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Water: the ultimate liquid asset

Markets pay more attention to price of oil but water’s geopolitical importance cannot be ignored

PUBLISHED : Tuesday, 02 February, 2016, 8:05am
UPDATED : Tuesday, 02 February, 2016, 8:05am

In any country there are two truly liquid assets that drive economic activity but while one of those, oil, attracts reams of analytical attention, the other, water, rarely gets a mention.

But issues surrounding water supply have geopolitical and economic effects on a local and global scale.

In the case of Hong Kong, its dependency on water supplies from China was not lost on British prime minister Margaret Thatcher’s team as it sought to negotiate with Beijing the terms of 1984’s Sino-British Joint Declaration on Hong Kong’s future.

That dependency remains, but while there was a commemoration, in January, of 50 years of fresh water supply to Hong Kong from the Dongjiang, there is no room for complacency, either in Beijing or Hong Kong, as China itself has a fresh water problem.

“One of the most serious problems for China today and in the foreseeable future is the water crisis caused by rapid socio-economic development, urbanisation, industrialisation, uneven water distribution, water pollution and inefficient water use,” Oxford University’s Haiyan Helen Yu wrote last month in an article posted on the Global Water Forum website.

With major lakes along the Yangtze River drying up, as Xinhua reported recently, China’s water problem is spreading across the country, with accompanying social and industrial challenges, even as China is seeking to adjust to a more consumer-oriented economic model.

Water management issues also have tangible economic costs but can also, on occasion, offer opportunities

Consequently, while China’s attempts to harness the waters of the Yarlung Tsangpo, which originates in Tibet but which ultimately flows into the Brahmaputra River, are logical as part of a wider national water management plan, the plans have been a source of tension between China and India.

Water and politics also intermingle along the Mekong. Dams upstream in China and Laos have long been a bone of contention with countries further downstream and Cambodia and Vietnam are likely to have more objections to new irrigation proposals by Thailand.

But it is not just in Asia that water management and geopolitics are conjoined.

In Africa, Ethiopia’s proposed construction of the Grand Renaissance Dam has been a source of vexation to Egypt, with Cairo fearful of the effects on the flow of the Nile’s waters.

Studies will now be carried out to ascertain the impact of the dam on the downstream course of the Nile, which is at least a reduction of tension after Egypt’s then president, Mohammed Morsi, speaking in 2013, characterised the Ethiopian project as a threat to Egyptian security.

Water management issues also have tangible economic costs but can also, on occasion, offer opportunities.

While Singapore imports a lot of water from Malaysia it has also constructed two desalination plants.

Although desalination is not a cheap way of producing fresh water, Singapore intends to achieve water self-sufficiency and has consequently become a focal point for water technology.

Desalination has also been employed in South America, as Chile’s copper industry, confronting a long drought, has pumped desalinated water, and indeed sea water, into the arid Atacama Desert for use in the copper mining process.

That has unfortunately, for Chile, pushed up their production costs at the very moment when the price of copper has been tumbling as the pace of economic expansion in China, the world’s largest importer of the red metal, has ticked lower.

Elsewhere, its worst drought in 23 years has meant that South Africa, China’s partner in the New Development Bank BRICS, now expects to have to import between 5 million and 6 million tonnes of maize to replace lost domestic production.

Some have even argued that drought may also have played a role in sparking the civil war in Syria and establishing the conditions which have fostered the rise of Islamic State in the area.

An article in 2013, published in the Smithsonian Institute’s online magazine, noted “in Syria, a devastating drought beginning in 2006 forced many farmers to abandon their fields and migrate to urban centres”.

“You had a lot of angry, unemployed men helping to trigger a revolution,” Aaron Wolf, a water management expert at Oregon State University, was quoted as saying in the same piece.

Additionally, the article stated “since 1975, Turkey’s dam and hydro¬power construction has cut water flow to Iraq by 80 per cent and to Syria by 40 per cent”.

Across the globe there are ongoing issues concerning water dependency and scarcity that have profound implications for geopolitics and economic development but do not garner anywhere near the same media attention as the gyrating price of a barrel of oil.

Yet it is water that is surely the ultimate liquid asset.