Water: Emerging importance of private investment
Water is becoming an ever more urgent problem as resources dwindle, while demand for clean water and sanitation increases. According to the UN, only one third of countries in the world will have sustainably managed water resources by 2030. The need for investment is urgent.
Although the developed world is far from immune, the problem is clearly most acute in developing countries. In North America and Europe 96 per cent of the population have access to safe drinking water, but this drops down to 75 per cent in Latin America and the Caribbean, 62 per cent in Central and Southern Asia and just 30 percent in Sub-Saharan Africa.
The good news, according to members of the Advisory Board of Pictet Asset Management’s Water strategy, is that private investment in water resources is growing across emerging markets.
Research by the Advisory Board shows that private sector participation (PSP) in the water sector now covers 21 per cent of the world population, up from 8 per cent two decades ago. Such activity is vital as governments are increasingly unable to provide necessary investment due to tight budgets and ageing infrastructure. The private sector can help breach that funding gap, as well as bring expertise.
Some of the strongest growth has come from within emerging markets in Asia. In India, for example, the private sector had almost no involvement in water and sewage 20 years ago. Today, it covers the water needs of approximately 150 million people – a testament to coordinated efforts by the government and multilateral financial institutions. China has also seen private investment grow very strongly, while outside Asia, Brazil and Columbia stand out.
Investment growth has been particularly high in sewage – an area that is crucial to our well-being and to the achievement of UN’s Sustainable Development Goals (SDG). SDG 6 calls for universal access to both water and sanitation, as well as seeking to halve the discharge of untreated water and improve water use efficiency.
Local players
Common to many of these private initiatives is the fact they involve regional and local water companies – a remarkable shift in an industry that has historically been dominated by two French water management giants. While in 1991-2000 half of all the private water treatment contracts went to international players, in the last decade that proportion dropped to just 14 per cent.
One potential for growth for local water firms is international expansion. Our Advisory Board members point out this is already occurring in South East Asia, with many Singapore-based water firms expanding into China and Malaysian companies into Indonesia.
Populations are growing, urbanisation is increasing and people are becoming increasingly wealthy – all of which leads to more demand for water and sanitation, and more need for investment. By 2030, the Advisory Board’s analysis suggests that an additional 400-500 million people will be covered by PSP across water and sewage.
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