Marketplace Middle East - Blog
3/13/08
The well's running dry

In a week where oil and gold have found record highs, it seems almost out of place to discuss the emergence of another commodity that will likely determine the viability of the Middle East and North Africa region – water.

Water, like electricity in one’s home, is taken for granted. When was the last time you thought about the source of your water, the price of water or whether it will be there when you open the tap?

About a third of the world’s population does so each and every day, because they don’t have reliable access to clean water. While it is not a desperate situation today in the Middle East, it will be tomorrow if the situation is not tackled.

The global population is expected to expand by two and half billion in 2050. Besides the obvious natural pressures of living in the desert sands, the region is also home to the fastest rate of population growth, where it is tabbed to double to 600 million by just 2020. The Middle East only receives about two percent of the world’s rainfall and has only one percent of its water resources.

This has not been lost on policymakers and the ruling families. Six of the top ten investors in desalination plants are Middle Eastern governments, totaling 57 percent of global capacity. Many of those facilities need to be upgraded and new ones need to come on line to keep pace with both economic and population growth.

There is a handsome payoff for this investment. According to Gulf One Investment Bank in Jeddah, for every dollar put into water capacity, there is a three dollar boost in productivity. This means that water is not only the source of life, but the source for future growth as well. To date Saudi Arabia has allocated about three percent of its annual budget to water infrastructure; investors say ten times that amount is needed. The Kingdom is the largest owner of desalination facilities and with the seven economic cities planned for the next two decades, demand will surge, so will the need for the private sector to play a role. Rough estimates put the sums needed at $100 billion for the region in the next eight years.

With those dollar signs flashing, investment bankers are busy working on the formation of funds to leverage the opportunity. Gulf One recently launched its Moya Holding Company. The first tranche of the two billion dollar fund has been raised and they are co-investing that money with governments in public-private partnerships. Expect many more of the same models. I recently interviewed Atif Abdulmalik the CEO of Arcapita, the Bahrain-based private equity group who says bluntly, “We as an institution are focusing on it, investing in it because we think that's the future.” The group has quietly bought water utilities in Europe and the United States and sees water as one of the most promising sectors in the region as well. As one shrewd Malaysian CEO Francis Yeoh of YTL Corporation wisely shared over dinner five years ago, utilities may not be sexy, but they are predictable and produce cash flow. That is why he too is a buyer of utility companies in Britain and Australia.

Peter Brabeck-Lemathe of food giant Nestle has put the issue of water at the center of his radar screen. He finds politics at this juncture have overruled common sense. Two-thirds of the world’s water supplies are going into agriculture, but how efficiently? Bio-fuels are not water friendly by any means, but the rush into production has been intense.

We know through our coverage that the Middle East is swimming in record oil revenues. There is so much around that sovereign wealth funds are investing that money at home and abroad. This is a case where oil and water do mix. All the mega development projects being built in the Gulf and throughout the MENA region from Algeria to Yemen will not mean anything without the free flow of water.

This will require a combination of proper infrastructure, new technologies and the collective efforts of business and government. Let the conservation and the exploration begin.


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ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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