Blue Gold: An Excellent Investment Opportunity

In the world of business and investment, it’s often said that the biggest opportunities exists in sectors facing the biggest challenges.

If this holds true, the water and water infrastructure sector holds immense potential as an investment and business theme for the long-term. Discussed below are some of the major challenges and investment opportunities for blue gold.

Water infrastructure is one area where huge upside growth is impending. It’s estimated that more than 2.5 billion people globally live without proper water sanitation and around 884 million people (majority of them from Africa) don’t have access to safe drinking water. Also, 84 per cent of the world’s population without an improved drinking water source live in rural areas where significant investment is needed to build a proper water infrastructure.

Therefore, it’s not surprising to see that 22.6 trillion of the estimated 41 trillion cumulative global infrastructure spending (2005-2030) is directed towards water infrastructure. From an investment perspective, the best investment opportunities can be found in water infrastructure Companies in Asia (especially China and India) and Africa where there is still relatively low level of urbanization and a significantly under developed water infrastructure.

It is worth mentioning here that China has almost one-quarter of the world’s population but only 6 per cent of its fresh water resources.

On the other hand, ten countries led by Canada and Brazil, share two-thirds of the world’s fresh water reserves. This is one of the biggest challenges for a country like China which is growing at a scorching pace. India (another country with over 1 billion population) has similar water issues.

In this context, another way to play the water theme is to invest in agricultural commodities. Estimates suggest that a given amount of water used in industry generates more than sixty times the cash value of the same water used in agriculture. Therefore, it is not surprising to see that China’s water resources have been increasingly diverted to different industries. The industrial use of water in China has the potential to reach 269 billion tons in the next two decades from the current 52 billion tonnes.

This factor, coupled with already existing water scarcity makes it very conceivable that China has to import food grains for consumption at some point of time in the future. This might not be a problem for a country with huge trade surplus. However, with global food inventory already running at decade’s lows, such a move would make agricultural commodity prices go ballistic.

In my opinion, besides considering exposure directly to agricultural commodities, investing in agricultural land with relatively high level of ground water is also a good investment option.

Going back to the challenges, nearly 10 per cent of the diseases globally are water borne. With rising healthcare cost being a major concern for individuals and governments, a concerted effort need to be made to reduce water borne diseases. It is estimated that around 2 million tons of waste are poured into rivers, lakes and streams each day.

This polluted water from agriculture, municipal discharge and industrial contaminants needs to be decontaminated immediately in order to prevent further water degradation leading to higher health risk for individuals and further damage to the natural ecosystem.

This challenge offers a big opportunity for wastewater treatment Companies and Companies providing water purification devices. The Asian and African markets, characterized by rapid industrialisation and steady rise in living standards look particularly attractive for these Companies.

Moreover, Asian rivers are the most polluted in the world. Governments in these countries have become increasingly conscious about the risk to growth and prosperity if natural water systems are not preserved from pollutants. Therefore, Companies are expected to witness growth through high level of public-private partnership in these regions.

Another rapidly growing segment in the water industry, which provides attractive investment opportunity, is the global bottled water industry. By 2012, the global bottled water market is expected to have a value of $94.2 billion representing an increase of 41.3 per cent in market size since 2007.

Europe is the largest market for bottled water. However, from my personal observation, there is a steady rise in bottled water consumption in India. Going forward, India and other Asian markets would also be one of the major revenue drivers for the bottled water industry.

It is estimated that by 2020, water consumption globally will increase by 40 per cent to satisfy the world’s population needs. At the same time, 17 per cent more water will be required for agriculture. If major water related conflicts have to be averted, the world has to act in unison to save water and also to clean up existing sources of water.

All this needs major private and government participation along with huge investments. If the world does overcome this challenge, blue gold will certainly help in creating several billion Dollar enterprises and billionaire investors.

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