Water infrastructure: Investing in water is a Supertrend
Water is a precious and scarce resource. In the next few years, major investments in water infrastructure will be necessary. Water thus affects the core of the infrastructure supertrend. For cautious investors, investing in water is doubly exciting.
Do you know, how much water is in a cup of coffee? In the legalese of EU directives, it is precisely defined as 120 milliliters – with seven suggested grams of coffee beans. In reality, however, much more is involved if we include the water required for producing that cup of coffee, from sowing the crops to roasting the beans. In this case, the figure adds up to 140 liters of water for a single cup of coffee!
The concept of “virtual water” can be applied across all aspects of life, and casts an entirely new light on many items we consume every day. According to UNESCO, the average European consumes 4,000 liters of virtual water each day – and more than half of that is imported. The following illustration uses everyday examples to depict how the urban lifestyle of the growing global middle class is draining the world’s water reserves.
Access to Water Is Becoming a Challenge
Here’s the thing: because the urban lifestyle of a growing middle class puts pressure on the local fresh water reserves, particularly in major urban areas, there is no alternative to making a drastic expansion in water infrastructure. In fact, the G20 nations anticipate the greatest development of infrastructure in history. In Asia, North and South America, parts of Africa, and even in Europe, local lifestyles are increasingly testing the limits of the existing infrastructure.
This gives rise to a genuinely Herculean challenge – but also to a great opportunity. Just 20 years ago, it was possible to dig relatively shallow wells in China, Mexico or Central Asia, and find groundwater. Today, a shaft must sometimes be 500 meters deep or more to reach water. It takes centuries for underground water reservoirs to refill.
China Is Investing Massively in Water Infrastructure
This is why China has been investing for years in industrial agriculture and transport infrastructure in the equatorial belt, where rain is plentiful. Growing crops at the equator and transporting them to China is nothing more than virtual water trade. Clearly, we need one thing above all: more smart infrastructure.
Worldwide, around two thirds of demand for water stems from agriculture. When groundwater subsides, seawater desalination becomes the only practical alternative in some regions. In China alone, more than 450 large-scale desalination plants have come online over the last decade. Nonetheless, 400 of the country’s 668 cities regularly experience water shortages.
Billions of US dollars will be necessary in the next 20 years for the expansion of the energy and water infrastructure.
Energy and Water Infrastructure as a Supertrend
Desalination is expensive. More than half of the operating expenses of a desalination plant are due to electricity costs, which are estimated at around USD 600 billion per annum. This corresponds roughly to China’s entire annual GDP growth, or nearly the total annual GDP of Switzerland. In other words, electricity and water constitute an “Infrastructure” supertrend.
In the future, increasing numbers of people will come to three interlinked conclusions. First, that without the use of energy (for desalination or transport), there will be too little drinking water in their immediate vicinity. Second, that agriculture cannot function without fresh water. And third, that especially in many densely populated regions of the world, electricity, water and food will be inseparably linked.
Investing in Water Intelligently
This is a challenge for the generations, but it can be overcome. The G20 estimates that investment requirements to expand energy and water infrastructure will exceed USD 34 trillion over the next 20 years. This may be a huge sum, but it corresponds to “just” 1.3% of global gross domestic product (per year).
So, intelligent investments in this supertrend are doubly smart. On the one hand, demand that is often guaranteed over the long term, stable and defensive returns thanks to high barriers to market entry, and government support are key points of this investment strategy. On the other hand, a careful selection ensures both economic and social benefits.