Insight
sam 11/2009
Insight
Water Crisis: Challenges and Opportunities in Emerging Markets Pristine water is becoming a rare commodity in many parts of the world. The situation is especially alarming in emerging countries with rapidly growing economies and populations like China, India, Bangladesh, and the Philippines. SAM’s water analyst Marc-Olivier Buffle explains how specific water challenges can be addressed and highlights investment opportunities in the water sector.
“(Governments) must make more and immediate investments in
infrastructure. Already today 2.4 billion people have no access to
water management and related infrastructure (…) water is such
proper sanitation infrastructure. In emerging countries, the main
a central consideration that it must be an integral part of all plan-
water challenges are scarcity, lack of infrastructure and contam-
ning and investments”. 1
ination. Although developed economies will also face serious
Ban-Ki Moon, Secretary-General of the United Nations
water issues (see box on page 7), emerging regions will be the most heavily impacted by this formidable challenge.
Mr. Moon’s call for more investments in water management and related infrastructure comes on the back of staggering evidence
Scarcity: The rapid increases in population and urbanization
that the unfolding water crisis will dwarf any other recent global
linked to the aspiration to western standards of living have led
challenges experienced by mankind. The statistics are over-
some emerging economies to struggle with their available wa-
whelming: while 550 million people will move to cities in the
ter resources. In many regions, economic growth is at risk due
next 20 years 2 – thus dramatically increasing the need for water
to an inadequate water supply.
1. China
2. Bangladesh
4. Philippines
3. India
1
FOUR EXAMPLES FROM REGIONS IMPACTED BY THE WATER CRISIS. Source: Shutterstock
Member of
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
Lack of infrastructure: Over the next 20 years, China’s cities
tance of installing treatment systems to reduce the impact on
are set to add 350 million people (more than the entire US
human health. The Bangladesh example (2) showcases a dra-
population). By then China will have 220 cities with more
matic situation where significant natural contamination of
than one million inhabitants (versus 35 in Europe) and 25
water is taking place and point of use treatment systems must
cities with more than five million people. The rapid construc-
be installed to minimize current mass poisoning. The Indian
tion of appropriate water infrastructure is essential to accom-
example (3) demonstrates the unsustainability of today’s wa-
modate such tremendous urbanization and population
ter irrigation practices causing appalling levels of scarcity, and
growth trends.
the potential solution offered by new irrigation technologies. The Philippine case (4) exemplifies how local private water
Contamination: Due to rapid industrial growth, historically
utilities have taken on global corporations and have been very
weak environmental regulations, and lack of wastewater
successful at addressing population needs in a rapidly grow-
treatment infrastructures, surface and ground waters in some
ing urban environment and complex social context.
emerging regions are highly contaminated. The four examples show the diversity of water challenges in The discussion on the following pages focuses on the water
different nations. At the same time they also demonstrate
crisis as it relates to emerging and frontier economies on the
that the know-how and the technologies to solve water issues
Asian continent. Four examples are presented in detail, from
are available and can be readily implemented for the benefit
the origin of the problem to the solution and potential invest-
of economic growth, environmental and human health and
ment implications. The Chinese example (1) demonstrates the
harmonious social development ultimately leading to sustain-
effect of industrial pollution on water quality and the impor-
able investment opportunities.
1. China: The Downside of Mining Various trends combine to make China’s water situation one
The village of Shangba (Guangdong Province), while an ex-
of the greatest challenges as the country enters the 21 cen-
treme example, does illustrate the challenge facing regions
st
2
tury. Urbanization, industrialization, historically weak envi-
undergoing rapid industrialization. The Dabaoshan mine, a
ronmental regulations, a per capita water consumption ap-
major Zinc mine which also produced up to 6,000 tons of
proaching that of the west and a population increasingly
copper and 850,000 tons of iron ore annually, has over the
aware of pollution’s impact on health are trends which have
years been the source of contamination of more than 500
set the scene for what will be one of the largest governmen-
hectares of agricultural land irrigated by the Hengshui river.
tal and private capital outlays in history, reaching USD 1.2 tril-
Surface water and ground water have been highly contami-
lion over the next 20 years.
nated by heavy metals such as lead and cadmium. The water
CONTAMINATION HAS COLORED THIS LAKE NEAR DABAOSHAN A BROWNISH RED. Source: Reuters
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
used for irrigating crops exhibited concentrations of heavy
that poor surface water quality (due to untreated municipal and
metals well above international standards. This significant intake
industrial wastewater discharges) had had a negative impact on
of heavy metals resulted in a very high incidence of cancer
economic growth (annual GDP loss of 1.5 – 2.8%). This incen-
among the 3,000 residents of Shangba.3
tivized the central government to focus on increasing China’s wastewater coverage, which translated into a USD 60 billion in-
While the situation may seem hopeless at first sight, a positive
vestment in wastewater infrastructure. The impact on the water
development has taken place. With the help of a major water
sector has been significant, with many private companies taking
technology provider and the will of local government officials,
advantage of this new market opportunity. Western visitors at
a drinking water treatment plant applying coagulation and
Shanghai’s Aquatech (an international water industry trade
multi-media filter treatment processes was installed in October
show) in June 2009 were impressed by the number of local wa-
2008. The system now reduces contaminants concentrations to
ter companies participating (> 300) and the variety of products
international standards.
displayed. In particular the large number of home treatment systems (point of use) was evidence that the Chinese population is
In recent years, China has significantly ramped up its efforts to
becoming increasingly aware of water quality issues; this repre-
increase wastewater treatment coverage. It had become clear
sents a key driver for future growth in the Chinese water sector.
