Former UN Secretary General Boutros Boutros Ghali presciently said, “Future wars will not be about oil but about water.” He was prescient enough to understand that water - or the lack of it - not global warming will be the defining problem of the twenty first century.
Those of us living in Israel understand this better than most. A shower a day may soon be a luxury. Mekorot CEO Ronen Wolfman announced, “The Kinneret’s level is at the lowest registered in the past four years.” Just before Rosh Hashana, the company announced that, if next winter is as dry as last one, it will be necessary to make cuts in supply, and the public will be forced to change their water consumption habits.
According to Baruch (Booky) Oren, President and CEO of Arison Water Initiative, the Israeli Water Technologies and Environmental Control Organization, the world water market stands today at approximately $504 billion: “About 2 billion people around the world either lack access to sufficient quantities of water, or are supplied with water unfit for drinking,” he says, “and this shortage is going to worsen in the near future due to the rise of world’s population and to the redistribution of water recourses due to global warming.”
Joerg Baur from the Swiss Bank UBS explained further at an event for the Israel Venture Network. “Increased demand from the increased industrial production in emerging markets has strained worldwide water resources. Underinvestment in infrastructure has resulted in great inefficiencies. Cities like London and Shanghai are wasting more than 60% of their water supply due to something as simple to fix as leaky pipes.”
To correct a “simple” problem like leaky pipes, governments will be required to lay out enormous sums of money. In the UK alone, it is estimated that the government will be spending $40 billion on water infrastructure over the next five years. The outlay of the US government could exceed $900 billion just to maintain the infrastructure. Over the next several years, China will part with $125 billion to clean up and improve the quality of its water.
The UBS report on water reads like a Steven King novel. Without water, you can survive three days. Without water, there is no food on earth. Without it, there is no industrial production. No wonder water is called the liquid gold.
Baur further elaborated, “The production of one kilogram of beef requires up to 15,000 liters of water. The production of one cotton T shirt requires 2000 liters of water.” Cotton crops need substantial irrigation during the summer months. The audience was stunned into silence by these statistics. Some vowed to become a vegetarian for the purpose of saving water, if not animals.
The lack of water is exacerbated by water pollution. According to Baur, 40% of the surface water in the United States is considered unsafe for swimming and fishing, let alone for drinking. More than 70% of all rivers in China are polluted, and half of the urban ground water there is contaminated. In Europe, 65% of drinking water drawn from groundwater is contaminated by harmful substances. In Africa, the water situation is describes as increasingly desperate.
Israel is uniquely equipped to solve the water crisis. “Necessity is the mother of invention,” says Oren. “Water shortage is a problem we in Israel have been acquainted with for quite some time. We’re situated in one of the most arid regions in the world, and we have always had to develop new ways of national water management, drip irrigation, recycling and purifying wastewater, water desalination and even alternative energy-geothermal power technologies. As a result, Israel is poised to play a major role in supplying the world with cutting-edge water and environmental solutions,” he asserts.
“Israel has an incredible diversity of climate types,” says Booky Oren. “As a result, we have situated ourselves as a prime beta-site for developing new water and environmental technologies. The national Mekorot water company has 3,000 installations, which have served as test-bedding for more than 200 new water and environmental technologies. Besides that, you have the technological entrepreneurial spirit here, with more venture dollars invested than in most US states or countries in the world. The result is a huge variety of proven water and environmental solutions.”
Desalination today is cheaper than ever before; technologies enable us to use water more sparingly. But it’s not enough to simply manufacture water or even save it. “You need to take a comprehensive approach; only by examining the entire package can you see outside the box,” Oren emphasizes.
“In Israel, we produce 25% of our water consumption and that will rise to 40% in 5 years. There is no point in putting up desalination plants for water that is transported through polluted or leaky pipes, and a third of it never makes it to the tap. Also, we need to remember that water and energy technologies are swiftly becoming one. Today you don’t consume one without consuming the other that’s energy used to make the water usable. The linkage between water and energy, the overall efficiency, needs to be considered to minimize the global warming effect. You’re not going to use energy-rich 100% purified water for agriculture, for example.”
Logically, with all this spending, there will be opportunities for the savvy investor. Water utilities, desalination and chemical treatment companies, producers of pumps, pipes and other infrastructure needs, sanitation and irrigation device makers, and water consultants look to be the primary beneficiaries.
In Israel, there are several venture funds concentrating on water technology like Altshuler Shaham's "Green Fund", Triple 7 (Tal Treatment Technology), Gaon Agro, and Kinrot. Dan Moses from Debby Communications mentioned, “There is a water technology conference in Tel Aviv. More than 180 companies will be participating. This is an incredible achievement for a country with 7 million citizens.”
Mr. Oren predicts, “In the future, exports from Israel of water technology will top those of hi tech.”
Some obvious international investments are the stocks of water utility Vivendi, Nestle, the owner of the number-one bottled-water company worldwide, and Coca Cola. UBS is following a different approach by investing in several stocks in the water field including American States Water Company, a supplier of water services to the military; water utility Aqua America; filtrations company Pall; and Thermo Electron.
The investment in Thermo Electron caught the eye of this writer. The Environmental Protection Agency has found that the installation of water meters like the type produced by Thermo Electron can produce a savings of up to 15%. Soon, they will be as de rigueur as air conditioning in a building. Efficiency will be to the year 2020 like extravagance was to the 1980s.
UBS has created the Water Strategy Certificate to give investors easy access to innovative companies in the water field. It is an actively managed basket of 25 international stocks. To be selected for the Water Strategy Certificate, the company must have one third of their sales in the water field. A UBS publication has listed these companies as possibilities for inclusion in the basket, but there is no guarantee: Canadian Hydro, a developer of low impact energy projects including those with water; Manila Water, California Water Service Company, the largest water utility in the Western United States; Instuiform Technologies whose products rehabilitate pipes; the operator of water treatment plants BioTeQ, and water consultant Tetra Tech.
Investing in the water field will not be like panning for gold. There will not be instant profits. It is taking a long time for people to understand that global warming is not an urban legend. It will take even longer for them to believe that water, the neglected stepsister of global warming, is an even more dire threat.
Booky Oren summed it up best, “We need to make peace with our neighbors because of water, instead of fighting wars over water.”
Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG capital, from Tel Aviv. She is an independent commentator, and her views do not necessarily represent those of "Globes".
Published by Globes [online], Israel business news - www.globes.co.il - on October 30, 2007
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