Global water scarcity has been recognized by the World Economic Forum as the most serious risk for our planet. Population growth and urbanization are having a fundamental impact on the global water balance. Long-term trends include the increasingly higher standard of living, industrialization in the emerging markets, and outdated water infrastructure in the industrialized countries. There also short-term concerns such as the treatment of ships’ ballast water, and the development of shale gas. Ballast water is carried by cargo ships as a counterweight in order to optimize their maneuverability. It is treated at the destination port.
Population growth: a long-term underlying mega trend
The global population is growing. The world's population stood at 7 billion in 2011, and is expected to reach 8 billion by 2025, according to the United Nations. We therefore anticipate the following significant effects on the water market:
- Growing demand for drinking water
- An expanding middle class accompanied by a higher standard of living
- Increasing demand for food, with a large share of this being covered by water-intensive agricultural produce, as well as greater consumption of land- and water-intensive meat products, and higher demand for personal care products
Urbanization: a long-term underlying mega trend
In 1950, only 20% of the world's population lived in urban areas. This figure will rise to 70% by 2050. The global urban population surpassed the world's rural population in terms of numbers back in 2008. In the emerging markets, there is significant catch-up potential. The development of water resources as well as the treatment and distribution of water are issues here.
- In the industrialized countries, there is an urgent need for outdated systems to be replaced, as water loss due to inadequate infrastructure is enormous.
- The huge need for investment requires alternative financing approaches. Problems with water quality in urban centers are becoming ever more pressing. We anticipate a shift of public funds to the private sector, leading to profitable business opportunities.
- In the emerging markets, investments are increasingly being made to develop essential water and waste water structures. With urbanization, countries have no choice but to invest in their water infrastructure. It is here that we also see the best investment opportunities.
- Industrialization strategies lead to the emergence of industrial parks in urban areas. These increase water consumption levels.
- Urbanization and industrialization are associated with rising energy needs. Water is needed for almost all types of energy production.
Short-term factors support this investment recommendation
- Transport ships’ ballast water has to be treated.
- Climate change is becoming noticeable. Long-lasting droughts, or conversely floods, call for solutions in the affected countries.
The impact-investing perspective
Industrial agriculture and climate change are causing droughts to occur more often. Some 70% of current global fresh water demand goes to agriculture. Impact investments offer numerous solutions for easing the problem of global water scarcity.
In emerging markets
- The development of high-precision irrigation methods for small-scale farmers in agricultural communities
- Improvement of access to water in regions frequently affected by drought (construction of wells, water transport)
- Development of regional centers for drinking water, sanitation facilities, and hygiene ("WASH")
In industrialized countries
- Development of water-saving technologies that lead to financial savings and greater resource efficiency (toilet flushing, water meters)
Composition of the water market
The composition of the water market is complex. It includes several sub-sectors and industries that can be roughly divided into two groups: industry and water providers.
- The total market volume currently stands at around USD 500 billion to USD 600 billion a year.
- At 35%, water and waste water treatment suppliers represent the water market's biggest single category.
- Some 65% are primarily suppliers of water technology. They provide systems to develop water resources, as well as water distribution and treatment.
- The treatment of ballast water is currently a niche market. With expected annual growth of 20%, it is, alongside desalination (growing at over 10% per year), one of the water sector's fastest growing end markets.
Composition of a market valued at USD 500 billion to USD 600 billion.
Investments in the water sector are set to attract increasing attention in both the emerging markets and industrialized countries. The problem of water scarcity is global in scale. Companies that are well positioned in this regard have a good outlook for sustainable and continuous growth. The longer-term growth outlook is promising. We anticipate that demand for water will far exceed supply over the coming decades and will necessitate additional investments in water systems.
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