WATER STATS
The Chinese water market is estimated at USD 40 billion per year, growing at 11% p.a. up to 2016. 40% of the market relates to municipal wastewater management, while 50% involves municipal drinking water management (not including point of use systems) and 10% industrial water treatment.4
2. Bangladesh: Natural Arsenic Poisons Drinking Water Bangladesh, a country with a population of 160 million, is lo-
due to consumption of water containing large concentrations
cated in the delta of major Himalayan rivers (Ganges, Brahma-
of arsenic. Unlike the industrial mine-induced pollution of
putra, Meghna) as they flow into the Bay of Bengal. The allu-
Shangba in the former example, the origin of groundwater
vial soil has made Bangladesh one of the most fertile regions
pollution in Bangladesh is geogenic (from the rocks).
in the world. Bangladesh is also the most densely populated
3
place on earth and has now become infamously known as the
Until the 1970s, the local population mostly used surface
region where the largest mass poisoning in human history is
water (i.e. water from ponds) for hygiene and nutrition. Un-
taking place. 50 million5 Bangladeshis are developing cancer
fortunately, live stocks also used the same ponds and lack of
HAND PUMP FOR GROUNDWATER EXTRACTION IN BANGLADESH. Source: Olivier X. Leupin
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
septic tank installations caused a high degree of microbial
The Bangladeshi government faces a serious dilemma: either
contamination of those waters, resulting in Bangladesh hav-
performing a U-turn and promoting the use of surface water
ing one of the highest infant mortality rates. UNICEF then
with its poor microbial quality, or continuing the use of con-
decided to help Bangladesh by installing hand pumps for
taminated groundwater (a solution usually favored by the
groundwater extraction (groundwater is often free of micro-
population due to its clear appearance). Whatever the final
bial contamination, as sand and soil act as filters). Between
decision, the favored approach will have to include treatment
1970 and 1990, 10 million tube wells were installed. This ef-
solutions, and local as well as international players will be
fort cut infant mortality rates by half.
able to help by providing water treatment technologies based on the latest developments.
In the 1990s health organizations started noticing an increase in cancer cases and especially in black foot disease (debilitating
Much research has been dedicated to this issue and a num-
pains in extremities and discoloring of the skin to a dark blue-
ber of technologies have been developed which can help
black color). Further investigations found the culprit to be large
solve the problem. The combination of ultraviolet or solar ra-
concentrations of arsenic in the groundwater. Arsenic is natu-
diation, iron and citric acid to the water can effectively re-
rally present as a mineral in the rocks and sediments washed
move arsenic. Also, filters using iron oxide, to which arsenic
down from the Himalayan foothills. Hence, unwittingly, one
has the tendency to bind, seem to be a viable option for mil-
evil was replaced by another: acute microbial intoxication by
lions of households. Much effort has also been spent on de-
chronic poisoning. In the 250,000 wells already tested, more
veloping test kits, which allow the quick determination of the
than half had concentrations of arsenic above international
level of contamination of a well without having to send the
health standards, some as much as 50 times too high.
water to expensive analytical labs.
WATER STATS
Today, the Bangladesh water market is estimated at USD 250 million, 20% for wastewater, 15% for industrial water and 65% for drinking water treatment and infrastructure. However, these numbers do not take the point of use market into consideration, which is one of the only viable options for arsenic removal in Bangladesh; this market is estimated at USD 0.5 billion.4
INTENSITY OF ARSENIC CONTAMINATED (50 µg/l) TUBE WELLS IN BANGLADESH Source: PERCENT OF TUBE WELLS HAVING ARSENIC CONTENT > 50 (µg/l) 26°
India 25°
24°
India 23°
22°
Bay of Bengal 21° 4
88°
89°
90°
91°
92°
93°
0 –1
25 – 30
1–10
50 –75
10 –25
75 –100
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
3. India: Harvesting More by Consuming Less Water Recently, a city in the state of Madhya Pradesh, central India,
warming. India is highly dependent on large rivers which flow
made some tragic headlines on reports that some residents
from the Himalayan range (e.g. Indus, Ganges). These rivers
had been killed for illegally tapping into water mains* for
are supplied by melted ice in the spring and summer. As the
their own household usage. The rationing of water distribu-
temperature increases, more ice will initially melt, temporarily
tion in this town had already been decreased from 30 min-
increasing water flows. However, the amount will rapidly de-
utes every other day to 30 minutes every third day because of
crease to flows well below today’s averages.
the very low water levels in the city water reservoir. Residents downstream of the network were exasperated by the situa-
The situation has reached such a critical point that the Indian
tion, found a scapegoat and decided to let mob justice take
government has now decided to subsidize advanced irriga-
its course.
