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DFID’s challenges and opportunities for delivering water security in a post-MDG world

As the Millennium Development Goals come to a close in 2015, the international development community finds itself at a transition point. As they evaluate the progress made and redefine the targets ahead, decision-makers have the exciting and daunting task of shaping global policy for the coming generations.

This blog is based on Jean-Paul Penrose’s talk in Oxford on 30 October, part of the Water Security, Growth and Development seminar series. As the Senior Water Resources Adviser at DFID, he underscored the role the UK Government will play at this turning point. With an aid budget of £7.7 billion and £112 million bilateral water spending last year, DFID is a potent stakeholder in these discussions. As all eyes turn to the post-2015 framework, Penrose highlighted the challenges posed and opportunities available for delivering global water security.

Penrose emphasised the crucial need to build on the weaknesses of the MDGs to define the future of water resources management. For example, a greater focus on energy and transport could allow for the integration of these issues and emphasise water as a driver of growth and human development.

In particular, he pointed out the importance of the water security paradigm to frame water projects around poverty alleviation and sustainability, two agendas attractive to the international community. The challenge lies in ensuring that poverty goals resonate with developed countries, and sustainability remains a focus in developing nations.

From the perspective of DFID, the water security paradigm provides traction in negotiating support from government officials. Increasingly, this sort of political buy-in is essential to the implementation of large infrastructure projects. Such projects, said Penrose, need to account for the future of water resources and climate change. Though not many water supply and sanitation programmes have this dimension, DFID has prioritised both long-term maintenance and water resources sustainability.

However, Penrose pointed out that water resources management projects still lack clear evidence to lend them full credibility in the eye of the public. To justify investments and political support, we need to mobilise experts to generate metrics, unit costs, and results.

New stakeholders are playing an increasingly important role in this process: emerging powers diversify input, the private sector fuels investments, and foundations prepare rulebooks for new developments.

The key, according to Penrose, is to not let this uncertainty stifle the potential for progress. The public needs clear strong stories, and decision-makers need to take more identifiable risks. If the British government is to follow through on their declaration of water as a human right, popular paradigms like water security must be harnessed to implement change.

By Clémentine Stip, MSc Water Science, Policy and Management

Un Photo by Martine Perret

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Global leaders discuss food, water and energy scarcities at Re|Source2012

Tamara Etmannski, University of Oxford

The Oxford Water Security Network had a strong presence at the highly acclaimed Re|Source2012 conference which was held at Oxford University on 13-14 July 2012. Oxford’s Professors Jim Hall and Professor David Grey were amongst the impressive list of speakers, which included influential thinkers such as Bill Clinton, Sir David Attenborough, Lord Patten of Barnes, and Amartya Sen. The vision for Re|Source2012 was to bring together global business, finance, political and academic leaders to discuss the interdependencies of food, water and energy, resource scarcity, and investment opportunities. The event provided the platform to rethink, reform, and renew ideas about managing resources.

‘A Thirst for Growth’ panel, moderated by Dominic Waughray, World Economic Forum. Photo: John Cairns

The immediate need for water-related innovations became a common theme throughout the two days of discussion. Prof Hall drew attention to a predicted 90% increase in water demand by 2050 and in low latitudes, a 10-30% decrease in water availability. The Chairman of the Board of Nestlé S.A., Peter Brabeck-Letmathe warned that the future of all economic growth will depend on water. The Minster for Environment and Water Resources of Singapore, Dr Vivian Balakrishnan highlighted three factors that have been critical to success in Singapore: long-term plans that extend beyond the electoral cycle, technology breakthroughs such as reverse osmosis, and pricing to send a signal that water is a scarce and precious resource. Glen Daigger of CH2M HILL said that solutions will need to be tailored to the local context and hydrology, selecting from a toolkit of approaches which increasingly includes efficiency, water recycling and reuse, and rainwater capture.

Oxford University Professors David Grey and Jim Hall. Photo: John Cairns

Two water exhibits gave examples of the innovative research being undertaken by Oxford University. Patrick Thomson had a real-size ‘Smart Hand-pump’ for rural water supply set-up to demonstrate how it will automatically send a text message to district and national water managers when there is a mechanical problem or failure with the pump. This will ensure immediate action by local partners, creating a reliable system of information communication and repair accountability. Simon Dadson presented a global hydrology simulation model using geospatial visualisation, highlighting the sophisticated modelling tools being advanced to help understand and inform tradeoffs in water resources and environmental management.

‘Smart Handpump’ measures the amount of water extracted and sends a text message when there is a failure

Some major themes emerged throughout the conference. On the value and management of natural resources, there was clear emphasis on the need for long-term agendas and multi-stakeholder partnerships. MP David Miliband responded to the question of whether action should be led by business or government, by stating that the answer is clearly both. He stressed that strong government leadership, business innovation and mass mobilisation are key. Dr James Bradfeld-Moody, co-author of ‘The Sixth Wave’, suggested real innovation as the selling of access not ownership, using and investing in waste, and the convergence of the digital world with the natural world.

The private sector voiced how integrated reporting is the way forward, how sustainability in business is an investment and touched upon other important topics like ethical business, fairness and dignity. Representatives from both BP and Puma spoke of the need for corporate and governmental transparency, especially in the area of subsidies. Delegates converged on agreement that the future is already here, and action on all these fronts is required immediately.

President Bill Clinton inspired delegates with a vision for the future in his closing keynote speech. He clearly stated that the sustainability model in business is good economics. To tackle climate change, he said we should “pick the low-hanging fruit”; first by improving global efficiency, and then pursuing solar power as an alternative energy source. He emphasised that creative networks of cooperation should be the way forward in tackling all the issues discussed during Re|Source2012, and said that one day we will all realise that common good is more important than private gain.

All talks and discussions from Re|Source2012 are available to view online.

Tamara Etmannski is a Doctoral Student in Sustainable Water Engineering at the Department of Engineering Science, University of Oxford.

 

 

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The business case for water investments: could multinationals find the cash?

Alex Money, in Environmental Finance

Might multinationals be persuaded to invest in water infrastructure in the growth markets of the future? It might make sense for them as well as for their potential customers, suggests Alex Money.

As a factor of production water is unique: essential, irreplaceable, without substitute and in limited supply. And, while unlike oil, copper, pork bellies or other traded commodities, there is no global clearing price for water, its value – from an economic, environmental, social or political perspective – is increasingly appreciated. But underinvestment risks water supply crises – identified for the first time this year as one of the top five risks by the World Economic Forum in its annual Global Risks report.

The business of water abstraction, treatment, storage and distribution requires large capital investments. In general terms, there is a greater per capita deficit of this infrastructure in the emerging markets than in the developed world. However, it is in these emerging markets that great economic potential lies. The dramatic expansion of mass consumer markets in the South provides burgeoning opportunities for globalised businesses that can combine sophisticated supply chain management with deep marketing budgets. And if the emerging markets were attractive before, then the 2007-8 financial crisis and its aftermath, which has pushed the locus of global growth further towards the South, has only amplified this trend.

Furthermore, the demographic dynamics of the industrialising South have dramatic implications for water scarcity and food security. For instance the population of Africa, which is currently a little over one billion, is expected to double in the next 35 years. Meanwhile, statistics from the UN suggest that urbanisation has increased from 30% in the 1950s to over 50% today, and is likely to be 60% by 2030. Over nine-tenths of this growth in urbanisation will occur in emerging countries. Coupled with the population expansion, this implies a dramatic increase in the strain on their urban water and sanitation infrastructure networks, which are in many cases already buckling.

In addition, the environmental risks of climate change certainly do not need to be rehearsed here, but it is worth pointing out that the resulting changing in patterns of precipitation – and likely increases in extreme weather events – places further strain on water infrastructure, particularly in terms of storage, which is typically one of the most capital-intensive components of the network.

“The globalised companies that are best positioned to benefit from emerging market consumption are also sufficiently capitalised to make the investments required in water infrastructure”

Meanwhile, economic growth and the emergence of mass consumption in the emerging markets present attractive opportunities for globalised businesses, especially when contrasted with the anaemic outlook for the post-industrial world. However, the water infrastructure networks in these emerging markets, which typically require years of substantial capital investment, are already under strain. Population growth and migration will only increase the pressure, while climate change presents a potent additional risk.

The obvious solution would be to expand water infrastructure in emerging markets, as the expected returns from this investment should be attractive, given the outlook. Indeed, a recent report for HSBC from Frontier Economics found that, on average, a $1 investment in promoting universal access to water returned just under $5 – and $16 in Latin America.

The problem, however, is that in the post-financial crisis world, there is a funding gap. Sovereign balance sheets are insufficiently capitalised to prioritise this investment, while risk aversion and uncertainty appears to impede private sector lending at the scale required.

However, embedded in this challenge is great opportunity. The globalised companies that are best positioned to benefit from emerging market consumption are also sufficiently capitalised to make the investments required in water infrastructure. The question is, what will induce them to do so?

The answer lies in the investments themselves, which can create value beyond their pure financial return, such as improving health outcomes for citizens, raising national productivity and so on. If national authorities recognise this ‘positive externality’ that their country could benefit from – which is often actually much easier to quantify than the value of water itself – and are willing to share this value with the investing company, for example by offering them fiscal incentives, this could catalyse investments that would not otherwise take place.

Companies could moreover justify their capital expenditures to shareholders not just from the direct benefit, but also from a shared value creation perspective. After all, the citizens whose quality of life they will undoubtedly help improve will likely be the customers of the future.

What is needed are two fresh perspectives. First, governments need to revisit environmental supply-side economics from a post-crisis viewpoint. Facilitating investment in supply through incentives and liberalisation may be more effective as a policy tool than demand management through control and regulation. Second, companies need to think about their water costs less in terms of the profit and loss, and more in terms of the balance sheet. A meeting of minds is then surely possible. EF

Alex Money is a researcher in the School of Geography and the Environment at the University of Oxford, with a focus on corporate water risk. E-mail:alex.money@ouce.ox.ac.uk.

The University of Oxford will be hosting the Re¦Source 2012 event in Oxford on 12-13 July, a forum to bring together policy-makers, business people and investors to address natural resources issues. See www.resource2012.org. 

 

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