In the real world, a much greater and more substantive fear is that real liquidity will dry up.
By PINCHAS LANDAUglobal agenda 88(photo credit: )
The fear stalking financial markets this week was that the weakness in the bond markets presaged a drying up of liquidity. After all, as noted here so often, the whole global financial boom is predicated on the easy and plentiful availability of money - which in market jargon is called "liquidity."
But in the real world, a much greater and more substantive fear is that real liquidity will dry up. Unlike financial liquidity, which is make-believe stuff created by central and commercial banks - i.e. fallible humans playing God - real liquidity is water and it can't be "created," it has to exist first somewhere in the physical world. But, as is well known, there isn't enough of it, hence the concern that parts of the world will dry up, causing great hardship to vast numbers of people.
Like other themes that can easily be dressed up as apocalyptic in the most literal sense (think global warming…), the idea of a global water shortage is juicy fodder for the media. I once listened to a long and seemingly thorough analysis of the water problem on the BBC in which umpteen experts discussed many different aspects of both problems and solutions. No one in this program, however, so much as mentioned the question of price. If you charge users of water a price that represents its true - i.e. replacement - value, many of the "massive problems" of wastage, misuse and abuse will simply, er, evaporate.
That much is obvious to any professional economist. Brokers and investment analysts, however, want to go further and see how the supposed threat of a global water shortage is actually an opportunity for a broad range of companies to make profits from technological, engineering and infrastructure construction issues that the world is beginning to grapple with in the context of water.
This investment debate has been intensifying over the last two to three years. This month, Credit Suisse has published a large, thorough and serious report on water as an investment sector. Investment banks are not in business to save the world, but to make money; however, making money by helping other people save the world is not a bad thing either - and that's what investing in water is about. Someone has to figure out who and which among all the entrepreneurs, inventors and products active in the field have the best chances of succeeding.
The report notes that several corporate giants, such as GE and Dow Chemicals, expect to make large investments and excellent returns from water over the coming years and decades. However, in the overall context of GE, water is, er, a drop in the bucket. You can't use GE as a "water play." But there are many companies around the world, some very small, others of not insignificant scale although still minuscule compared to GE, for whom water is a major, sometimes sole, business focus. These are the companies that Credit Suisse and its rivals are trying to identify, assess and choose between.
Interestingly - but not surprisingly - Israel shows up in the very first paragraph of the report, in the context of recycling: "Water recycling makes up just 4% of global supply (according to the World Bank). The potential is much larger: in Israel, government plans are in place for recycling to deliver 25% of water supply, and in Australia 11%."
Fortunately, the authors of the report don't realize what kind of place Israeli government plans are in - but in the end, the recycling plants will be built in this country because, as the report notes: "at the Ashkelon plant in Israel, [desalination] costs are 50 cents per 1,000 gallons - in line with the normal cost of water in Israel." That's the key to desalination as a potential solution to the water problem, since there is obviously no shortage of water in the world, but most of it is salty seawater.
Israel, however, is likely to be a much more active player in the water sector than merely a builder and user of desalination plants. Israeli drip irrigation is the most obvious example of the country's contribution to conservation or efficient usage - another key area. But Israeli scientists and entrepreneurs are already active across the spectrum of challenges that the water problem presents, and may be relied upon to play a disproportionate and perhaps even a leading role, at the global level, in addressing the challenges and solving the problems - thereby achieving tikun olam and wealth in tandem.
landaup@netvision.net.il
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