Water Security and the Global Economy: Why Water Matters

Water resources and economic growth are increasingly understood to be interlinked; water availability has historically been linked to development and growth whilst scarcity in water-stressed regions has been linked with downturn. The global population continues to rise and shift towards water-intensive cities (in 2014, 54% lived in urban areas – this will be 66% in 2050 (UN, 2014)), and along with income increases, demand for freshwater will only increase in the future. However with economic growth and climate change comes a decrease in quality and quantity of fresh water. So will this economic growth be able to continue or will future water scarcity put a stop to it?

It is generally accepted that economic growth is necessary for a flourishing society and facilitates improved standard of living both in individual countries and globally. It means an increase in the productive capacity of an economy which results in more goods and services being produced per capita. Growth therefore increases the standard of living, as this is measured on material prosperity – the amount of goods and services available to a population (Palmer, 2012). This incurs a cost on society, which at a global level involves the depletion of natural resources, of course including water. Another effect is environmental damage, of which there are various examples that can negatively affect the quantity and quality of our fresh water resources. One which we are now seeing is the climate change which has resulted since the unprecedented increase of human activity that is being linked with the start of the Anthropocene around 1950 (Steffen et al., 2004).

A report by GWP/OECD Task Force on Water Security and Sustainable Growth found increased runoff had a positive effect on GDP, whilst drought and flood extent had a negative effect. Previous blog posts have suggested this relationship between water availability and economic growth and standard of living. For example, droughts in Syria played a role in the country’s descent into civil war and many of the other poorest countries in the Middle East also suffer from similar water scarcity (or lack of other natural resources). Meanwhile in developing countries greater availability of clean water and sanitation means less money spent on health care, as well as less time spent collecting water, which generates an increase in economic productivity.

The following diagram shows the areas that currently suffer worst from water scarcity.

Source: Mekonnen et al., 2016.

The ‘Climate Change, Water and the Economy’ report by the World Bank , estimates that in the year 2050, water scarcity would impact the GDP of various regions if no changes are made to current water policies. Many of the regions predicted to suffer from the greatest negative effect to GDP are those which are currently most water-stressed. It is worth noting that richer countries that also suffer water scarcity are not predicted to lose out on economic growth as they can afford infrastructure to increase water availability, as well as the cost of transporting it from an area where it is abundant.

Source: World Bank, 2016.

There would be a number of different reasons for this fall in GDP which would vary by region. Countries for which agriculture makes up a greater proportion of GDP (>20%), most of which exist in sub-Saharan Africa or South Asia, would suffer due to water scarcity limiting production and causing a spike in food prices (Sadoff et al., 2016). The irrigation-fed agriculture of the Middle East and North Africa (MENA) would also place these already water-stressed regions under even further threat. Lelieveld et al. predicted in a 2016 study that climate change could have a stronger effect in the summer, further intensifying their hot desert climate. This would decrease economic productivity but also increase demand on groundwater supplies, whilst potentially increasing their salinity due to greater evaporation of the water before it reaches depths for groundwater storage (World Bank, 2016). In other parts of the world climate change could increase flood risk, with threat levels high India, China and Vietnam. It is also rising in the USA and Europe as climate change affects river patterns and economic growth and expanding cities place more people and infrastructure at risk (Winsemius et al., 2015).

So how can this global downturn be avoided and what benefits would this bring nations who are at the forefront of improving water security?

As previously discussed water supplies will be in higher demand whilst at the same time being more variable. The nexus between water, food and energy promotes the idea of interdependency between the three sectors. Management with the nexus in mind could help steer policy to ensure sustainable provision of all three to a growing global population. The growth of bioenergy crops to increase energy security is a good example of the three forces in this nexus. Using irrigation whilst growing will increase water withdrawals (possibly counter-productively reducing hydropower potential) and use land space which could have been utilised for growing crops, thus compromising water and food security (WWAP (UN World Water Assessment Programme), 2014) Managing these trade-offs to ensure optimal water, food and energy security is achieved is central to the nexus approach, and should be a cornerstone of governmental policy.

Although hard to fit on a diagram, the following one displays some of the trade-offs which exist between the three sectors.

Source: The CCC Blog

Changes to water policy will be needed to avoid the ‘business-as-usual’ scenario that the world is headed for and which results in a loss in GDP as the first diagram shows. Widely hailed as the most effective of these is pricing water as it reduces the wasteful mentality that causes overuse in countries where water is free or very cheap. Saudi Arabia raised water tariffs for businesses by 50% in 2015 as they attempt to decrease their water usage (around twice the EU average) which is incredibly high for a highly water-stressed country. Water subsidies (the difference between price and the total supply cost) accounted for 0.6% of global GDP in 2012, whilst also furthering inequality (Kochhar et al., 2015). Subsidies allow excessive use in agriculture, which accounts for a very small proportion of GDP in most countries compared to the amount of water it uses. Wasteful use will need to be curbed for a more sustainable future and proper pricing is the best way to do this.

Better and more efficient management of resources is also necessary. Singapore is able to provide widespread, affordable, high quality water due to dams, desalination and reclamation plants, despite having negligible freshwater reserves themselves. However whether all these strategies could be implemented in much poorer countries is doubtful.

The following diagram predicts the effects on GDP in 2050 of efficient water policies, which paints a brighter picture than the first diagram.

 If successful policy changes can be made then there could be a more positive outcome. The regions which still are predicted to suffer a fall in GDP are the previously mentioned MENA, so greater efforts to negate climate change could help these areas be optimistic about their chances of seeing economic growth continue.

On a global level, appropriate pricing and better allocation of resources is needed to accompany technology and infrastructure improvements.  This needs to be pushed to the top of the agenda worldwide to ensure that the future does not hold a world in which more than half the population is at risk of water scarcity.