Earlier this year, the World Economic Forum (WEF) stated (source 1) that, “The financial crisis gives us a stark warning of what can happen if known economic risks are left to fester.”  The WEF went on to highlight what it perceives to be a key economic risk, “We are living in a water “bubble” as unsustainable and fragile as that which precipitated the collapse in global financial markets. We use water unsustainably.” Additionally the report predicted that, “worsening water security will soon tear into various parts of the global economic system. It will start to emerge as a headline geopolitical issue…We are now on the verge of water bankruptcy.”

A separate report by the World Wide Fund for Nature (source 2) pointed out that water shortages are becoming increasingly costly. It said, “California’s current water crisis management will cost taxpayers an estimated $1.6 billion per year by 2020.” The report went on to say that “Australia’s emergency overhaul of its water supply regime, necessitated by 10 years of over-abstraction but precipitated by the 2007 drought, is expected to cost $10 billion” and China’s plans to “channel billions of cubic meters of water from the Yangtze River in support of farmers along the dwindling Yellow River involves untold costs.” The report also showed that since 1991, Libya has been pumping 730 million cubic meters of water a year from an aquifer under the Sahara at a cost of $25 billion a year.

In addition to the direct cost of responding to water issues, there is also a toll in terms of lost output. To that point, the World Economic Forum (source 1) wrote that, “The ongoing drought in Australia is expected to shave 1% off the country’s GDP in 2006-2007.” Meanwhile, in the U.S., water shortages are reported to have cost the agricultural sector $4 billion per year over the past two years.  Additionally:

• Some estimates conclude that environmental degradation and pollution cost the Chinese economy between 8% and 12% of its GDP annually.
• The crisis in water and sanitation holds back economic growth in sub-Saharan Africa, losing 5% of GDP annually, far more than the region receives in aid.

Similarly, in its most recent World Water Development Report, (source 3) the United Nations pointed out that, “While the scarcity of freshwater is felt acutely in Africa and West Asia, water scarcity is already an economic constraint in major growth markets such as China, India and Indonesia, as well as commercial centers in Australia and the western United States.”

Specifically addressing the issue of water as an economic constraint, the Pacific Institute stated (source 4) that inadequate water infrastructure and water-management capacity, “Constrain companies’ growth, disrupt operations, and necessitate costly investments in equipment and technology.”  The Pacific Institute report made another important point that “Countries with poorly developed infrastructure are also less able to decouple their economy from climatic variability, which puts not only agricultural, and food sectors at risk, but other industries as well.”

-In other words, in addition to water shortages caused by a supply-demand imbalance and/or pollution, climate change is another factor that threatens some countries with “water bankruptcy.”

Sources
1 The Bubble Is Close to Bursting, January 2009
2 Understanding water risks, March 2009
3 United Nations World Water Development Report 3, March 2009
4 At the Crest of a Wave: A Proactive Approach to Corporate Water Strategy, September 2007