Water, water everywhere

Q Experts are always quoting the effects of a shortage in oil, copper and other commodities, but what about water? With severe droughts and the effects of global warming, should investors not look to investment opportunities in this other scarce resource?

A Cholera may return to London, a mass migration of Africans could cause civil unrest in Europe and China's economy could crash by 2015 as the supply of fresh water becomes critical to the global economy.

That is the bleak assessment made by forecasters from some of the world's leading corporate users of fresh water including 200 of the largest food, oil, water and chemical companies.

Analysts from corporations, such as Shell and Coca-Cola, foresee growing civil unrest, 'boom and bust' economic cycles in Asia and mass migrations to Europe. But they also say scarcity of water will encourage the development of new water-saving technologies and better management of water by business.

The International Water Management Institute, the world's leading body on fresh water management, confirms that water scarcity is increasing faster than expected. For example, in China, authorities have begun trucking in water to millions of people after wells and rivers ran dry in the east of the country.

"Globally, water usage has increased by six times in the past 100 years and will double again by 2050, driven mainly by irrigation and demands of agriculture," said Frank Rijsberman, director of the institute.

"Some countries have already run out of water to produce their own food. Without improvements... the consequences will be even more widespread water scarcity and rapidly increasing water prices."

Rising living standards in India and China could also lead to increased demand for better food, which would in turn need more water to produce. The price of water can be expected to increase everywhere to meet an expected 50 per cent increase in the amount of food the world will need in the next 20 years.

According to the institute's assessment, Egypt imports more than half its food because it does not have enough water to grow it domestically and Australia is faced with water scarcity in the Murray-Darling Basin as a result of diverting large quantities of water for use in agriculture.

The future

It has been suggested that within the next decade, 22 mega-cities with populations larger than 10 million will face major water and sewerage problems.

The situation is gravest in China, where 550 of the country's 600 largest cities are running short. Growing demand for water by industry leads to serious over-exploitation with less and less water available for consumers and farmers.

Opportunities for investors

Water infrastructure is completely outdated and a funding gap has developed - in the US $534 billion and in Europe €330 billion. The World Bank estimates that the required investment in the sector to cover basic services worldwide is US$60-$80 billion each year, but only 40 per cent of this is effectively invested.

From an investment perspective, water is a commodity often overlooked despite the fact that it is essential for life and has no substitute! Investment funds exist that buy solely stocks in the water sector, such as water supply, technology, packaged water and environmental services.

Returns from these funds have been double that of the MSCI World Index over one and three years. There is no doubt that opportunities exist for investors to 'tap in' to this booming sector.

(Sources: WWF, International Water Management Institute, The Guardian)

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Mark Hollingsworth is the director of Hollingsworth International Financial Services - licensed by the MFSA to provide investment services under the Investment Services Act 1994 (IS/32457). Address any financial questions to: Mark Hollingsworth, c/o The Sunday Times, PO Box 328, Valletta CMR 01. Alternatively, he can be contacted on 2131-6298/9984-2614 or e-mail mh@hollingsworth-int.com.

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