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September 13, 2010

Global water shortages will pose major challenges

Due to population growth, rapid urbanisation, rising farming and climate change, the world is facing a severe shortage of fresh water, particularly in developing economies. A lack of water will put pressure on food prices, constrain developing countries' poverty reduction efforts and hamper economic growth. This will however create opportunities for businesses in the water and wastewater industry as well as those providing water saving products and technologies.

Key points

  • Due to rapid population growth, urbanisation and increasing farming, there will be a growing shortage of fresh water all over the world. According to the World Health Organization (WHO), about one fifth of the world's population in 2009 lived in countries that did not have enough water for their use;
  • Environmental degradation and climate change has further weighed on the water shortage problem as they contaminate water resources and reduce the natural storage of water;
  • Water shortage will pose major global challenges as it would depress agricultural production and lead to an increase in food and water prices. This will affect consumers' disposable income, businesses' profits and economic growth. Water can also become a source of conflicts between communities and countries;
  • Developing countries are more severely affected by water shortages problem. Lack of clean water results in health concerns and human loss caused by poor sanitation and high levels of poverty. These will in turn hamper their economic growth. Countries in North Africa are amongst the most affected by degraded water quality in the world;
  • In 2009, only 46.6% of the rural world population had improved access to sanitation facilities compared to 78.8% of the urban world population and over 80.0% of the sewage in developing countries is discharged untreated in receiving water bodies;
  • Water scarcity will prompt countries, individuals and businesses to implement water saving measures. This will create opportunities for businesses providing water saving products and technologies as well as businesses in the water and wastewater industry.

A liquid asset under pressure

  • Water is an essential resource to sustain life. While the planet has a finite supply of fresh water, the demand for it is growing rapidly as a result of population growth, rapid urbanisation and increasing farm production
  • The world's population rose from 6.1 billion people in 2000 to 6.8 billion in 2009 and is forecast to reach 7.6 billion in 2020. This will lead to an enormous rise in the demand for fresh water;
  • Rapid urbanisation puts a strain on access to safe drinking water and adequate sanitation facilities, particularly in developing countries that are already suffering water shortages. By 2020, 55.6% of the world population will live in urban areas, up from 46.8% in 2000. Between 2004 and 2009, the urban population in emerging and developing countries recorded a period growth of 12.6%, compared to 4.5% in the developed world;
  • Agriculture accounts for the largest share of the world's total fresh water consumption, mainly because agriculture requires large amounts of water. According to the United Nations (UN), agriculture uses about 70.0% of all water withdrawals while industry and domestic activities take about 22.0% and 8.0% respectively;
  • Globally, agricultural production has increased significantly to feed the growing number of people. For example, India's agricultural output index, an index measuring the growth of agricultural output with 1999-2001 as the base period, rose from 103.0 in 2004 to 132.2 in 2009. Rising farm production means an increasing amount of water will be needed;
Agricultural output indices in selected countries: 2004- 2009
1999-2001=100
Source: Euromonitor International from UN Food and Agriculture Organisation.
  • Water is also needed for the production of energy of all types. An expansion of energy supply, therefore, also affects water resources. Due to rising demand driven by economic and population growth, energy production all over the world has been on a swift rise. Between 2004 and 2009, the world's production of electricity saw a period growth of 30.8%;
  • According to WHO, in 2009, about 1.2 billion people lived in areas where water is physically scarce such as in the Middle East, South Asia and sub-Saharan Africa. One quarter of the world population live in developing countries which face water shortages due to a lack of infrastructure to fetch and withdraw water.