tion technologies to improve efficiency of water use (see table). Drip irrigation is an increasingly applied technology
In India, where agriculture still accounts for 18% of GDP,
which can reduce water usage by 80% compared to flood ir-
groundwater has been used increasingly for irrigation pur-
rigation (most applied irrigation technique today). Beyond its
poses. Water used in agriculture represents 86% of water used in India (70% used globally) and given the explosive increase in population in India, water has been pumped at
WATER USAGE EFFICIENCY UNDER DIFFERENT IRRIGATION METHODS m3 water/kg crop
rates well beyond replenishment rates (rates at which rains
Crop
Conventional
Drip %
naturally “refill” the aquifer). In and around Delhi the water
Cotton
0.323
– 73%
table is dropping one meter per year. In many areas the most
Sugar beet
0.012
– 36%
visible consequence is the drying up of existing wells and the
Sweet potato
0.149
– 71%
drilling of ever deeper tube wells. While wells were typically
Beetroot
1.429
– 86%
30 meters deep a few decades back, they can now easily
Radish
0.444
– 80%
reach a depth of 400 meters.6
Papaya
16.667
– 81%
0.007
– 63%
Mulberry
In addition to this demand-led water scarcity, a supply-induced water scarcity is likely to occur on the back of global
Source: Cotton: Sivanappan et al., 1987; Sugar beet: Agarwal and Goel; Sweet potato, Beetroot and Radish: Sivanappan and Padmakumari, 1980; Papaya: Sivanappan, 1977; Mulberry: Muralidhara et al., 1994.
* Water main: main pipe transporting large volume of water, “arteries” of the network
GROUNDWATER CHANGES IN INDIA BETWEEN 2002 AND 2008 (LOSSES IN RED, GAINS IN BLUE) Source: I. Velicogna/UC Irvine/ 35°
30°
25°
20°
15°
10°
5° 5
65°
70°
75°
80°
85°
90°
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
efficient use of water, an additional advantage of drip irriga-
pollutants trickle through the soil and contaminate the
tion is a reduced need for herbicide and fungicide applica-
groundwater.
tion. Because of the pinpointed application of water, the risk of growing unwanted weeds or over-watering certain areas
Companies developing new irrigation technologies can be found
of patches causing fungal growth is significantly reduced, di-
in Europe, North America, China and the Middle East, but some
minishing the need for pesticides. Reduced agro-chemicals
Indian companies have become among the most active in the
application impacts water quality positively, as those micro-
field and will experience significant growth in the coming decade.
WATER STATS
India’s water market is estimated at USD 3.2 billion and is growing at 12% annually. It breaks down into 5% for wastewater, 30% for industrial water treatment and 65% for drinking water treatment and infrastructure. These numbers, however, do not include the potential micro-irrigation market which is estimated to grow at a 20% CAGR.4
4. Philippines: A Drop Saved is a Drop Won Greater Manila is a metropolitan area of 20 million people,
While in 1997 63% of the water was lost in the network or
or 22% of the total Philippine population. The city water
not accounted for, water losses were reduced to 20% by
supply was originally managed by the Manila Waterworks
2008 (see chart). In 1997, only 26% of the customers enjoyed
Sewerage System agency. In1997, pressure from Manila res-
water availability 24 hours a day, this is now above 99%. The
idents disgruntled by the poor water quality, frequent ser-
volume of water distributed to local residents has increased
vice interruption and insufficient connection coverage lead
by 230% to reach 1.3 billion liters per day and the water
to the privatization of the water supply services. Manila was
quality is now compliant with international water quality
split between two private companies. The east side of the
standards. Today, 1.5 million people are benefiting from the
city is now managed by a local player which, over the last 10
program Tubig Para Sa Barangay’ (TPSB), designed to in-
years, was able to turn the water distribution challenges
crease access to water for poorer communities. While the
around thanks to excellent management practices.
project started by providing groups of families with common
PERCENT REDUCTION IN LOSSES WATER Source: Manila Water Sustainability Report
SUSTAINABLE APPROACH: LADDERED TARIFF STRUCTURE Source: Asian Development Bank
70
2.0 63%
60
1.6 Tariff Rate USD per m3
50 40 30 20 20%
1.2
0.8
0.4
10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0.0 0
10
20
30
40
Monthly Household Consumption (m3) Seoul 6
Hong Kong
Osaka
50
60
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
taps, the TPSB program is now able to set up one connection
can be designed so that the first 50 liters – basic requirement
per household and provide 24-hour services.
per person per day to ensure hygiene and consumption
7
needs – are billed at an affordable rate for all, while conThere have been many difficulties for water utilities on the
sumption beyond the basic amount of water is billed at in-
path to privatization, mostly due to the sensitive political na-
cremental rates.
ture of the services provided. Heated debates were initiated on the part of non-governmental organizations criticizing the
Today, 95% of all publicly owned water utilities worldwide
lack of socially responsible management practices. In the last
do not recover their full costs through water tariffs and must
decade, however, much has been learned about some of the
be subsidized through taxes. Given the increasing level of
initial deficiencies of the system and many water utilities have
government debts, it is to be expected that the privatization
now fully embraced the concept of sustainability, thereby
trend of water utilities will continue. Having learned lessons
taking into account economic, environmental and social fac-
from the past, however, it is also to be expected that water
tors within their business strategy. Newer concepts such as
utilities will increasingly apply best-in-class social practices
smart tariffs (see chart) have been developed. Smart tariffs
leading to sustainable growth and investment opportunities.
