Water is on course to be scarcer than oil by 2030, with demand outstripping water supply by 40%. Unless more sustainable water management practices are adopted, 45% of projected 2050 global GDP at 2000 prices could be at risk – equal to $63 trillion.
The global water services industry is set to double to $1 trillion in annual revenues by 2020 as companies address the growing problem of water scarcity, according to a new report by Bank of America Merrill Lynch.
The report outlines three themes of addressing water scarcity, explaining the challenges and opportunities in each area and identifies companies that have the greatest exposure to water scarcity. The themes are:
Water Infrastructure and Supply
Water treatment – emerging market growth driving demand
Rising water scarcity and growing demand from agriculture, housing, and industry will increase demand for water treatment. As industries across emerging markets expand, their demand for water rises.
Opportunities lie in areas such as producing drinking water, irrigation, or returning water to the natural environment, according to the report. For instance, desalination could emerge as a $25 billion industry by 2025.
Water management – smarter irrigation is key
Effective water management enables users to cut the use of water, mitigates the risks associated with water shortage, and reduces the need for capex-intensive solutions.
With up to 60% of water used in agriculture wasted, smarter irrigation is essential. Household water management has huge potential – if all U.S. households installed water-saving features, the dollar-volume savings would be more than $4 billion per year. Companies involved in areas such as drought-resistant seeds and crops and smart metering are poised to benefit from appetite for water management.
Water infrastructure and supply – growing role of private finance
Annual water investment needs are estimated to rise to more than $770 billion for the OECD and BRICs by 2015; the private sector will need to play a greater role in funding.
Water infrastructure is currently a $360 billion-plus market and is registering growth of up to 6% in some segments. Scope for growth is especially strong in Latin America and Asia. Companies involved in engineering, construction and consulting, pipes, pumps and valves, and sewage treatment.
“By addressing the issue of water scarcity, companies can reduce the likelihood of social unrest and trans-boundary disputes,” said Sarbjit Nahal, equity strategist at Bank of America Merrill Lynch Global Research.