Private investment to resolve problems of water scarcity in the world

7 May 2014 04:25 am Views - 4676

It is easy to take a running tap for granted, but water scarcity is a serious problem in many parts of the world. It is believed that over one billion people worldwide do not have access to clean and safe drinking water, according to a water project (http://thewater project.org/water _scarcity) and an organisation seeking to remedy this issue.

The recent turmoil regarding the contamination of drinking water due to the effluents from a factory in Ratupaswela and contamination of bottled water with kerosene hit the headlines in the local print and electronic media in Sri Lanka proving that water scarcity is a growing problem locally too.
Much time and effort have to be spent to decontaminate the water supply especially in most of the developing countries in Africa and Asia. Accordingly, water shortages contribute to low levels of education and economic development as people are forced to focus simply on survival. Even most troubling are the water-borne diseases that spread through unsafe drinking water. Further, in the African and Asian countries stagnant water courses lead to breeding of mosquitoes, etc. leading to vector-borne diseases such as malaria, dengue, etc. The outbreak of dengue recently in Sri Lanka is a good example.

Water scarcity has both economic and physical dimensions. From an economic perspective, water in some places is available at a cost too high for many to meet, while in other areas, clean, safe drinking water is simply not physically available.” At the current consumption rate, this situation will only get worse, states the World Wildlife Foundation: “By 2025, two–thirds of the world’s population may face water shortages and ecosystems around the world will suffer even more.”



Economic impact of water scarcity
Access to water is of vital importance to economic and political security worldwide as the financial consequences of water scarcity extend far beyond communities without reliable access to drinking water. This is a growing segment of the investment world that is directing capital towards safe water infrastructure, according to the newspaper Globe and Mail. Simon Gottelier, Co-Manager of Impax Asset Management’s Water Strategy fund, predicts the sector will grow.

“We see water as a long-term secular growth theme,” Gottelier told the news outlet. “There are multi-decade trends we are positioning ourselves to capitalize on.”

Gottelier identifies a number of reasons for his company’s “water hypothesis”. For one, as growing populations become increasingly urban, existing water infrastructure undergoes considerable stress and must be replaced, while the developed areas often demand updated infrastructure, since many have invested very little into these systems now.

Furthermore, government oversight of water quality is increasingly becoming a problem, and the necessary coping with climate change is putting an impossible strain on many developing countries. Severe weather events may damage important parts of water systems such as sewers, drainage infrastructure and water treatment plants meaning extensive replacements and repairs.





Present situation in Sri Lanka
Sri Lanka is a perfect example of water infrastructure undergoing severe stress and it is mandatory that responsible institutions get involved in replacement and repairs to the old systems with the growing population. Access to safe drinking water is also a problem in Sri Lanka. To this end, the Colombo Municipality’s proposal of imposing a sewage tax could be justified in the above context.



Investing in water
For investors interested in water, companies may be divided into three areas, namely (a) infrastructure (b) water treatment and (c) utilities. A diverse portfolio is recommended and water-related investing may pay off in the future as shortages increase and standards for best practices in this area continue to rise.

“I would suggest it is extremely difficult to have a fund entirely dedicated to water,” John Gibbs, Vice President and Portfolio Manager at Dynamic Funds told The Globe and Mail. “There just aren’t enough stocks to fit this theme.”

Jason Stevens, investment executive at Sprott Global Resources Investments, discussed the possible future of water with the website Investing.com and his less than optimistic opinion from a social point of view has important implications for those in a position to invest in water security.



Water scarcity highlighted at Economic Forum  
At the World Economic Forum on East Asia, business leaders agreed that addressing growing global concern over environmental challenges such as climate change and water was the issue with the greatest potential impact for Asia, its people and its economies.
“We will be running out of water long before we run out of oil,” Peter Brabeck–Letmathe, Chairman of the Board of Nestle in Switzerland said at the conference. “One out of every five children is dying every 20 seconds because we have not been able to solve the problem of clean water today.”



Conclusions
Brabeck-Letmathe’s due warning underlines the urgency of worldwide clean water shortages and as the issue becomes more serious and gain more social attention, governments will need to provide a solution to the water problem. As demand for improved access to clean drinking water grows, opportunities to invest in sound water infrastructure will only grow.

Accordingly, the business community in Sri Lanka should give serious thought for investment in water and try to evaluate whether such investment could bring about a reasonable rate of return. It is also proposed that the Government of Sri Lanka may pass appropriate legislation, if not already done, so that private investors in the leisure and   industrial sectors, especially with foreign direct investment (FDI), bear all costs of providing safe drinking water and facilities and also construct all infrastructure including sewers etc. and maintain such utilities.

Ref: “Not a Drop to Drink: A Look at Water Scarcity-Resource Investing News Staff Writer April 22, 2014.”

(Dulip Jayawardena, a retired Economic Affairs Officer United Nations ESCAP, can be reached at fasttrack@eol.lk)