WATER STATS
The Philippines water market will top USD 1 billion annually by 2020, with a growth rate of 7% p.a. Capital expenditure within the wastewater segment should experience double-digit growth, as this is where the infrastructure gap is still the largest.4
WATER CHALLENGES IN NORTH AMERICA AND EUROPE
In North America and Europe, regional scarcity, aging infrastructure and low-level contamination of water resources are the key challenges. Regional scarcity: The migration trends towards sunny regions and the increased water consumption per capita caused by
“water-intensive” hobbies and practices have led to serious water scarcity issues in those regions. Southern Europe and the US are implementing rationing measures which until recently North African regions were best known for. European coastal cities are building energy-intensive water desalination plants to accommodate demand peaks. Aging infrastructure: In North America and Europe, drinking water distribution networks contain large sections that were
built during the industrial revolution and are more than 100 years old. In many cases, municipalities have neglected to follow rigorous replacement plans and an increase in water main breakages can be observed. Aside from the potential catastrophic impact – elevated water pressure and volume released have the potential to destroy entire intersections and nearby buildings – such breakages and leakages are responsible for an average of 20% of the water disappearing between production plants and taps in OECD countries. When combined with the scarcity issue mentioned above, the situation is critical. In the US alone, USD 255 billion needs to be invested in water and wastewater infrastructure within the next 5 years.4 Low-level contamination of water resources: Developments in analytical chemistry have enabled the detection of pesticides,
pharmaceuticals and personal care products in many surface and ground waters. Increased understanding of the potentially negative impact of such low contaminant concentrations on human health and the ecosystem is prompting governments to regulate. Industrial and municipal wastewater systems, as well as drinking water treatment systems, would have to be upgraded to remove these contaminants.4 7
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
REFERENCES 1 2 3
4 5 6
7
World Water Assessment Programme. 2009. “The United Nations World Water Development Report 3: Water in a Changing World”. Paris: UNESCO Publishing George Martine, “State of world population 2007: Unleashing the Potential of Urban Growth” United Nations Population Fund, UNFPA 2007 A. Chen, C. Lin, W. Lu, Y. Wu, Y. Ma, J. Li and L. Zhu, Chemosphere, “Well water contaminated by acidic mine water from the Dabaoshan Mine, South China: Chemistry and toxicity”, Volume 70, Issue 2, December 2007, Pages 248-255 Global Water Intelligence, “Global Water Market 2008: Opportunities in Scarcity and Environmental Regulation”, London, 2008, and SAM Research Leupin, Olivier X. “Arsenic removal at the household level”, PhD Thesis, Swiss Federal School of Technology, 2004 Agriculture and Rural Development Unit, South Asia Region, “India’s Water Economy: Bracing for a Turbulent Future”, World Bank Report No. 34750-IN, December 22, 2005 The Manila Water Company, Inc. 2008 Sustainability Report
Marc-Olivier Buffle is an analyst in SAM's research team covering the water industry and technology sector. He has published numerous articles in peer-reviewed water treatment and environmental science publications, is the recipient of several awards for his work in the field of ozone research, and has patented various processes in water treatment technology. Marc-Olivier Buffle holds an MSc in Engineering from the Swiss Federal School of Technology (ETH) and a PhD in Water Treatment Marc-Olivier Buffle Analyst
Chemistry from the Swiss Federal Institute of Aquatic Science and Technology (EAWAG).
SAM – SUSTAINABILITY INVESTING
SAM is an investment boutique focused exclusively on Sustainability Investing. The firm’s offering comprises asset management, indexes and private equity. Its asset management capabilities include a range of single-theme, multitheme and core sustainability investment strategies catering to institutional asset owners and financial intermediaries in Europe, the United States, Asia-Pacific and the Middle East. Through its index activities, SAM has partnered with Dow Jones Indexes and STOXX Limited for the publication and licensing of the globally recognized Dow Jones Sustainability Indexes (DJSI) as well as customized sustainability benchmarks. Furthermore, SAM is the center of expertise for clean tech private equity within Robeco. Based on its Corporate Sustainability Assessment, SAM has compiled one of the world’s largest sustainability databases and analyzes over 1,000 listed companies annually. SAM’s proprietary research and sustainability data are fully integrated into its offering. SAM is a member of Robeco, which was established in 1929 and offers a broad range of investment products and services worldwide. Robeco is a subsidiary of the AAA-rated* Rabobank Group. SAM was founded in 1995, is headquartered in Zurich and employs over 100 professionals. As of June 30, 2009, SAM’s total assets amount to EUR 8.9 billion. * This rating does not apply to managed products.
IMPORTANT LEGAL INFORMATION: The details given on this page do not constitute an offer. They are given for infomation purposes only. No liability is assumed for the correctness and accuracy of the details given. Copyright © 2009 SAM – all rights reserved.
SAM Josefstrasse 218 · 8005 Zurich · Switzerland Tel. +41 44 653 10 10 · Fax +41 44 653 10 80 [email protected] · www.sam-group.com SAM USA, Inc. 909 Third Avenue · New York, NY 10022 Tel. 707 996-6500 · Fax 707 996-0909 [email protected] · www.robecoinvest.com
Insight
Water Crisis: Challenges and Opportunities in Emerging Markets Pristine water is becoming a rare commodity in many parts of the world. The situation is especially alarming in emerging countries with rapidly growing economies and populations like China, India, Bangladesh, and the Philippines. SAM’s water analyst Marc-Olivier Buffle explains how specific water challenges can be addressed and highlights investment opportunities in the water sector.
