The Other Scarcity in the Water Sector
On June 14th I will be speaking in Chatham House in a conference titled “The New Politics of Water“. I plan to talk about the “other” scarcity in the water sector.
In the 20th century the world’s population has grown threefold, while the world’s water consumption is six times higher. The World Economic Forum predicts that water scarcity is about to become a global crisis. Insufficient water could mean food shortages, demographic changes, political strife and even armed conflict. Lifestyle changes that come with economic development have enormous “virtual water” price tags. For instance, producing one kilogram of beef requires 15,500 liters of water. Nestle, Coca Cola and others are openly discussing their efforts to reduce their water consumption, in preparation for a world with less water.
As a newcomer to the Water industry, I often hear mention of “Water Crisis” or “Global Water Scarcity”, as if the only missing element is water. Initially, I accepted this as an axiom, having grown up in Israel, an arid country. However, as a technology entrepreneur, and having had the opportunity to define a new sector in the water industry, I can say that the water sector is facing an altogether different scarcity. It is not about lack of water; it is about lack of Innovation.
The Weakest Link
The Water-Food-Energy-Climate nexus underlies many of the issues that plague our future, all tightly coupled in one chain. The weakest link determines the chain’s overall strength. Water scarcity, driven by over-used water resources, population growth, climate change, economic development and other reasons, contributes to the recent increase in food commodity prices. The UN’s Food and Agriculture Organization reports that food prices today are 2.5 times higher than 7 years ago, and well on their way to create a food commodity crisis. Clearly, this is a huge alarm sign for our future.
The Golden Triangle of Innovation
Last month, a senior executive in a large UK water utility told me: “The industry needs to move from our 19th century invisible and manual view of the world […] into the 21st Century… so the network is visible and can be better operated and optimized. This is the way to increase sustainability.” While power networks are becoming smart grids, water networks remain a 19th century affair. Large-scale innovation is the only way to transform the industry and to alleviate the water crisis, by providing creative and sustainable solutions to the age-old problems of water production, transportation and distribution. For instance, at TaKaDu, we have taken the approach of using existing data from the water network to detect and alert upon inefficient operations and water loss, which accounts for over 25% of water produced worldwide.
Innovation is neither an ‘invention’ nor a ‘Eureka moment’. For the innovation cycle to roll, three components need to co-exist: a real market need, human entrepreneurial leadership and the capital to fund a new venture. These three elements, highly interdependent of each other, create the golden triangle of innovation, much more so than an ’idea‘. The higher the exposure capital providers (i.e. venture capitalists) and entrepreneurs will have to water issues, the more players will enter the innovation cycle, and the better water future for us all.
The Water Innovation Investment Gap
In recent years, a large share of venture capital funding is directed to clean tech investments; but in 2009, less than 2% of such investments were directed at the water sector. Clean tech investments enable knowledge-based companies to reduce negative ecological impact and ensure we use our natural resources responsibly. Most clean tech investments go to solar, wind and energy efficiency companies, but the growing water problem should force us to divert a much larger share of clean tech investment to water.
One must ask why this gap exists. One reason is that the water industry is perceived as conservative and slow moving. Another explanation is that water is undeniably underpriced, affecting the perceived return on investment in making networks more efficient. Nestle and others believe that this underpins many of the inefficiencies in how we use water. The result is the false perception that money cannot be made in the water sector. This, in turns, yields lack of venture capital interest, with just a handful of visionary funds actively looking for water investments.
My experience at international water industry events shows that very few leading venture capitalists are present, and that entrepreneurs hardly show up at all. They all miss on the opportunity to learn from water industry experts. This is in sharp contrast with telecom or consumer electronics conferences, where entrepreneurs and venture capitalists flock to hear executives speak about their innovation and vision. The inevitable result is incremental and slow innovation – the exact opposite of what the world needs today!
The World Bank, which funds large infrastructure projects worldwide grants the bulk of its resources to telecommunications and transportation projects, with a mere 5% of projects funded related to water. This means that water infrastructure is not upgraded or even properly maintained, and is therefore likely to reach the 50% water loss rate many less-developed countries suffer from today. A 50% water loss rate means that one-half of the water, suitable for drinking, agriculture and industry, is lost.
A Wake-Up Call
Water is not “the new oil”. There is no substitute for it, no alternative sources. Desalination and transport of water are expensive and energy-intensive. They alone, just like any other infrastructure intensive solution, cannot resolve the problem on a global scale. This crisis cannot be solved just by conservation and infrastructure investment – it calls for a major wave of. Together we can work to resolve the innovation scarcity in the water sector. The industry needs a “wake-up call” – It is up to us, entrepreneurs, investors and water experts to deliver.
The future of our water is in our hands.