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CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited

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Diagnostic Report

Presentation to the Portfolio Committee on Water and Environmental Affairs

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The President’s mandate to the Commission

The mandate of the commission is to take a broad, cross-cutting, independent and critical view of South Africa, to help define the South Africa we seek to achieve in 20 years time and to map out a path to achieve those objectives. The commission is expected to put forward solid research, sound evidence and clear recommendations for government.

The commission will also work with broader society to draw on the best expertise, consult the relevant stakeholders and help to shape a consensus

on what to do about the key challenges facing us. Government has often taken a sectoral and short-term view that has hampered development. Taking a long-term and independent view will add impetus, focus and coherence to our work.

The establishment of the National Planning Commission is our promise to the people of South Africa that we are building a state that will grow the economy, reduce poverty and improve the quality of life of our citizens

At the inaugural meeting of the NPC on 11 May 2010, President Zuma stated

“

”

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The Purpose of the NPCu

Is to develop the country’s long term vision and national

strategic plan.

u Draft a vision statement for 2030.

u Produce a development plan for how this vision can be

achieved.

u Present reports on issues affecting long-term development

on the issues it is mandated to address.

u Be objective and, where necessary, critical. Given its

advisory role, the commission needs to convince the country and Cabinet of its arguments through evidence, well-considered proposals, and ideas that are tested with the public and experts.

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DraftAreas of focus the NPC has been mandated to focus on

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Cross-Cutting Issues that affect Development:

▪ Long-term macro social and demographic trends▪ Long-term availability of water▪ Energy consumption and production▪ Conservation, biodiversity and climate change mitigation and

adaptation▪ Local economic development and spatial settlements trends▪ Food security and sustainable rural development▪ Innovation, technology and equitable economic growth▪ Public transport: medium and long term choices▪ Poverty, inequality and the challenge of social cohesion▪ National health profile and developmental health care strategies▪ Advancing human resources for national development.

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DraftWho are the Commissioners?

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Commissioner Areas of Expertise

Mr Bobby Godsell Business, Mining, Energy

Mr Elias Masilela Policy Analysis, Finance, Business

Ms Noluthando Gosa Property Industry

Dr Jennifer Molwantwa Hydrology, Water Management

Mr Mike Muller Civil Engineering, Water Management,

Dr Miriam Altman Economy, Poverty, Employment and Growth,

Prof Christopher Malikane Economics (Macro, Monetary, Financial, Development)

Prof Marcus Balintulo Education, Sociology

Ms Vuyokazi Mahlati Social Policy, Rural Economics, Women Issues

Prof Malegapuru Makgoba Medical Research, Engineering and Technology

Mr Joel Netshitenzhe Policy, Communication, Research

Prof Anton Eberhard Infrastructure, Energy, Policy

Ms B Gasa Infrastructure Planning & Development, Agriculture

Mr Trueman Goba Engineering, Entrepreneurship

Mr Phillip Harrison Spatial & Development Planning, Urban Management

Prof Ihron Rensburg Education, Broadcasting

Prof Jerry Coovadia Health

Prof Karl van Holdt Health, Labour

Prof Mohammed Karaan Agri Sciences, Rural Development, Aquaculture, Land

Ms Tasneem Essop Climate Change, Environment

Mr Pascal Moloi Public Sector Management, Institutional Design

Dr Vincent Maphai Transformation, Business

The Commissioners represent the wealth of our country’s knowledge and have expertise in various areas:

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DraftNPC’s Deliverables and Work Plan

6

u Diagnostic Report published.

u Consultation Process underway with various sectors of

society.

u Parliament consulted, now talking to various portfolio

committees.

u Government departments in process of being consulted.

u Provincial government structures being consulted.

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DraftInitial elements of a Vision

7

1. Democratic state, rooted in the Constitution, working with all sectors of society to improve quality of life

2. People united in diversity, recognising our common interests; greater equality of women

3. High-quality education and health care; adequate housing, water, sanitation, energy and transport, give impetus to human development

4. Comprehensive social security covers all citizens in need 5. Natural wealth harnessed sustainably, protecting our environment, using

science and modern technology to ensure a growing economy that benefits all

6. People able to work have access to jobs, workers’ rights protected and workforce is skilled

7. Business afforded an environment to invest and profit while promoting the common interests of the nation, including decent work

8. Efficient state protects citizens, provides quality services and infrastructure, and gives leadership to national development

9. Individuals and communities embrace mutual respect and human solidarity10.Government, business and civil society work to build a better Africa and a

better world

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South Africa has undergone a political miracle over the last 2 decades

