Market News

 November 25, 2009
Charting our water future


A report on global water resources released Monday said that governments must address booming water demand or face grave human, environmental and economic consequences.

The report, released by the 2030 Water Resources Group shows that one-third of the world's population would have a 50% deficit in water supply by 2030 if no action is taken, but that growing water scarcity can be mitigated affordably and sustainably if action is taken now

Growing competition for scarce water resources is a growing business risk, a major economic threat, and a challenge for the sustainability of communities and the ecosystems upon which they rely. It is an issue that has serious implications for the stability of countries in which businesses operate, and for industries whose value chains are exposed to water scarcity.

"Water needs to rise up the totem pole of political discourse,'' said Giulio Boccaletti of McKinsey, the consulting firm that wrote the report, during a press conference. "We need to stop flying blind in making decisions about water without a map on the table.''

The report, Charting Our Water Future, says that that in 20 years, water demand will be 40 percent higher than it is today, and more than 50 percent higher in the most rapidly developing countries. Historic rates of supply expansion and efficiency improvement will close only a fraction of this gap.

In the world of water resources, economic data is insufficient, management is often opaque, and stakeholders are insufficiently linked. As a result, many countries struggle to shape implementable, fact-based water policies, and water resources face inefficient allocation and poor investment patterns because investors lack a consistent basis for economically rational decision-making. Even in countries with the most advanced water policies there is still some way to go before the water sector is managed with the degree of sophistication appropriate for our most essential resource. Without a step change improvement in water resource management, it will be very difficult to meet related resource challenges, such as providing sufficient food or sustainably generating energy for the world's population.

Closing the future "water gap" will cost $50 billion to $60 billion per year of investment by expanding measures already being taken in some communities to boost efficiency, augment supply, or lessen the water-intensity of the economy.

Peter Brabeck-Letmathe, the chairman of Nestlé, said he expected the report to "de-emotionalize'' the issue of water management by simply laying out facts in clear terms.

Mr. Brabeck-Letmathe said that water's value is not adequately reflected in its cost. He emphasized that access to clean water was a human right, but that "it's not a human right to wash your car, fill up your swimming pool and water your golf course.''

He said South Africa has an example of a sustainable water policy in which households are entitled to 6,000 liters, or about 1,500 gallons per month of free water, after which they must pay. He also pointed to what he clearly considered an absurdity: that it takes 9,100 liters of water to make one one liter of biodiesel fuel.

"We don't give value to the most precious resource we have on earth,'' Mr. Brabeck-Letmathe said.

Charting our water future: Economic frameworks to inform decision-making shows that while meeting competing demands for water will be a considerable challenge, it is entirely possible to close the growing gap between water supply and demand. This report provides greater clarity on the scale of the water challenge and how it can be met in an affordable and sustainable manner.

The report offers case studies from four countries with drastically different water issues, which will collectively account for 40 percent of the world's population, 30 percent of global GDP and 42 percent of projected water demand in 2030: China, India, South Africa and Brazil. The report's methodology identifies supply- and demand-side measures that could constitute a more cost effective approach to closing the water gap and achieve savings in each country.

Charting our water future is a report of the 2030 Water Resources Group, which was formed in 2008 to contribute new insights to the increasingly critical issue of water resource scarcity. Members include McKinsey & Company, the World Bank Group, and a consortium of business partners: The Barilla Group, The Coca Cola Company, Nestlé SA, New Holland Agriculture, SAB Miller PLC, Standard Chartered and Syngenta AG.

Source: www.mckinsey.com