WATER - Blue Gold?

Water, one of the necessities for life and until recently widely taken for granted in most developed countries, is now a commodity tipped to be more important than oil.


Unrelenting global demand for fresh water from a growing population, coupled with environmental concerns about water pollution, have focussed the world’s attention on how our water resources are managed.  According to the International Water Management Institute, the world's leading body on fresh water management, water usage has increased by six times in the past 100 years and will double again by 2050, driven mainly by irrigation and the demands of agriculture¹.

A combination of climate change and poor resource management is leading to water shortages in even the most developed countries. A recent report by conservation organisation WWF reveals that people in wealthy countries use 10 times more water than those in poor ones, and water scarcity is now a global issue1.  Botswana, Chad, the Aral Sea, Iraq, Australia, and China all currently face critical water supply issues. Even the once mighty Colorado River delta in the U.S. south-west is rapidly drying up. New Zealand is no exception; droughts, falling hydro-lake levels and power shortages are now frequently featured in the media.

Supply and demand

The severity of the situation is highlighted in China, where hundreds of millions lack regular access to drinking water due to drought and pollution.  The UN has identified China as one of the 13 countries with the lowest availability of fresh water per capita in the world.  China is home to 21 percent of the world's population but only 7 percent of its water resources. Not only is water scarce, what water there is has pollution issues. In China today, half of the rivers and lakes and one-third of the aquifers are classified as polluted. Of the 669 cities in the country, 440 suffer water shortages, and 110 of these cities are considered to have reached the critical level².

In response to this desperate need, the Chinese government recently announced plans to build a huge sea water desalination plant south of Shanghai. In addition, China is also investing billions in a project to transfer water from its lush south, currently suffering devastating floods, to the arid north. The overall commitment to improving water resources in China is immense; in its 11th 5-year plan, released in 2006, China cited the need for US$128 billion in water related investments through to 2010.

The Water Industry

WATER FACTS & FIGURES World water composition Oceans: 97.5% Frozen water (90% Antarctica): 1.7% Ground water: 0.8% Lakes and rivers: 0.008% Water use Agriculture: 70% Industry: 22% Domestic: 8% Litres of water required to: Grow one days food for a family of four: 25,700 Produce one litre of Coca-Cola: 2.5 Process a chicken: 44 Refine a barrel of crude oil: 7,000 Manufacture a new car: 148,000 Source: BBC News, CNN

The need for urgent and immense investment in water industries has now become compelling for many countries.  Around the world, ageing and dilapidated water and sewer infrastructure is in dire need of repair, and new infrastructure must be built to meet the needs of growing populations in both developed and developing economies.  The infrastructure needs in the U.S. alone are expected to cost up to US$1 trillion over the next 20 years2.  In the UK, according to the WWF, leaks in London’s ageing water mains systems are wasting 300 Olympic swimming pools' worth of water every single day.

The world’s need to not only efficiently extract more fresh water from the finite resource available, but to also effectively manage the use and distribution of that water presents a challenge, as well as an opportunity, for those companies involved in the process.  Fortunately, there is already a massive water industry comprised of companies collecting, treating, delivering and disposing of water and wastewater.

The potential of these companies is only just being fully recognised as an investment theme. Clearly, some companies will benefit more than others from the expected wave of investment in water resources. Pure water companies for instance (as opposed to packagers or resellers of bottled water) are expected to produce some exciting investment opportunities as their potential value is recognised.

The outlook for water-related companies who accept the challenge looks positive and investment opportunities in this area will no doubt become more accessible to New Zealand investors as this theme develops. As a company recognised for bringing innovative investment solutions to the New Zealand market, you can be sure that Liontamer will be at the forefront of the investment opportunity in water funds.

Sources: 1. BBC News. 2. The case for water investing 2007, Summit Global Management.