19 90

9 3

9 4

9 5

9 6

9 8

9 9

20 00

0 9

1 0

20 11

Abolition of Apartheid

Tod ay

Interim constituti

on

Free electio ns

New con- stitutio n

Employ- ment Equity Act

Free electio ns

0 6

Free elections

Non-permanent member of UN Security Council

FIFA Worl d cup

Free election s

Abolition of the legal apparatus of apartheid▪

Ban on anti-

apartheid groups lifted

▪ Racial segregation laws abolished

▪ Freedom of press

▪ Death penalty abolished

International economic sanctions progressively lifted

Universal suffrage, free 1 person – 1 vote elections

Nelson Mandela is elected first black president

Reincorporation of homelands

Truth and Reconcilia- tion Commissio n

Chaired by Desmond Tutu

Rugby World Cup

Accession to the WTO

Internatio nal AIDS Conferenc e in Durban

0 4

0 2

National anti-retroviral rollout plan

0 3

0 7

Investmen t in Standard Bank by China’s ICBC

9 2

SA brokers Burundi peace treaty

CODESA

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The Key Challenges South Africa Faces

Reducing inequality

Eliminating poverty

Too few South Africans are employed

Poor educational outcomes

Crumbling infrastructur

e

Resource intensive economy

CorruptionSpatial

patterns marginalise

the poor

Public service

performance is

uneven

Divided communities

High disease burden

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5

Persistent unemployment is being driven by several factors1

▪ Growth in the labour force has outstripped employment creation

▪ Many of these workers also lack skills in line with the needs of a modernising economy

▪ Almost 60% of all unemployed have never worked

▪ Poverty and inequality are largely driven by high unemployment

▪ The proportion of people below the poverty line has dropped from 53% in 1995 to 48% in 2008, but is still very high

▪ Share of income for the poorest 40% has remained stable since 1994 – but now comes from social grants, rather than income and remittances

SA unemployed population by age group

Thousand people

608

47-65 years

9/ 1 9/ 1 1

9 / 1 9 / 1 1

31-46 years

9/1 9/1 1

15-30 years

9/1 9/1 1

9/1 9/1 1

Have never worked

before

SOURCE: Stats SA; Labour Force Survey; press search

Too few South Africans work

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N

Gross Enrolment Ratio (GER)1 – 2007Percent

Gender Parity Index2 (GPI) – 2007Females/Males

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

9/ 19 /1

1

Female participationAccess to education

Education has undergone several broad reforms2

▪ Access to education is now nearly universal– Steady

increase in basic literacy rates

– Much better equity in school funding

– 80% of learners aged five are enrolled in grade R

▪ Most poor children receive school meals

1 GER is defined as number of learners, regardless of age, enrolled in a specific school phase as a percentage of the total appropriate school-age population2 PI is defined as GER for females divided by GER for males, e.g., GPI>1 indicates there are more females than males in the school system

SOURCE: Education Statistics in South Africa 2007 (published in January 2009); Education at a Glance –

OECD Indicators 2009

10410210095

90898786

8094103

911259/19/11

9/19/119/19/119/19/119/19/119/19/119/19/119/19/119/19/1

1

9/ 19 /1

1

9/19/119/19/119/19/1

1

Access to education and female participation are at or near universal levels

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Quality of education for poor black South Africans’ is substandard

There are huge variations in South African education outcomes depending on school type

Distribution of high schools by performance in Senior Certificate for Mathematics; 2004

2

Only 1 percent of African schools are top performing on high school certificate results, vs. 31 percent for formerly privileged schools

21

1231

9/1 9/1 1

Poor performing

Moderately performing

Top performing2

Oth er1

4 933

9 / 1 9 / 1 1

Afric an

9/1 9/1 1

9 / 1 9 / 1 1

9 /

1 9 /

1 1

1 These were schools that were formerly reserved for whites, coloureds or indians under the previous apartheid regime2 Top performing schools produce at least 30 maths passes in the

examinations, with at least 20% at the higher grade; moderately

performing

schools produce at least 30 maths passes, mostly at standard grade; poor performing schools fail to achieve 30 passes in math

SOURCE: Simkins (2005)

Apart from a small minority of schools, the quality of public education remains poor

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5

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2

4

6

8

10

12

14

16

18

20

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

G D P %

3

Gross fixed capital formation by the public sector as % GDP

Net capital formation as % GDP

Development is being held back by too little investment in new

infrastructure, and a failure to maintain existing infrastructure

We have under-invested in infrastructure for over a generation

Poorly located and inadequate infrastructure limits social inclusion and faster economic growth