“(Governments) must make more and immediate investments in
infrastructure. Already today 2.4 billion people have no access to
water management and related infrastructure (…) water is such
proper sanitation infrastructure. In emerging countries, the main
a central consideration that it must be an integral part of all plan-
water challenges are scarcity, lack of infrastructure and contam-
ning and investments”. 1
ination. Although developed economies will also face serious
Ban-Ki Moon, Secretary-General of the United Nations
water issues (see box on page 7), emerging regions will be the most heavily impacted by this formidable challenge.
Mr. Moon’s call for more investments in water management and related infrastructure comes on the back of staggering evidence
Scarcity: The rapid increases in population and urbanization
that the unfolding water crisis will dwarf any other recent global
linked to the aspiration to western standards of living have led
challenges experienced by mankind. The statistics are over-
some emerging economies to struggle with their available wa-
whelming: while 550 million people will move to cities in the
ter resources. In many regions, economic growth is at risk due
next 20 years 2 – thus dramatically increasing the need for water
to an inadequate water supply.
1. China
2. Bangladesh
4. Philippines
3. India
1
FOUR EXAMPLES FROM REGIONS IMPACTED BY THE WATER CRISIS. Source: Shutterstock
Member of
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
Lack of infrastructure: Over the next 20 years, China’s cities
tance of installing treatment systems to reduce the impact on
are set to add 350 million people (more than the entire US
human health. The Bangladesh example (2) showcases a dra-
population). By then China will have 220 cities with more
matic situation where significant natural contamination of
than one million inhabitants (versus 35 in Europe) and 25
water is taking place and point of use treatment systems must
cities with more than five million people. The rapid construc-
be installed to minimize current mass poisoning. The Indian
tion of appropriate water infrastructure is essential to accom-
example (3) demonstrates the unsustainability of today’s wa-
modate such tremendous urbanization and population
ter irrigation practices causing appalling levels of scarcity, and
growth trends.
the potential solution offered by new irrigation technologies. The Philippine case (4) exemplifies how local private water
Contamination: Due to rapid industrial growth, historically
utilities have taken on global corporations and have been very
weak environmental regulations, and lack of wastewater
successful at addressing population needs in a rapidly grow-
treatment infrastructures, surface and ground waters in some
ing urban environment and complex social context.
emerging regions are highly contaminated. The four examples show the diversity of water challenges in The discussion on the following pages focuses on the water
different nations. At the same time they also demonstrate
crisis as it relates to emerging and frontier economies on the
that the know-how and the technologies to solve water issues
Asian continent. Four examples are presented in detail, from
are available and can be readily implemented for the benefit
the origin of the problem to the solution and potential invest-
of economic growth, environmental and human health and
ment implications. The Chinese example (1) demonstrates the
harmonious social development ultimately leading to sustain-
effect of industrial pollution on water quality and the impor-
able investment opportunities.
1. China: The Downside of Mining Various trends combine to make China’s water situation one
The village of Shangba (Guangdong Province), while an ex-
of the greatest challenges as the country enters the 21 cen-
treme example, does illustrate the challenge facing regions
st
2
tury. Urbanization, industrialization, historically weak envi-
undergoing rapid industrialization. The Dabaoshan mine, a
ronmental regulations, a per capita water consumption ap-
major Zinc mine which also produced up to 6,000 tons of
proaching that of the west and a population increasingly
copper and 850,000 tons of iron ore annually, has over the
aware of pollution’s impact on health are trends which have
years been the source of contamination of more than 500
set the scene for what will be one of the largest governmen-
hectares of agricultural land irrigated by the Hengshui river.
tal and private capital outlays in history, reaching USD 1.2 tril-
Surface water and ground water have been highly contami-
lion over the next 20 years.
nated by heavy metals such as lead and cadmium. The water
CONTAMINATION HAS COLORED THIS LAKE NEAR DABAOSHAN A BROWNISH RED. Source: Reuters
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
used for irrigating crops exhibited concentrations of heavy
that poor surface water quality (due to untreated municipal and
metals well above international standards. This significant intake
industrial wastewater discharges) had had a negative impact on
of heavy metals resulted in a very high incidence of cancer
economic growth (annual GDP loss of 1.5 – 2.8%). This incen-
among the 3,000 residents of Shangba.3
tivized the central government to focus on increasing China’s wastewater coverage, which translated into a USD 60 billion in-
While the situation may seem hopeless at first sight, a positive
vestment in wastewater infrastructure. The impact on the water
development has taken place. With the help of a major water
sector has been significant, with many private companies taking
technology provider and the will of local government officials,
advantage of this new market opportunity. Western visitors at
a drinking water treatment plant applying coagulation and
Shanghai’s Aquatech (an international water industry trade
multi-media filter treatment processes was installed in October
show) in June 2009 were impressed by the number of local wa-
2008. The system now reduces contaminants concentrations to
ter companies participating (> 300) and the variety of products
international standards.
displayed. In particular the large number of home treatment systems (point of use) was evidence that the Chinese population is
In recent years, China has significantly ramped up its efforts to
becoming increasingly aware of water quality issues; this repre-
increase wastewater treatment coverage. It had become clear
sents a key driver for future growth in the Chinese water sector.
