Invest $1 in tackling water shortage, get $5 return

10 most populous river basins will contribute 25 per cent of world GDP by 2050

Few resources are more fundamental to health and development than water. Agriculture, energy and industry rely on it, and access to safe, clean water can have an instant and dramatic impact on individuals and communities, helping them to move out of poverty and secure their livelihoods.

Yet, nearly 800 million people are without access to safe water, 2.5 billion people are living without access to basic sanitation and a quarter of the world’s population live in ecosystems that are under threat from water scarcity.

Change requires rapid, collaborative action worldwide and a significant investment – both public and private – but making the case for such investment is a complex matter. Addressing these issues has clear humanitarian and development benefits, and a new report from Frontier Economics, commissioned by HSBC, presents clear evidence and strong rationale of the significant potential of water to help economies grow at a local and global level.

According to new findings from the report, Exploring the links between water and economic growth, securing universal access to clean, safe water and sanitation would call for significant investment, whether from governments or businesses, of some US$725bn – but these investments would yield real returns.

Achieving the Millennium Development Goals (MDG) on water supply and sanitation worldwide would amount to an equivalent of more than $56bn per annum in potential economic gains between now and 2015; and providing universal access to safe water and sanitation would imply potential economic gain of $220bn per annum. Providing universal access in Brazil, India, and China alone would amount to an equivalent of more than $113bn.

Frontier Economics also found that globally the average return on each dollar invested in universal access was just under $5, even after taking maintenance costs into account. In Latin America the figure is $16 while in some African countries, the capital investment would be paid back in only three years. Several countries in Africa and Latin America would stand to gain an average of more than 15 per cent of their annual GDP from achieving universal access.

Alongside water and sanitation, there is also a strong economic argument for an investment in water resource management which includes; efficiently sharing or allocating the available water supply; ensuring water consuming industries are using it as efficiently as possible; protecting water quality and sustaining eco-systems and; managing water infrastructure.

The report reveals the world’s 10 most populous river basins are forecast to contribute 25 per cent of global GDP by 2050 – a sharp rise from a current 10 per cent and a figure greater than the combined future economies of US, Germany and Japan. However, as they stand, seven in 10 of those river basins face significant or severe water scarcity by 2050, meaning the forecasted economic growth in these basins may not materialise without investment in sustainable water management.

These findings make it clear that the future of river basins is critical for global economic growth and the economic rationale for improving access to freshwater and sanitation is strong and clear.

The HSBC Water Programme, a new $100m, five-year partnership with WWF, WaterAid and Earthwatch will tackle water risks in river basins; bring safe water and improved sanitation to over a million people; and raise awareness about the global water challenge - taking one step towards achieving change, delivering benefits to communities in need, and enabling economies to prosper.

Over the next five years, we will continue to share the lessons we learn and the data we gather, in order to encourage others to join us in recognising the value of water, benefiting communities today, and unlocking growth for years to come.

Please follow our progress at www.thewaterhub.org where you can also access the full research findings.

Note: The world’s 10 most populous river basins are: Ganges, Yangtze (Chang Jiang), Indus, Nile, Huang He (Yellow river), Huai He, Niger, Hai, Krishna and the Danube.

A bather in the Ganges river. Photograph: Getty Images

Nick Robins is head of HSBC's Climate Change Centre of Excellence

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR