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Water quality issues are on the rise globally, however it is not just an issue in developing nations as we might expect. In the US, water quality is under scrutiny, for example the recent Newark Water Crisis showcased by the press. Newark is facing severe water quality issues, with lead levels twice as high as allowed. It is arguably the largest water quality issue experienced in the US. Local populations are forced to rely on government supplied bottled water which they must wait on many hour lines to obtain. There is little transparency on when issues will be resolved interfering with citizens daily lives. The situation in Newark is comparable to the 2015 Flint Michigan water crisis where we also saw incredibly unhealthy levels of lead in the water; and Newark will not be the last city to face this unfortunate situation.
Coverage on the recent story can be found here.
The ageing pipes, which are in desperate need of replacement, are the culprit for this water quality crisis. Much of the pipes in Newark are over 100 years, well beyond the age of their usable life of ~75 years. As pipes age, and operate at much higher capacities than initially designed for, the pipes begin to corrode and the lead metal in the pipes separates and seeps into the fresh water supply. Lead contamination can cause a wide array of irreversible negative health effects including nervous system damage, learning disabilities in children and birth defects. The lack of investment in US water infrastructure is to blame.
Newark will now need to expedite spending on water infrastructure to address the ageing water network. The city released a new $120M plan to replace existing pipes over the next 24-30 months. They seek to replace 18,000 lead service lines in less than a third of the typical time. This will be the fastest replacement we have seen. Spending will go toward replacement and installation of new water networks which will require the products and solutions the Allianz Global Water fund invests in. Companies such as Xylem are leaders in water equipment, whereas the focus on adequate water quality is likely to result in increased demand for water quality monitoring solutions such as those provided by Perkin Elmer or Thermofisher, also holdings in the fund. As the need for replacement continues and the drinking water supply is jeopardised, we will see an increased demand for Allianz Global Investors' products. In addition, the issue in Newark has severe societal consequences, especially given the low median income of the population.
“India has just five years to solve its water crisis, experts fear. Otherwise hundreds of millions of lives will be in danger”
The rapid urbanisation in India is resulting in increased water supply and water quality issues and even a slowdown in economic development. There are estimates that the nation could lose up to 6% of GDP by 2050 due to water related issues. The water supply crisis in India is largely due to its dependence on groundwater for its agriculture heavy economy. Almost 90% of groundwater is used for irrigation, to put that into perspective, India alone consumes about 25% of the available ground water globally, utilizing more than both the US and China. As a result, groundwater reserves declined over 60% between 2007-2017. Continued population growth will only cause this situation to worsen, as growing populations mean growing water demand, mainly food for demand, which translates into increased water withdrawals. There are estimates that water demand will double the available water supply in India over the next decade.
Outside of water supply issues, the water quality in India is questionable. A recent study showed elevated levels of manganese, lead, zinc and copper in ground water supply. The country also lacks proper wastewater treatment measures, meaning fresh water supply is regularly contaminated by industrial and agricultural byproducts. India is also without proper water quality standards.
The significant water related issues in India require increased investment in water supply, water efficiency and water quality as there is no single all-encompassing solution. Given the agricultural focused economy, implementation of more efficient irrigation equipment such as the efficient pumps produced by Idex, a holding in the fund, can improve water efficiency. On the water quality front, companies such as Danaher and Xylem, also holdings in the fund, can offer solutions. Danaher is focused on quality monitoring and treatment solutions essential for effective network operations and wastewater treatment. The company has over $1bn in sales in India.
Xylem also provides water treatment infrastructure in India. In addition, Tetra Tech, an environmental consulting firm, also a holding in the fund, is active in river restorations and the development of proper water infrastructure. Note, while water scarcity issues are quite prevalent in India, the political, cultural and economic barriers are significant making it difficult for companies to penetrate the market.