WATER STATS
The Chinese water market is estimated at USD 40 billion per year, growing at 11% p.a. up to 2016. 40% of the market relates to municipal wastewater management, while 50% involves municipal drinking water management (not including point of use systems) and 10% industrial water treatment.4
2. Bangladesh: Natural Arsenic Poisons Drinking Water Bangladesh, a country with a population of 160 million, is lo-
due to consumption of water containing large concentrations
cated in the delta of major Himalayan rivers (Ganges, Brahma-
of arsenic. Unlike the industrial mine-induced pollution of
putra, Meghna) as they flow into the Bay of Bengal. The allu-
Shangba in the former example, the origin of groundwater
vial soil has made Bangladesh one of the most fertile regions
pollution in Bangladesh is geogenic (from the rocks).
in the world. Bangladesh is also the most densely populated
3
place on earth and has now become infamously known as the
Until the 1970s, the local population mostly used surface
region where the largest mass poisoning in human history is
water (i.e. water from ponds) for hygiene and nutrition. Un-
taking place. 50 million5 Bangladeshis are developing cancer
fortunately, live stocks also used the same ponds and lack of
HAND PUMP FOR GROUNDWATER EXTRACTION IN BANGLADESH. Source: Olivier X. Leupin
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
septic tank installations caused a high degree of microbial
The Bangladeshi government faces a serious dilemma: either
contamination of those waters, resulting in Bangladesh hav-
performing a U-turn and promoting the use of surface water
ing one of the highest infant mortality rates. UNICEF then
with its poor microbial quality, or continuing the use of con-
decided to help Bangladesh by installing hand pumps for
taminated groundwater (a solution usually favored by the
groundwater extraction (groundwater is often free of micro-
population due to its clear appearance). Whatever the final
bial contamination, as sand and soil act as filters). Between
decision, the favored approach will have to include treatment
1970 and 1990, 10 million tube wells were installed. This ef-
solutions, and local as well as international players will be
fort cut infant mortality rates by half.
able to help by providing water treatment technologies based on the latest developments.
In the 1990s health organizations started noticing an increase in cancer cases and especially in black foot disease (debilitating
Much research has been dedicated to this issue and a num-
pains in extremities and discoloring of the skin to a dark blue-
ber of technologies have been developed which can help
black color). Further investigations found the culprit to be large
solve the problem. The combination of ultraviolet or solar ra-
concentrations of arsenic in the groundwater. Arsenic is natu-
diation, iron and citric acid to the water can effectively re-
rally present as a mineral in the rocks and sediments washed
move arsenic. Also, filters using iron oxide, to which arsenic
down from the Himalayan foothills. Hence, unwittingly, one
has the tendency to bind, seem to be a viable option for mil-
evil was replaced by another: acute microbial intoxication by
lions of households. Much effort has also been spent on de-
chronic poisoning. In the 250,000 wells already tested, more
veloping test kits, which allow the quick determination of the
than half had concentrations of arsenic above international
level of contamination of a well without having to send the
health standards, some as much as 50 times too high.
water to expensive analytical labs.
WATER STATS
Today, the Bangladesh water market is estimated at USD 250 million, 20% for wastewater, 15% for industrial water and 65% for drinking water treatment and infrastructure. However, these numbers do not take the point of use market into consideration, which is one of the only viable options for arsenic removal in Bangladesh; this market is estimated at USD 0.5 billion.4
INTENSITY OF ARSENIC CONTAMINATED (50 µg/l) TUBE WELLS IN BANGLADESH Source: PERCENT OF TUBE WELLS HAVING ARSENIC CONTENT > 50 (µg/l) 26°
India 25°
24°
India 23°
22°
Bay of Bengal 21° 4
88°
89°
90°
91°
92°
93°
0 –1
25 – 30
1–10
50 –75
10 –25
75 –100
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
3. India: Harvesting More by Consuming Less Water Recently, a city in the state of Madhya Pradesh, central India,
warming. India is highly dependent on large rivers which flow
made some tragic headlines on reports that some residents
from the Himalayan range (e.g. Indus, Ganges). These rivers
had been killed for illegally tapping into water mains* for
are supplied by melted ice in the spring and summer. As the
their own household usage. The rationing of water distribu-
temperature increases, more ice will initially melt, temporarily
tion in this town had already been decreased from 30 min-
increasing water flows. However, the amount will rapidly de-
utes every other day to 30 minutes every third day because of
crease to flows well below today’s averages.
the very low water levels in the city water reservoir. Residents downstream of the network were exasperated by the situa-
The situation has reached such a critical point that the Indian
tion, found a scapegoat and decided to let mob justice take
government has now decided to subsidize advanced irriga-
its course.
