Troubled Water

WASHINGTON, DC– By the time you finish reading this article, at least five children will have died because of diseases borne by dirty water. Indeed, there is no greater threat to humanity’s well-being than the ongoing water crisis, which is worsening as pollution and climate change, combined with accelerating growth in human population – forecast by the United Nations to reach 9.3 billion by 2050 – fuel a widening gap between supply and demand.

Water scarcity is largely the result of inadequate sanitation and a lack of necessary infrastructure to take water from rivers and aquifers. And it is estimated that, by 2025, half of the world’s people will not have enough water to meet their needs.

According to the World Health Organization, water-related diseases cause more than 3.4 million deaths annually – mostly children. One billion people worldwide do not have access to clean water, and more than two billion lack adequate sanitation.

Furthermore, water scarcity means food scarcity. After all, the agricultural sector accounts for 70% of global freshwater consumption; with water in short supply, farmers are less able to feed the world’s population.

This year, China experienced its worst drought in a half-century, which affected millions of acres of farmland and caused power shortages. In northern Africa, the encroaching desert has displaced many people, and has exacerbated tensions between farmers and herders. And in the Horn of Africa, widespread famine has served as a horrific reminder of the potentially deadly effects of drought and deficient water-management systems.

But there is reason for hope. The OECD estimates that, by 2015, more than $200 billion must be invested annually in order to improve water infrastructure and sanitation services worldwide. Given scarce public-sector resources, private investors must pick up the slack – and they are beginning to do so.

Pension funds, for example, are embracing water stocks because they involve secure, multi-year contracts. Likewise, water appeals to investment managers, as it offers steady, low-volatility returns for their clients. Such positive incentives will only grow stronger as prices become better aligned with water’s true value, and as innovative new technologies make water-management systems more efficient.

But the private sector cannot shoulder all of the responsibility. Given that water and sanitation-infrastructure projects generally require substantial up-front capital investment, governments must ensure an appropriate regulatory framework and offer support to private investors.

In collaboration with governments and private companies, the World Bank Group has helped to structure concession agreements that are attractive to investors and allocate risk fairly. For example, the Group’s private-sector arm, the International Finance Corporation (IFC), has collaborated with Egypt’s government to develop a wastewater-treatment plant for the new satellite towns of Greater Cairo. The plant will help Cairo to cope with its rapidly growing population’s increasing sanitation needs, and will improve public health. The Egyptian-Spanish consortium that won the public-private partnership is expected to mobilize $150-200 million in private investment by the time the plant is operational.

In addition to increasing water supply in the short term, action must be taken to address the long-term issue of scarcity. In collaboration with private companies, the IFC has launched the Water Resources Group, a public-private partnership that examines the issue of sustainable water management in its various uses. The WRG’s activities will help policymakers to make the right choices in planning for the future.

Promisingly, the WRG has found that investments in efficiency can make a big difference at a reasonable cost. For example, China uses almost 3,000 liters of water to produce one cotton shirt. Saving water in this process would dramatically reduce the industrial sector’s overall consumption.

In most countries, however, the main focus of conservation efforts should be the agricultural sector, which wastes roughly half of the water that it consumes, owing to inefficient irrigation systems. With the IFC’s help, the Indian company Jain Irrigation – the second largest drip irrigation company in the world – has expanded its operations, resulting in water savings equal to annual consumption by roughly 15 million households. Jain is now expanding to Africa, a promising initiative in global South-South cooperation.

The worldwide water crisis could be more disastrous than any financial or geopolitical crisis. But it can also be contained, provided that investors, governments, and international organizations work together – and fast.