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4

Settlement patterns and lack of infrastructure

Major challenges

▪The poorest live either in former homelands or in cities far from where the jobs are

▪ We fail to coordinate delivery of household infrastructure between provinces, municipalities and national government

▪ We can either move people to where the jobs are or move the jobs to where the people are

▪ We are far from major markets, meaning that our logistics system has to be even more efficient

Reversing the effects of spatial apartheid will be a central challenge in the decades ahead

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8

0

5

10

15

20

9/19/11CO2 tons per capita, 2007

9/19/11 (kg CO2 per USD GDP,

2007)

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 / 1 9 / 1 1

9 /

1 9 /

1 1

9/19/1 1

9/19/11

9/ 19 /1 1

9/19/11

9/19/ 11

9/19/ 11

9/19/ 11

9/19/119/19

/11

9/ 19 /1

1

9/ 1

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19/19/11

9 /

1 9 /

1 1

9/19/ 11

9/1 9/1 1

9/19/11

9/1 9/1 19/1

9/1 1

9/19/1 1

9/19/ 11

5A resource-intensive development path is unsustainable

Highest CO2 intensity Intermediate CO2 intensity Lower CO2 intensity

Bubble size represents 2007 emissions

▪ SA’s economy is highly resource intensive and we use resources inefficiently▪ As a result we are starting to face some critical resource constraints (e.g. water)▪ We need to become less resource intensive –

but we also need to balance this against

job creation, economic growth and energy and food security

SA’s society and economy need a more sustainable growth path

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6Ailing health system confronts a massive disease burden

Infant mortality rates are high and deteriorating

Life expectancy has deteriorated since 1995

TB prevalenceIncidence of TB per 100 000 per population

HIV/Aids prevalence% of population aged 15-49 infected with HIV

Number of child deaths under 5-yrs old per 1,000 births

HIV/AIDS rate is significantly higher in SA than most places in the world, and worsening

Reported TB rates are increasing (which may be linked to improved screening)

Life expectancyAverage in years

15.6 18.6 18.8

6.10.5

2 0 0 7

2 0 0 5

2 0 0 2

Ma lay -

sia

Ke ny a

59 63 69

121

12

M ala

y-

sia

Ke ny a

2 0 0 6

2 0 0 0

1 9 9 5

309 406780

940

385103

Mal ay- 9/1 9/1 1

sia

Ken ya

9/1 9/1 1

200 6

2 0 0 6

2 0 0 2

1 9 9 8

1 9 9 4

5849 47 51 53

74

Mal ay- 9/1 9/1 1

Ke ny a

2 0 0 6

2 0 0 2

1 9 9 9

1 9 9 5

On a number of health indicators, South Africa’s performance has actually deteriorated

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▪ SA faces a large and growing burden of disease

▪ At the same time our public health system is collapsing, partly due to policy mistakes

▪ The biggest concern is a massive shortage of skilled staff – whatever else we do (e.g., NHI) will be ineffective if we don’t address this crisis

▪ Private healthcare is not a solution, as in South Africa it has proved inefficient and costly

▪ Longer term health challenges relate to nutrition, lifestyle, traffic safety and violent crime

Given severe public health challenges, SA’s health system is in trouble

6

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SA public service needs to get better at consistent long term thinking and implementation

Capacity/skills deficit

▪ The public service faces a severe shortage of staff and specialised skills – esp. in health, policing, infrastructure planning, engineering, finance and information technology

▪ This adversely impact not only front line service delivery, but also long term planning and coordination

7

Policy instability

▪ Visible examples of poor delivery create the temptation to look for ‘quick fixes’

▪ Too many reforms are destabilising, and do not address underlying causes

▪ Having too many initiatives soaks up public service capacity, and can lead to transformation fatigue

3 major factors drive uneven performance on service deliveryOrganisational instability

▪ Newly appointed ministers often replace their administrative department heads

▪ This leads to tension and conflict, and creates scope for undue political interference

▪ Changes of leadership are often also accompanied by major policy reviews and shifts in direction

The performance of the public service is uneven

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8Corruption undermines state legitimacy and services

▪ Perceptions of corruption high in government.

▪ State agencies tasked with fighting corruption are of the view that corruption is at a very high level.

▪ Weak accountability and damaged societal ethics, make corruption at lower levels in government almost pervasive.

▪ Corruption in infrastructure procurement has led to rising prices and poorer quality –building a school cost R5 m in the late 1990s and costs R25m to R40m today.

Efforts to fight corruption are

fragmented and institutions often weak

Weak legislative and municipal oversight

Low social mobility and high inequality

lead to disintegration of social ethics and

values

Having declined after 1994, corruption is once again on the rise

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Despite significant changes since 1994, South Africa remains a divided society9South Africa remains a divided society

We have several fault lines that persist, the most ubiquitous is the race divide

▪ Other significant fault lines include:

� Rich and poor � Urban and rural

� Men and women �Workers and bosses

� The unemployed and workers �Skilled and unskilled workers

� The language divide �Importers and exporters

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2

We need a development path that promotes growth AND social equity

19 94

Toda y

2030

Economi c growth

Social equity

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DraftThe diagnostic report covers two broad water issues

2

• Water supply and sanitation services

• Water in pipes

• Contributes to better living standards

• A municipal responsibility

• Water resources

• Water in rivers and underground

• Supporting the economy and society

• A national government competence

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DraftSafe water and sanitation

2

•

Good progress made since 1994•

Expanded services help the poor, especially women

•

Free basic water part of the “social wage”•

Key challenges

• Where to focus investment?

• Growing “rural corridors”

• Scattered settlements or

• Rural development strategy?

• Funding for municipal mandates,

• Bulk water

• Flush toilets

• Waste treatment

• Problems of inadequate operation and maintenance

• Inadequate personnel and poor governance

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DraftWater resource issues

2

•

Committee knows about SA’s water challenges•

Limited resource, variability, aridity, future climate change

• Pollution from municipalities, mines and industries

• Response to growing demands and pressures is complex and costly

• Must move to more conservation and re-use

• Increase efficiency and quality of municipal and agricultural use

•

Water resource management challenges•

Poor water management is impacting on economic activity

• Planning has identified the supply needs and alternatives

• Knowledge not being translated into timely action

• e.g. Nelson Mandela Bay Metro shortages, SAPPI factory closure

• Ethekwini at risk

• Delay in National Water Resource Strategy (=energy’s IRP2010)

• Need better coordination between all government spheres, and SOEs

• Must ensure progress on priority projects (e.g. LHWP Ph2, Mooi-Mgeni transfer)

• Progress on conservation and water loss reduction as important

• Complete verification of water use

• Compulsory licensing where needed

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DraftSpecific environmental issues covered

2

•

Reducing the fossil fuel dependancy and carbon intensity of the economy

•

Managing the transition towards a low-carbon and climate resilient economy & society

•

Energy mix – scaling up of renewables•

Using water and other natural resources (soil, oceans, biodiversity etc) more sustainably

•

Regional perspectives in managing our environment and response to climate change

•

Environmental sustainability is critical to meeting the needs of the economy and people

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DraftFuture work of the NPC

2

•

The NPC is mandated to do detailed work on any of the 11 areas in our ToR•

Early candidates include food security, water security and climate change

•

Specific areas that we will be doing work on include:•

The transition to a low-carbon economy

• Implementation capacity in various sectors incl. Water and Environment

• Alignment of National Conservation priorities and areas of strategic development

• Water licensing, pricing, rights and allocations

• Accelerating sanitation provision to match water supply provision (for public health reasons, environmental health reasons, environmental protection and humanitarian reasons;

• Recognition of groundwater as an alternative and reliable (where accessible and available in sustainable volumes) source of water after surface water ( considering the cost benefit analysis for groundwater use vs. sea water desalination)

• Capacity building at municipal level to facilitate better water infrastructure management

• Enabling environment for PPPs to accelerate development

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2

Eliminating poverty and reducing inequality will require bold actions

Reducing inequality

Eliminating poverty

Too few South Africans are employed

Poor educational outcomes

Crumbling infrastructur

e

Resource intensive economy

CorruptionSpatial

patterns marginalise

the poor

Public service

performance is

uneven

Divided communities

High disease burden

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We have shown before as a country that we can solve complex national challenges

Our previous successes were achieved by▪ Focus on the highest

priority issues

▪ Marshalling the required resources and talent behind those issues

▪ Ruthless execution to deliver the required outcomes

▪ Success will depend on all citizens and society working to resolve our challenges

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Process towards November and beyond

•

These are formidable challenges that we all face

•

A national dialogue involving all South Africans is required to arrive at solutions that are credible and implementable

•

Tackling these challenges will require the involvement of all sectors of society

•

We need bold leadership from leaders throughout society, collective responsibility and a long-term perspective

•

We are now entering a listening phase of the planning process

•

Public engagement process between June and September

•

In November, we release the vision statement and development plan

•

Each year beyond this, the commission will release detailed plans for specific sectors or areas of policy

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