Studies show that by 2025 half the world's population will not have enough water to meet its needs. Already, a billion people do not have access to clean water, and more than 2bn lack adequate sanitation. And as scarcity increases, farmers are finding it more difficult to feed the world's growing population, which could reach 9bn by 2050. A water crisis is unfolding, and it compromises our efforts to reduce poverty and promote economic development.
This year China experienced its worst drought in half a century, affecting millions of acres of farmland and causing power shortages. In northern Africa, the encroaching desert has been forcing people to resettle and has exacerbated tensions between farmers and herders. And the famine in the Horn of Africa has served as a horrific reminder of the effects of drought and poor water management.
It does not have to be this way - there are solutions. The OECD estimates that by 2015 average annual investment of over $200bn will be necessary for water and wastewater services worldwide. Since public resources are becoming scarce, the bulk of this must come from the private sector.
Fortunately, investors are showing interest. Pension funds are embracing water stocks because they involve secure, multi-year contracts, and investment managers are looking to water because it offers steady, low-volatility returns for their clients. These incentives will continue to grow as pricing for water becomes more aligned with its true cost, and as innovation and new technologies create lower-cost ways of managing water.
Governments must also take action. Water and sanitation infrastructure projects generally require large, up-front capital investments, with costs recouped over the long term. While private investors can supply some of the funding, governments have to assure the right regulatory framework and cooperation to support them.
At the World Bank Group we have worked with governments and private companies to structure concession agreements so that they are attractive to investors and fairly distribute risks. For example, IFC, the private sector arm of the Group, has worked with the government of Egypt on a wastewater treatment plant for the new satellite town of Greater Cairo. The public-private partnership was awarded to an Egyptian-Spanish consortium and should mobilize $150-200m in private investment by the time it is operational. The plant will help the town cope with the sanitation needs of a rapidly growing population and protect public health.
Aside from increasing water supply, there is also a need to increase efficiency to address the issue of scarcity. IFC partnered with private companies to start the Water Resources Group, which is a public-private collaboration that looks at the issue of sustainable water management between its different uses. The WRG's activities will help policymakers make the right choices and plan for the future.
One promising conclusion of the group's work is that investments in efficiency can make a huge difference at a reasonable cost. In some countries the greatest room for increased efficiency is in the industrial sector. In China, for example, it takes almost 3000 litres of water to produce one cotton shirt, so water savings here could have dramatic effects.
However, most countries should focus first on the agricultural sector, since it uses 70 percent of water worldwide - with half of it wasted. Investment in more efficient irrigation makes a big difference. The Indian company Jain Irrigation, the second largest drip irrigation company in the world, is a good example. IFC has helped it expand its operations in India, where its micro-irrigation products have resulted in water savings equal to the annual consumption of about 15m households. Jain is now expanding to Africa, a promising initiative in South-South cooperation.
This is only one of many examples of innovations that can help contain the water crisis. Investors, governments, and international organisations can and must work together, and they must do so now. Since water is a common good, its use and conservation require common solutions.
Rashad Kaldany is vice president of global industries at the International Finance Corporation