tion technologies to improve efficiency of water use (see table). Drip irrigation is an increasingly applied technology
In India, where agriculture still accounts for 18% of GDP,
which can reduce water usage by 80% compared to flood ir-
groundwater has been used increasingly for irrigation pur-
rigation (most applied irrigation technique today). Beyond its
poses. Water used in agriculture represents 86% of water used in India (70% used globally) and given the explosive increase in population in India, water has been pumped at
WATER USAGE EFFICIENCY UNDER DIFFERENT IRRIGATION METHODS m3 water/kg crop
rates well beyond replenishment rates (rates at which rains
Crop
Conventional
Drip %
naturally “refill” the aquifer). In and around Delhi the water
Cotton
0.323
– 73%
table is dropping one meter per year. In many areas the most
Sugar beet
0.012
– 36%
visible consequence is the drying up of existing wells and the
Sweet potato
0.149
– 71%
drilling of ever deeper tube wells. While wells were typically
Beetroot
1.429
– 86%
30 meters deep a few decades back, they can now easily
Radish
0.444
– 80%
reach a depth of 400 meters.6
Papaya
16.667
– 81%
0.007
– 63%
Mulberry
In addition to this demand-led water scarcity, a supply-induced water scarcity is likely to occur on the back of global
Source: Cotton: Sivanappan et al., 1987; Sugar beet: Agarwal and Goel; Sweet potato, Beetroot and Radish: Sivanappan and Padmakumari, 1980; Papaya: Sivanappan, 1977; Mulberry: Muralidhara et al., 1994.
* Water main: main pipe transporting large volume of water, “arteries” of the network
GROUNDWATER CHANGES IN INDIA BETWEEN 2002 AND 2008 (LOSSES IN RED, GAINS IN BLUE) Source: I. Velicogna/UC Irvine/ 35°
30°
25°
20°
15°
10°
5° 5
65°
70°
75°
80°
85°
90°
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
efficient use of water, an additional advantage of drip irriga-
pollutants trickle through the soil and contaminate the
tion is a reduced need for herbicide and fungicide applica-
groundwater.
tion. Because of the pinpointed application of water, the risk of growing unwanted weeds or over-watering certain areas
Companies developing new irrigation technologies can be found
of patches causing fungal growth is significantly reduced, di-
in Europe, North America, China and the Middle East, but some
minishing the need for pesticides. Reduced agro-chemicals
Indian companies have become among the most active in the
application impacts water quality positively, as those micro-
field and will experience significant growth in the coming decade.
WATER STATS
India’s water market is estimated at USD 3.2 billion and is growing at 12% annually. It breaks down into 5% for wastewater, 30% for industrial water treatment and 65% for drinking water treatment and infrastructure. These numbers, however, do not include the potential micro-irrigation market which is estimated to grow at a 20% CAGR.4
4. Philippines: A Drop Saved is a Drop Won Greater Manila is a metropolitan area of 20 million people,
While in 1997 63% of the water was lost in the network or
or 22% of the total Philippine population. The city water
not accounted for, water losses were reduced to 20% by
supply was originally managed by the Manila Waterworks
2008 (see chart). In 1997, only 26% of the customers enjoyed
Sewerage System agency. In1997, pressure from Manila res-
water availability 24 hours a day, this is now above 99%. The
idents disgruntled by the poor water quality, frequent ser-
volume of water distributed to local residents has increased
vice interruption and insufficient connection coverage lead
by 230% to reach 1.3 billion liters per day and the water
to the privatization of the water supply services. Manila was
quality is now compliant with international water quality
split between two private companies. The east side of the
standards. Today, 1.5 million people are benefiting from the
city is now managed by a local player which, over the last 10
program Tubig Para Sa Barangay’ (TPSB), designed to in-
years, was able to turn the water distribution challenges
crease access to water for poorer communities. While the
around thanks to excellent management practices.
project started by providing groups of families with common
PERCENT REDUCTION IN LOSSES WATER Source: Manila Water Sustainability Report
SUSTAINABLE APPROACH: LADDERED TARIFF STRUCTURE Source: Asian Development Bank
70
2.0 63%
60
1.6 Tariff Rate USD per m3
50 40 30 20 20%
1.2
0.8
0.4
10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0.0 0
10
20
30
40
Monthly Household Consumption (m3) Seoul 6
Hong Kong
Osaka
50
60
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
taps, the TPSB program is now able to set up one connection
can be designed so that the first 50 liters – basic requirement
per household and provide 24-hour services.
per person per day to ensure hygiene and consumption
7
needs – are billed at an affordable rate for all, while conThere have been many difficulties for water utilities on the
sumption beyond the basic amount of water is billed at in-
path to privatization, mostly due to the sensitive political na-
cremental rates.
ture of the services provided. Heated debates were initiated on the part of non-governmental organizations criticizing the
Today, 95% of all publicly owned water utilities worldwide
lack of socially responsible management practices. In the last
do not recover their full costs through water tariffs and must
decade, however, much has been learned about some of the
be subsidized through taxes. Given the increasing level of
initial deficiencies of the system and many water utilities have
government debts, it is to be expected that the privatization
now fully embraced the concept of sustainability, thereby
trend of water utilities will continue. Having learned lessons
taking into account economic, environmental and social fac-
from the past, however, it is also to be expected that water
tors within their business strategy. Newer concepts such as
utilities will increasingly apply best-in-class social practices
smart tariffs (see chart) have been developed. Smart tariffs
leading to sustainable growth and investment opportunities.
