 23 years and, while rain is predicted soon in some parts of the country, farmers are having to cull 36 percent more cattle than expected, and SA will have to import maize - which will push the price of food up.
Some farmers in the Free State have already indicated they are ruined, and others have called on the government for financial aid. Parts of SA have been declared emergency areas.
In addition, the City of Joburg has implemented water restrictions, and on Sunday, the Ekurhuleni metro also announced restrictions, including a ban on filling swimming pools and using hosepipes or sprinklers to water gardens.
George Davis, head of Construction and Engineering at Risk Benefit Solutions (RBS), says drought conditions have many devastating effects on communities and the surrounding environment.
While these are first realised within the agricultural sector, the ripple effect into other sectors and consumers’ personal lives is quickly felt.
“Businesses – across all sectors – need to start realising the potential devastation and associated costs that can arise from the current drought conditions, and should be implementing risk management strategies accordingly.”
Davis notes, while the agriculture sector has already been severely impacted by the drought, many sectors, such as energy and manufacturing, also require water for their processes.
“The water restrictions are put in place to preserve water for the long term. While it may seem an inconvenience for consumers, communities need to ration water consumption in order for the reservoirs and streams to be replenished. This is vital to ensure that the needs of utility companies and industries that require water to operate are met, as well as the wellbeing of the local ecosystem as a whole.
“During times of drought, water may become polluted due to the lack of rain water to dilute industrial and agricultural chemicals. This toxic water can be harmful to plants and animals that use it, as well as make it difficult to purify for human consumption.”
Davies notes a prolonged drought could also reduce electricity generation. “Most power generation processes depend on the use of water for hydropower or coal-burning and nuclear plants. Therefore if water use is restricted, power plants may need to be shut down. This challenge is escalated when the drought is accompanied with high temperatures, driving an increased demand for temperature controlled environments.”
Davies says, because the dry conditions are expected to persist into March, it is increasingly clear that businesses need to be making provision for water shortages within their risk management strategy.
“If a business’ industry is heavily reliant on water to manufacture or produce certain products, the lack of water will have a direct impact on the business’ balance sheet.
He stresses businesses need to know that such an occurrence is not an insurable event. “Insurance sometimes provides a false sense of security for businesses, but owners should not be relying on their policies to cover losses associated with water interruptions.
“Most insurance policies for industry will contain specific exclusions such as ‘the deliberate withholding by the supply authority of water, electricity, gas, fuel, steam or refrigerant’. Insurance will therefore only respond to an unexpected, unforeseen or sudden event.”
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