How will Covid-19 change the water industry?
Christopher Gasson, Publisher, Global Water Intelligence
Capital expenditure on water and wastewater utility infrastructure is likely to be relatively resilient in the face of the Covid-19 outbreak according to the latest global water market update by GWI WaterData. Although we have reduced the expected total spend in 2020 by 6.8% to $246 billion compared to our forecast in January 2020, the figure is only marginally lower than the $249 billion figure achieved in 2019. Currently we are expecting 2021 utility capex to be $258 billion.
In part this reflects the fact that capital projects in water have a long lead time and budgets are often fixed well in advance and not discretionary. It also reflects the fact that utilities have by-and-large risen to the challenge of working through the crisis. Some argue that this strength may become a weakness because the water sector will not be able to claim that it needs stimulus spending as urgently as those sectors of the economy which have been most brutally affected by the virus.
From a water perspective, the greatest area of concern is in sub-Saharan Africa. Governments in this region have typically responded to the virus with extreme lock-downs and promises of free or reduced price water. Few have compensated utilities for this loss of income and there is a real danger than as many as a dozen utilities in the region could cease piped water supply during 2020 (and instead revert to tanker-based supply to cash paying customers).
The chart below summarises GWI WaterData’s expectation of year on year capital expenditure growth in water during 2020 and 2021 in a major water markets:
% year on year change in capex by country
This forecast is based in part on surveys GWI has undertaken during the crisis. We also took the opportunity to ask utility leaders where they saw the upside in the crisis. The top response was “Increased investment in automation”, followed by “greater recognition of the value of utility services”.
We are definitely optimistic about the growth of automation and other digital services: we think that the sector will defy any Covid-related downturn, with total spend growing from $32.6bn in 2019 to $33.9bn in 2020 and $36.8bn in 2021. As for recognition – it is difficult to judge, but in the long term much more important for the growth and well-being of our industry.