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Water – a hot 21st century commodity

Water is often taken for granted.  After all, it covers two-thirds of the Earth’s surface.  Unfortunately, only 2.5 per cent is fresh water and only one-eighth of this is easily accessible in rivers and lakes for human use.

As populations grow and use intensifies, water is bound to dominate the economic, social and investing landscape of the 21st century.

Since 1950, estimated global water use has trebled.  And that rate of growth will only quicken.

Already the strain on water resources is apparent.  The over-pumping of water supplies has led to suggestions that Hubbert’s ‘peak’ theory of resource use applies to water as much as to oil.  The International Water Management Institute predicts that by 2025, 36 countries in the world will fall into the category of being fresh water scarce.  Climate change and desertification will exacerbate the problem, especially in water challenged countries like Australia.

India, with 17 per cent of the world’s population but only 4 per cent of its water, has the greatest rate of water withdrawal in the world, according to the United States Census Bureau international database.  The Indus and Ganges rivers are so tapped that, except in rare wet years, they no longer reach the sea.

China, with 19 per cent of the world’s people yet only 7 per cent of water supplies, has the world’s second-largest rate of water withdrawal, according to the US Census Bureau international database.  Five of the seven main river systems in China were classified as severely polluted by the World Resource Institute in 2008.  Hundreds of lakes have disappeared over the past 20 years as water table levels fell and aquifers were over-pumped, according to the institute.

No surprise then that the biggest water infrastructure needs are in the developing world.

China committed US$20 billion to water infrastructure in its post credit-crunch stimulus.

Less obvious is that the developed world too needs to upgrade and enhance outdated infrastructure.  Much of the water infrastructure in the US (for instance in New York) is around 100 years old.


Alternative supplies of water will help relieve the demands on water.

One option is seawater.  In the Middle East, largely in Saudi Arabia, desalination already satisfies over 70 per cent of the region’s fresh water needs.  There are some drawbacks with desalination though: the plants are expensive, the process is costly and energy intensive and by-products need to be disposed of.

Another alternative supply is water recycling.  More than 40 million cubic metres of municipal wastewater is recycled daily worldwide, mainly for irrigation and industry, but this still represents only a fraction of total water use.  If the process improves and people overcome the ‘yuck’ factor, there is no reason why recycled water cannot be used in sanitation and for drinking.  If so, recycling could form a significant part of the solution to water scarcity.

Some other interesting technologies might help too.

Nanotechnology water purification can improve water quality though the use of advanced filtration materials that enable greater water reuse, recycling and desalination.

Condensation windmills can harness wind power to collect water out of the atmosphere, while cloud seeding is a form of weather manipulation that works by firing silver iodide into storm clouds.  It has been used by the US and Chinese governments to bring rain to farming lands with mixed results.

Goldman Sachs predicts the $425 billion global water industry could enjoy long-term annual growth rates up to 6 per cent, as the world attempts to solve its water shortage.  If so, there are many interesting water-related stocks poised to benefit.

RusHydro, for instance, is Russia’s largest hydro-generating company and the worlds’ second largest in terms of installed capacity.  Doosan Heavy Industries from South Korea is the global leader in desalination.  Jain Irrigation Systems from India sells its drip and sprinkler irrigation systems in more than 110 countries.  Veolia Environment of France provides drinking water for more than 78 million people and wastewater services for more than 54 million.  Fluor from the US is the company that rebuilt Iraq’s water supply and distribution system.


While alternative sources and technology can help alleviate water shortages, perhaps the biggest fillip would be a change in mentality among users.

Water is seen as a basic right rather than a commodity that merits a return on investment for government or private providers.

The fact water prices are generally subsidised has helped fuel the misperception that water is cheap and abundant.  Hence the waste.

Many economists argue that to reduce waste, society needs to create a value around water use such as Australia’s own National Water Initiative does.  The scheme values water based on what users will pay.

Certainly something has to happen to solve the world’s present and future shortages of water.

Resolving this challenge is sure to make water a mega-issue of the 21st century – perhaps the defining one.  From an investment point of view, there will be many winners.


—-Article orignally appeared in IFA Magazine, Issue 535. Article written by Tom Stevenson, Fidelity Investment Managers

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