Water shortage

The FINANCIAL — Global economic growth is increasing the demand for water, while the supply of water is also under pressure.

The FINANCIAL — Global economic growth is increasing the demand for water, while the supply of water is also under pressure. As a result, more countries are becoming “water stressed” and exposed to the risk of shortage. In 2010 about 800 million people did not have clean drinking water and more than 2.5 billion people lacked proper sanitation.

Water is not just crucial for drinking and sanitation, but economic growth and development, including power generation, farming crops, transport, tourism and mining.

“Natural capital” factors – air, land, water and habitats – underpin the ability of economies, corporates and consumers to operate. As the quantity and quality of natural capital components change, productivity can be affected.

Climate change is also having an effect. Higher global temperatures increase evaporation, which further dries out arid areas and increases the risk of flooding in wet areas. This destabilises glacial melt and rainfall and makes water supply more difficult to predict. In countries such as India, which uses more water than any other G20 nation, the monsoon season has been badly affected.

Oil refineries, textile factories and power plants in India have already been forced into temporary closures.

Water supply per head in the G20 nations has declined in the past 50 years, while demand is forecast to increase sharply by 2030.

In the G20, the countries most affected by “water scarcity” are Saudi Arabia and South Africa. Water scarcity is defined by the Falkenmark Indicator as less than 1,000 cubic metres of water per person per year. South Korea and Germany are water stressed, which is less than 1,700 cubic metres.

China is also at risk of water shortages. Many industries in the country rely on water to produce goods. Nearly half of China’s GDP comes from businesses located in provinces that are water scarce.

In Chile, which produces one third of the world’s copper, more than 90 per cent of production comes from water-stressed or water-scarce regions.

Access to water will become increasingly important for economic productivity. A water-stressed country may struggle to meet growth targets.

This year is likely to mark the beginning of a new climate agenda. Governments are starting to manage water risks and there are signs that water use is becoming more efficient. Saudi Arabia and the United Arab Emirates have been getting water from desalination plants for more than 30 years, but currently only 0.6 per cent of the world’s water supply comes from 15,000 desalination plants. This is likely to increase because the costs of the process are falling.

Many countries are finding new ways to conserve resources. China is setting tough new water quotas, while Australia uses restrictions and sets prices in times of drought.

Water is essential for economies to prosper. The assessment and management of natural capital is becoming more important, particularly for countries such as China and India that have large and growing populations.