Bridge Over Troubled Water

China, United States and India driving water infrastructure spending

By Joshua Levine

In the past century, worldwide water usage has jumped 700% -- more than double the rate of population growth -- while 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 United States, 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.

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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:

During 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?

Eighty-one percent of respondents said they see overall spending on water projects increasing during the next 12 months -- one point more than in our November 2006 survey.

Next, we asked the same question with regards to six major regions in the world:

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

North America (70%) and Asia (69%) were cited as the top geographical regions for water spending increases in the next 12 months, while the Middle East (59%) ranked third.

China, United States and India Top List

When asked to name the specific country set to experience the biggest spending increase, 38% cited China, 15% said it would be the United States, and 11% said India.

According to one industry respondent, "China has the most need, with heavy pollution problems, and it wants to improve its image for the 2008 Olympics."

Another member said, "China is moving into the 21st century very rapidly and expanded cities are sprouting, which require new water and wastewater infrastructure."

As for the United States, industry members pointed to the many years of neglect and underfunding, as well as the increasing shortages of potable water and dwindling supplies of groundwater.

Fifty-two percent of industry respondents confirmed 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 sub-sectors, infrastructure repair and replacement stood out as the area that will be attracting the most spending during the next two years. 

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

We also noted that water filtration and water security showed momentum compared to our previous survey. Wastewater treatment, on the other hand, did not.

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

It was no surprise that 800-pound gorilla General Electric (GE) ranked as the best-positioned company -- with industry respondents citing company resources, technology and size as the leading reasons.

As one industry respondent put it, "GE can bring both technology and funding to the table."

Another said, "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 (VE) and Fluor (FLR) for being best-positioned in water infrastructure.

One member wrote, "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, which is 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.

Josh Levine is the editor of ChangeWave MicroCap Investor.

The ChangeWave Alliance is a network of 11,000 highly qualified business, technology and medical professionals in leading companies of select industries. The Alliance is surveyed weekly on a wide range of business and investment research and intelligence topics.