Pollution and climate change weigh on water resources

While demographic and economic changes exert pressures on water resources, environmental degradation and climate change has worsened the global water shortage problem:

  • Water supply has been affected by the loss of watersheds due to deforestation and soil erosion. A watershed is a drainage basin which allows for natural water to drain into a body of water like a lake or a reservoir. In Latin America, for example, the total forest land area declined from 993 million hectares in 1990 to 908 million hectares in 2009;
  • Due to rapid industrialisation and a lack of wastewater treatment system, a large number of surface and ground water is contaminated and thus not safely available for human use. According to Greenpeace International, about 70.0% of lakes, rivers and reservoirs in China are polluted. Water pollution is also severe problem in Brazil's two largest cities Sao Paulo and Rio de Janeiro;
  • Climate change has affected the entire water cycle, reducing water resources. Also, global warming has speeded up the hydrological cycle and increased evaporation will make drought conditions more prevalent. Australia, for example, has experienced more droughts since early 2000s. On the other hand, flooding becomes more frequent and damaging due to more intense rainfall events. Floods contaminate water resources and destroy water supply systems in affected areas.

The implications of water shortage problem on economies, businesses and consumers

Water shortages will have major impacts on consumers, businesses and the global economy:

  • Water shortages will depress agricultural yields, thus posing a severe threat to the global food security. This adds pressure on food prices and imports. In developing and emerging economies, food prices have been rising significantly due to population growth and a growing demand for more resource intensive food. The index of food prices in Russia almost doubled from 449 in 2004 to 831 in 2009 (1995=100). Rising food prices will weigh on people's disposable income, thus impacting consumption and economic growth;
Index of food prices in selected emerging economies: 2004 and 2009
1995=100
Source: Euromonitor from trade sources/national statistics.
  • A lack of clean water and sanitation cause more diseases, thus increasing health concerns and human loss, particularly for the poor. This will, in turn, exacerbate poverty incidents in developing countries, having a negative impact on private consumption and economic growth. In 2008, less than 10.0% of the population in African countries like Uganda, Zambia and Rwanda had access to water supply;
  • Also, developing countries are more severely affected by water shortage problems than developed economies due to a large share of agriculture in their economy. A lack of water will distress the growth of economies such as India and China which do not posses enough reserves of fresh water while water demand is exploding;
  • Conflicts may arise in water-stressed areas among local communities and between countries, undermining business environment. India and Pakistan have long disputed over hydropower on the river Indus. Also, there have been ongoing disagreements between Southeast Asia countries in governing the Mekong River;
  • Water scarcity has urged consumers and companies to implement water saving measures. This will create opportunities for businesses that focus on producing water saving products and technologies. Businesses in the water and wastewater industry will also have opportunities to expand due to the rising demand for clean water as well as the demand for wastewater treatment and recycling.

Prospects

Water shortages will continue to be a critical problem which prompts governments, businesses and consumers' actions:

  • According to the forecast of the UN Food and Agricultural Organization, by 2025, 1.8 billion people will be living in countries or regions with absolute water scarcity, and two thirds of the world population could be under water stress conditions. This will pose a major challenge to countries;
  • China and India will continue facing severe water shortages problem due to fast economic growth and urbanisation. According to the World Bank, China may have a supply shortfall of 201 billion cubic metres by 2030. Water shortages will hamper economic growth in these countries;
  • Water scarcity is also likely to worsen where population growth is still high, as in sub-Saharan Africa, South Asia and some countries in South America. This will affect poverty reduction efforts in these regions. India, Indonesia and Pakistan have high poverty rates – defined as population living below international poverty line (US$1 per day), which stood at 41.6%, 29.4% and 22.6% of the population in 2007 respectively;
  • To tackle water shortages, countries have called for more efficient use of water, a restraint in water usage as well as to protect the ecosystems and prevent water pollution. India, for example, has made it mandatory for new houses and condominiums in cities to collect rainwater in an effort to curb a decline in groundwater levels. In the United Kingdom, 21 leading food and drink manufacturers signed in 2008 an agreement to pledge to reduce their water use by 20.0% by 2020. Conscious consumers have reduced their consumption of meat in an effort to save water;
  • Due to water scarcity, there will be a continuing transformation in industrial production and technologies. Household appliance manufacturers, for example, are already focussing on water savings right alongside energy savings in their product designs. There has been research to find out agricultural technologies which use less water. Desalination of seawater is set to become more widely used as technological developments are causing desalination prices to fall.

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