GCC water and wastewater sector expects 12.8% growth

Governments in GCC countries have increased budgeted fund allocation to the water and wastewater sector, which is expected to post continuous growth over the next five years, according to research from market analysts Frost & Sullivan.

The market for water and wastewater treatment equipment in GCC nations is expected to grow at a compound annual growth rate (CAGR) of 8.1 per cent from 2008 to 2013, according to the firm's strategic assessment.

On the back of healthy investments in all sectors of economy, the market clocked 18 per cent CAGR from 2006 to 2008. The market is now expected to see a transitional period of adjustment until 2010, and beyond 2010 the market is expected to post healthy growth rate of about 12.8 per cent per year, said Frost & Sullivan.

The market saw unprecedented activity in 2008 where growth stemmed from massive investments in infrastructure, real estate, petrochemicals, oil and gas and other sectors. Frost & Sullivan estimated the GCC market for water and wastewater treatment equipment for 2008 at $1.26 billion (Dh4.62bn).

Growing government spends drawn from fund accumulation are expected to negate the impact of declining private sector investments, it added.

"The governments have accumulated huge reserves owing to fiscal prudence and high crude oil prices and are infusing funds to stimulate the economies. However, majority of the private investments in oil and gas and real estate sectors were put on hold due to liquidity concerns and low demand. Lower oil prices are also acting against the growth of this market," said the firm.

In recent years, the overall market for desalination plants in the Mena region has expanded rapidly with increasing industrialisation and an investment boom in real estate driving growth. Both factors sparked an increase in the number of build own operate (BOO), build own operate and transfer (BOOT), and build operate and transfer (BOT) contracts for desalination plants.

In 2008, the total revenues for the Mena desalination plant market were $3.79bn with the GCC accounting for nearly 61 per cent of the total market. The GCC region is expected to add new desalination capacity of 1,932,640 cubic metres per day (cu m/day) on an yearly basis between 2009 and 2013, analysis shows.

Elaborating on the need and reasons for this sector to grow, the firm said: "The scarcity of fresh water in the Middle East is a clear and present danger to its economic growth. This threat has now assumed crisis proportions on par with the dwindling oil resources. Due to growing population, agricultural productivity, and increased water usage due to diversification of economies, the demand for water and wastewater treatment infrastructure is getting special attention from governments across the GCC and other Middle Eastern countries.

"As economic development gains more speed, Middle East governments are moving aggressively to promote water conservation, wastewater reuse and desalination of sea water to meet the burgeoning water consumption needs of all sectors.

"As seen in other sectors, even the water and wastewater treatment market has grown tremendously with GCC being the fastest and most attractive market."

A majority of the opportunities in the sector are unfolding in the form of Greenfield investments in both industrial and municipal sectors as well as in desalination plants. On the whole, the Middle East states are expected to spend between $100bn and $120bn over the next 10 years on water and wastewater investments to counter the severity of water scarcity.

GCC countries will account for more than 50 per cent of the stated investments, as these nations are hard pressed to augment the water and wastewater infrastructure, said the research. "With many Middle Eastern economies pursuing economic liberalisation and gradual integration with the rest of the world, they have embarked on making substantial reforms to regulatory structure aimed at improving the ease of doing business. Regarding the water sector, the GCC nations are also opening up to private sector companies through public-private partnerships as it was found to be economically viable besides offering several benefits such as cost effectiveness and project management leading to efficient cost recovery."

Calling on multinational technology and solution providers to tap the market, the firm said successful differentiation in a cluttered market and forging relationships with the right local partners would be crucial for market players.

Highlighting the challenges in the sector, Frost & Sullivan said the market comprises project developers for luxury villas, lifestyle townships, airports, hospitals, business centers making it highly price sensitive.

"Hence, there is intense competition from low-cost suppliers particularly in low-end equipment. Technology providers with advanced but expensive technologies will be required to put in a lot of effort in demonstrating the benefits of such technologies," said the company.

Limited wastewater reuse in the region is another challenge, it added. "Traditionally, due to societal perceptions, wastewater reuse has not been embraced well in the GCC countries. In recent years, increased water demand for landscaping, district cooling, construction activities and concerns about environmental degradation have made a strong case in favour of wastewater reuse. However, the amount to which the potential of this economically-attractive option is exploited remains to be seen," said Frost & Sullivan.

While this year is more a period of adjustment to the changed economic scenario for the water and wastewater treatment equipment market in GCC countries, the long-term drivers for market growth remain intact.

Since the water market is highly competitive, especially in the low-end product segment, profit margins will be under constant pressure, said the firm. With wastewater reuse anticipated to increase across the GCC, the market for advanced wastewater treatment technologies should also grow at a faster pace.

Highlighting the issue of water scarcity at a Water Diplomacy Programme held last week, Mohammad Ahmad Al Bowardi, Secretary-General of the Executive Council and Managing Director of Environment Agency Abu Dhabi, said water shortage and the race to use shared resources is very likely to reach the point of harming neighbouring countries, which could lead to regional conflicts.

Such is the case in the Arab region, where the countries share more than 70 per cent of rivers, sea and underground water, which highlights the urgent need for managing and fairly distributing these resources in a way that protects the interests of all parties and prevents the rise of conflicts.

Bowardi said this problem was not exclusive to the Arab World, and there are more than 245 shared rivers that serve more than 40 per cent of the world's population and irrigate around 50 per cent of arable land.

However, there is no international agreement on the laws that control non-navigation usage of water resources. For this reason, building efficiencies in the field of water diplomacy is critical, as it aims to develop a deeper understanding for the issues that need to be addressed by water diplomacy and water management specialists.

Al Bowardi said the Arab Water Academy, which organised the diplomacy programme, had set objectives that focused on advanced training workshops, including water governance, water diplomacy, unconventional water resources, and investments in the infrastructure of the water sector. While the lack of fresh water has become a global concern calling for a radical solution, which the scientific advancements might be able to resolve in the near future, the Arab World is the world's most affected region, as its people suffer the most from the scarcity of water resources, and realise its serious consequences.

David Grey, Senior Water Advisor at the World Bank, said at the event: "This is the world's driest and most water-scarce region, where the average amount of water for each inhabitant is only 15 per cent of the world average."

Policymakers in the region today are fostering diversification strategies to enable inclusive and sustainable growth in the long term. The call for transformation of Middle Eastern economies from oil-driven to robust and multi-commodity fuelled growth by nurturing and improving other sectors such as manufacturing and services has reached fevered pitch as economies suffered from the sharp plunge in oil prices.

The diversification strategy also resulted in the increase of urban population. The region is facing an uphill task of meeting the growing water requirement by industries, improving water supply and sanitation to the growing population and planning to prevent depletion and contamination, and optimisation of available water resources.


Desalination remains critical

Desalination is a critical element in overall municipal water supply in water scarce Mena region, particularly in the GCC. As a result, reverse osmosis technology could grow at the expense of thermal technologies, which is more prominent in small capacity plants market, according to a Frost & Sullivan research.

Sufficient demand saw a number of international firms enter market to claim their slice of this growing market. However going forward the competition in both municipal and industrial segments is expected to intensify with straining profit margins.

The gradual rise in oil prices is easing funding constraints and should translate into more investments in non-oil and gas sectors, which benefits the sector. Governments in the region remain committed to investment in clean technologies and renewable energy resources. "All these factors should bode well to the water and wastewater sector," said the research.

Graphic: Water and wastewater treatment equipment market

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