While we in North America tend to take fresh water resources for granted, fresh water is an increasingly scarce commodity in other parts of the world. There is a fixed amount of water available worldwide, with 97.5% of it in the form of salt water unfit for human consumption.1 Of the remaining 2.5%, more than two-thirds of it is frozen in ice caps.1 The world’s population now stands at roughly 7.3 billion, and is expected to grow by a third to 9.7 billion by 2050.2 The United Nations estimates that only 1% of the world’s fresh water supply is accessible enough to meet the needs of a rapidly expanding world population.2
Water demand increasing with population growth
The problem is especially acute in emerging markets such as China, where population growth is reducing per capita potable water supply. China holds only seven percent of the world’s water supply, but makes up 20 percent of the world’s population – an imbalance likely to be exacerbated by the recent demise of China’s longstanding one-child policy.3
Many emerging markets are also less stringent in regulations preventing the contamination of water. That means that not only is the amount of fresh water per person declining, but an increasing amount of that water is contaminated and unpotable.
Water infrastructure spending up
As a result, emerging market governments are funneling large amounts of capital into areas like water conservation, purification and infrastructure. Over the past decade, water infrastructure spending has grown rapidly in both absolute terms and as a percentage of gross domestic product (GDP) in most emerging markets. Emerging markets now account for half of all infrastructure spending worldwide.2
Nowhere is this trend more pronounced than China, where spending on power, transportation and water has increased steadily as a percentage of GDP since the early 1960s. This is even more impressive when you consider China’s rapid GDP growth. Experts don’t expect infrastructure spending in China to decelerate anytime soon, either. A 2014 PwC/Oxford University research report forecasts that Asia – led by China – will account for more than 60% of global infrastructure investments by 2025, and that water will be a key component of these capital outlays.4
What does this mean for investors? In my view, well-managed global companies engaged in the build-out of water infrastructure and the purification of drinking water should be well-positioned for future revenue growth. Through targeted strategic investments, investors can potentially benefit as well.