WATER STATS
The Philippines water market will top USD 1 billion annually by 2020, with a growth rate of 7% p.a. Capital expenditure within the wastewater segment should experience double-digit growth, as this is where the infrastructure gap is still the largest.4
WATER CHALLENGES IN NORTH AMERICA AND EUROPE
In North America and Europe, regional scarcity, aging infrastructure and low-level contamination of water resources are the key challenges. Regional scarcity: The migration trends towards sunny regions and the increased water consumption per capita caused by
“water-intensive” hobbies and practices have led to serious water scarcity issues in those regions. Southern Europe and the US are implementing rationing measures which until recently North African regions were best known for. European coastal cities are building energy-intensive water desalination plants to accommodate demand peaks. Aging infrastructure: In North America and Europe, drinking water distribution networks contain large sections that were
built during the industrial revolution and are more than 100 years old. In many cases, municipalities have neglected to follow rigorous replacement plans and an increase in water main breakages can be observed. Aside from the potential catastrophic impact – elevated water pressure and volume released have the potential to destroy entire intersections and nearby buildings – such breakages and leakages are responsible for an average of 20% of the water disappearing between production plants and taps in OECD countries. When combined with the scarcity issue mentioned above, the situation is critical. In the US alone, USD 255 billion needs to be invested in water and wastewater infrastructure within the next 5 years.4 Low-level contamination of water resources: Developments in analytical chemistry have enabled the detection of pesticides,
pharmaceuticals and personal care products in many surface and ground waters. Increased understanding of the potentially negative impact of such low contaminant concentrations on human health and the ecosystem is prompting governments to regulate. Industrial and municipal wastewater systems, as well as drinking water treatment systems, would have to be upgraded to remove these contaminants.4 7
SAM Insight – 11/2009 Water Crisis: Challenges and Opportunities in Emerging Markets
REFERENCES 1 2 3
4 5 6
7
World Water Assessment Programme. 2009. “The United Nations World Water Development Report 3: Water in a Changing World”. Paris: UNESCO Publishing George Martine, “State of world population 2007: Unleashing the Potential of Urban Growth” United Nations Population Fund, UNFPA 2007 A. Chen, C. Lin, W. Lu, Y. Wu, Y. Ma, J. Li and L. Zhu, Chemosphere, “Well water contaminated by acidic mine water from the Dabaoshan Mine, South China: Chemistry and toxicity”, Volume 70, Issue 2, December 2007, Pages 248-255 Global Water Intelligence, “Global Water Market 2008: Opportunities in Scarcity and Environmental Regulation”, London, 2008, and SAM Research Leupin, Olivier X. “Arsenic removal at the household level”, PhD Thesis, Swiss Federal School of Technology, 2004 Agriculture and Rural Development Unit, South Asia Region, “India’s Water Economy: Bracing for a Turbulent Future”, World Bank Report No. 34750-IN, December 22, 2005 The Manila Water Company, Inc. 2008 Sustainability Report
Marc-Olivier Buffle is an analyst in SAM's research team covering the water industry and technology sector. He has published numerous articles in peer-reviewed water treatment and environmental science publications, is the recipient of several awards for his work in the field of ozone research, and has patented various processes in water treatment technology. Marc-Olivier Buffle holds an MSc in Engineering from the Swiss Federal School of Technology (ETH) and a PhD in Water Treatment Marc-Olivier Buffle Analyst
Chemistry from the Swiss Federal Institute of Aquatic Science and Technology (EAWAG).
SAM – SUSTAINABILITY INVESTING
SAM is an investment boutique focused exclusively on Sustainability Investing. The firm’s offering comprises asset management, indexes and private equity. Its asset management capabilities include a range of single-theme, multitheme and core sustainability investment strategies catering to institutional asset owners and financial intermediaries in Europe, the United States, Asia-Pacific and the Middle East. Through its index activities, SAM has partnered with Dow Jones Indexes and STOXX Limited for the publication and licensing of the globally recognized Dow Jones Sustainability Indexes (DJSI) as well as customized sustainability benchmarks. Furthermore, SAM is the center of expertise for clean tech private equity within Robeco. Based on its Corporate Sustainability Assessment, SAM has compiled one of the world’s largest sustainability databases and analyzes over 1,000 listed companies annually. SAM’s proprietary research and sustainability data are fully integrated into its offering. SAM is a member of Robeco, which was established in 1929 and offers a broad range of investment products and services worldwide. Robeco is a subsidiary of the AAA-rated* Rabobank Group. SAM was founded in 1995, is headquartered in Zurich and employs over 100 professionals. As of June 30, 2009, SAM’s total assets amount to EUR 8.9 billion. * This rating does not apply to managed products.
IMPORTANT LEGAL INFORMATION: The details given on this page do not constitute an offer. They are given for infomation purposes only. No liability is assumed for the correctness and accuracy of the details given. Copyright © 2009 SAM – all rights reserved.
SAM Josefstrasse 218 · 8005 Zurich · Switzerland Tel. +41 44 653 10 10 · Fax +41 44 653 10 80 [email protected] · www.sam-group.com SAM USA, Inc. 909 Third Avenue · New York, NY 10022 Tel. 707 996-6500 · Fax 707 996-0909 [email protected] · www.robecoinvest.com
