Report calls for more investment in water

From Africa all the way to China, water scarcity is already a serious issue. And it is going to get worse. This is the key message in a recent special report by Standard Chartered, entitled "Water -- the real liquidity crisis". The bright side of the report is that these problems can be alleviated, in part, through the right investments.

There are three potential solutions to the problem, according to the report: improve water infrastructure; employ technology to clean more water; and optimise agricultural trade.

"Water use is increasing over time; the global population is increasing, and people are becoming richer. In the last century the global population tripled and its water use increased six-fold, and yet over a billion people still lack access to clean drinking water. As water becomes scarcer and more water is demanded by more people, its allocation between competing interests becomes more challenging," the report says.

Although 70% of the earth's surface is covered in water, only 0.8% of that is fresh water. This tiny percentage would be enough for global needs were it evenly spread geographically, or used more efficiently. There are many countries where the infrastructure to deliver water simply does not exist or where leaking pipes cause large amounts of water to be wasted. And as the world's population grows, the competition for fresh water becomes ever more fierce.

For a case story for water problems, one needs look no further than India. Rapid economic development has left different parts of the country suffering from different water issues: total scarcity in some, pollution in others, and in places, low levels of access to clean water. And unlike in other areas suffering from similar problems, such as China and the Middle East, India's democratic political system could slow up the implementation of solutions.

The report lists several factors describing how things are going to get worse for India's water supply, many of which are also applicable to other parts of Asia. India has one of the world's fastest growing populations -- by 2050, the country is expected to have another 515 million inhabitants, who will all need to be fed. This problem is exacerbated by a decreasing amount of agricultural land -- which leads to farming, and hence water usage being more concentrated in certain areas. Changes to dietary habits in India also increase the demand for water: as the population becomes richer, meat becomes a larger part of the daily diet and the rearing of animals for slaughter is more water intensive than any other kind of food.

By upgrading the infrastructure used to transport water, it would be possible to distribute the readily available fresh water more efficiently. "Investments in water-related infrastructure in the developing world would result in significant humanitarian and economic benefits to the unserved. Better infrastructure could also allow for more transportation of water over larger distances, relieving pressure on stressed water resources in urban centres, particularly in the developing world," the report notes.

With regards to technology, more fresh water can be created via desalination, or the removal of salt and saline content from sea water. The Middle East has 52% of the world's desalination capacity, most of which is located in Saudi Arabia. The main drawback of this method of creating water is that it is very energy intensive, which makes it a realistic solution in a wealthy oil-state, but not feasible in a poorer country.

Despite the costs, the use of desalination is set to increase. According to Standard Chartered, China and India are set to increase their desalination capacity by 650,000 cubic metres a day by 2015. Mediterranean countries such as Spain, Algeria and Libya are also expected to rely more heavily on desalination.

And finally, agricultural trade can be improved by factoring so-called "virtual" water into the flow of goods. Virtual water is the water used in the manufacturing of a product that is not actually part of, or contained in, the finished product. When looking at world trade with virtual water in mind, it becomes apparent that water-scarce countries import water-intensive goods to make up for what they lack at home. Considered trade that takes into account virtual water, could help solve global imbalances relating to water supply.

The implementation of these solutions will not be easy, acknowledges the report.

"All of these solutions require investment, which in turn requires an economic return. There are a number of longstanding issues, including the almost universal mispricing of water, which have made it difficult to reap the full economic returns on such investments in the past, or have led to investments that would be uneconomic at the true cost of water," says the report.

The main problem of giving a proper price to water is made all the more difficult because water is a basic human need. Therefore a pure pricing mechanism could make it too costly for the poorest nations. But systems that subsidise water for those that cannot afford to pay for it tend to lead to inefficient usage -- i.e. those who are given an amount of water according to a quota will often use all they are allowed to whether they need it or not. And even if a satisfactory pricing mechanism could be found, water -- as a commodity -- is very hard to apply property rights to, since it flows naturally across national boundaries.

The issues have been laid out. Much of how the 21st Century pans out will depend on how we deal with them.