China, U.S. and India Driving Water Infrastructure Spending

Includes: AEGN, FLR, GE, VEOEY
by: Joshua Levine

In the past century, worldwide water usage has jumped 700%, more than double the rate of population growth, while the water supply hasn’t budged an inch.

Even worse, it’s forecasted that by 2025, almost two-thirds of the global population will live in countries where water will be a scarce commodity. Climate change could further exacerbate the problem.

Clearly, water issues cross all boundaries.

In the U.S., a conservative and bureaucratic water industry has failed to muster the vision and political will to take on long-term projects. Instead, responding to leaky pipes and water main bursts are the order of the day.

In a recent ChangeWave Water Industry survey, we went digging to identify global trends and opportunities. A total of 156 members who work for companies involved in the water industry participated.

Based on what we learned, the looming water crisis will provide infrastructure companies with huge opportunities due to decades of underinvestment.

To begin, we gauged overall spending on water projects by asking industry members:

Over the next 12 months, do you think overall spending on water projects will increase, decrease, or remain the same compared to the previous 12 months?

water 1

Better than four-in-five respondents (81%) see overall spending on water projects increasing over the next 12 months – 1-pt more than in our November 2006 survey. Next, we asked the same question with regards to six major regions in the world.

water 2

The above chart shows the percentage of water industry respondents who think overall spending on water projects will increase in each region over the next 12 months.

Clearly, North America (70%) and Asia (69%) rank as the top geographical regions for water spending increases over the next 12 months, with the Middle East (59%) third.

China, U.S. and India Top List

When asked to name the specific country set to experience the biggest spending increase, 38% cited China, followed by the U.S. (15%) and India (11%).

According to one industry respondent, “China has the most need, with heavy pollution problems – and wants to improve their image for the 2008 Olympics.” Another member adds, “China is moving into the 21st century very rapidly and expanded cities are sprouting, which require new water and wastewater infrastructure.”

As for the U.S., industry members point to the many years of neglect and under funding, as well as the increasing shortages of potable water and dwindling supplies of groundwater.

More than one-in-two (52%) industry respondents confirm this, reporting that a lack of funding is the biggest barrier to bringing U.S. water grids up to Clean Water Act standards. Another 36% cited aging infrastructure as the biggest barrier.

Infrastructure – The Biggest Priority

Among the water subsectors, infrastructure repair and replacement stands out as the area that will be attracting the most spending over the next two years.

Which of the following water sub-sectors do you think will attract the most public/private spending over the
next 12-24 months?

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But we also note that Water Filtration and Water Security are showing momentum compared to our previous survey. Wastewater Treatment, on the other hand, does not.

We then turned our attention to the major infrastructure players by asking which company is best positioned in the marketplace over the next 12 months:

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No surprises here, as 800 lb. gorilla General Electric (NYSE:GE) ranks as the best positioned company – with industry respondents citing company resources, technology and size as the leading reasons.

As one industry respondent puts it, "GE can bring both technology and funding to the table." Another adds, "They have the resources and track record to complete large water infrastructure construction projects."

Most interestingly, participants ranked Insituform (INSU) ahead of both Veolia Environnement SA (VE) and Fluor (NYSE:FLR) for being best positioned in water infrastructure. One member writes, "Demand for INSU's product continues to grow as cities have to repair aging systems and want to minimize the impact on streets."

The Next Wave

Water is a fundamental resource, and that's why it's often taken for granted – but this is changing. A combination of global economic growth and years of neglect are leading to a tidal wave of demand for water infrastructure and various technologies.

In a future article, we’ll investigate the most important underlying currents making an impact on the water industry – and uncover additional companies that are going to make a big splash.

This article summarizes the results of a recent ChangeWave Alliance survey. The Alliance is a research network of 10,000 business, technology and medical professionals who spend their everyday lives working on the front line of technological change. For more info on the ChangeWave Alliance, or if you are interested in joining, please click here.

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