SA infrastructure: The hidden business risk

South Africa loses nearly half (47.3%) of all municipal water supplied through leaks, infrastructure failures and other non-revenue losses, while copper theft is estimated to cost the economy more than R45 billion a year and road maintenance backlogs exceed R197 billion.

Due to the increasingly interconnected nature of South Africa’s infrastructure systems, these issues rarely remain isolated events. Today, a disruption to electricity or water supply, road deterioration, or a stormwater drainage failure can quickly escalate into significant property damage, business interruption and supply chain losses.

This is according to Megan Holliday, Head of Claims and Procurement at Western National Insurance, who says there has been a noticeable increase in infrastructure-related claims in recent years.  “This rise in claims has been driven largely by the deterioration of municipal infrastructure, ageing utility networks and ongoing criminal activity targeting public infrastructure.”

Holliday notes that the most common infrastructure-related claims stem from failures in essential public infrastructure rather than insured assets themselves. “In many cases, the financial impact of being unable to operate, fulfil orders or maintain service delivery can exceed the cost of repairing the physical damage itself.”

While infrastructure challenges are evident across the country, Holliday notes that certain regions experience higher concentrations of specific claim types. “In Gauteng, ageing municipal water infrastructure, frequent water supply interruptions, cable theft, deteriorating road networks and electrical infrastructure failures are creating significant challenges for manufacturing, warehousing and logistics businesses.”

KwaZulu-Natal faces a different set of challenges. “Following the severe flooding events experienced in recent years, many businesses continue to face infrastructure vulnerabilities linked to damaged road networks, flood-prone drainage systems, and transport disruptions,” she explains.

These challenges are often compounded for agricultural businesses, she adds. “Water supply interruptions can affect irrigation systems and livestock operations, while unstable electricity supply can compromise cold storage facilities. Poor road infrastructure can also delay the transportation of produce, increasing the risk of spoilage and financial losses before goods even reach the market.”

Looking ahead, Holliday warns that infrastructure-related risks are likely to remain a significant operational challenge for South African businesses. “Continued deterioration of municipal infrastructure, more frequent and severe weather events, ongoing criminal activity targeting critical infrastructure, water scarcity and transport network constraints are all likely to place additional pressure on organisations in the years ahead.”

While businesses have little to no control over public infrastructure, she says they can significantly improve their resilience through proactive risk management. “Building resilience will require businesses to shift from reactive responses to long-term risk planning. This means investing in infrastructure redundancy, strengthening supplier networks, embracing technology for asset monitoring, and ensuring comprehensive insurance programmes that include appropriate business interruption protection.”

Practical measures that Holliday recommends include installing surge protection and backup power systems, maintaining backup water storage where required, upgrading physical security, diversifying suppliers and logistics routes, and conducting regular risk assessments.

“Ultimately, the businesses best positioned to withstand future disruptions will be those that invest in these resilience measures and work closely with their brokers to regularly review their insurance cover to ensure that both physical assets and business interruption exposures remain adequately protected,” she concludes.