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Water crises threaten global economic growth

World Economic Forum survey puts water risks ahead of climate change.


Environmental risks feature prominently in a top 10 list of the biggest challenges facing the world today, according to a report published last week by the World Economic Forum (WEF).

Water crises, failure of climate change mitigation and adaptation and a greater incidence of extreme weather events were all singled
out as major risks to global stability.

The issues are highlighted in a survey of 700 leaders and decision-makers from across the globe.

The WEF report is compiled annually. It looks ahead 10 years and assesses 31 global risks that have the potential to disrupt entire countries and industries.

The survey first highlighted severe water shortages as a risk in 2012 and these remain a high risk in this year’s report.

This year water shortages are identified as the third highest risk behind fiscal crises in key economies and structurally high unemployment/underemployment.

The relatively high risk of water shortages illustrates a continued and growing awareness of problems caused by mismanagement and increased competition for already scarce water resources from economic activity and population growth, says the WEF report.

Extreme weather

“Coupled with extreme weather events such as floods and droughts, which appears sixth on the list, the potential impacts are real and happening today,” it says.

Climate change, ranked fifth on the list, is the key driver of such uncertain and changing weather patterns, causing a higher frequency of extreme weather events such as floods and droughts.

“There is no doubt that weather events are getting worse so it makes sense that climate change has made it into the top five,” said WEF chief economist Jennifer Blanke.

Top 10 global risks

1 Fiscal crises in key economies
2 Structurally high unemployment/underemployment
3 Water crises
4 Severe income disparity
5 Failure of climate change mitigation and adaptation
6 Greater incidence of extreme weather events (e.g. floods, storms, fires)
7 Global governance failure
8 Food crises
9 Failure of a major financial mechanism/institution
10 Profound political and social instability

Risk analysis specialist Marsh & McLennan global risk centre chairman John Drzik added that he expected environmental issues remain high risks for many years to come.

“The impact of extreme weather events is growing as more of the global population is urbanised. If you put that together with climate change and the pressure on governments’ fiscal budgets then it means that environmental [issues] should be in the top five for a number of years to come.”

The report adds that it is important to consider the combined implications of these environmental risks on key development and security issues, such as food security, and political and social instability, ranked eighth and 10th respectively.

Given that global risks can be addressed effectively only through international collaboration, WEF said it was “hardly a surprise” that global governance failure is also included in the list as the risk of seventh highest concern.


Risks that flow from water

Water crises and extreme weather events have been identified by the World Economic Forum as two of the top 10 global risks.

This is hardly surprising, given the devastating impacts of having too little water, or too much.

While water’s immediate impacts are often local, water security is now recognised as a systemic global risk.

In 2010, floods in Pakistan paralysed large parts of the country for many weeks, killing thousands of people and wrecking the rural economy.

Thailand’s slow-onset flood in 2011 caused fewer deaths but showed how one local event could have an impact across the world: global car production slowed as supplies of components were cut, and hard-drive manufacture for computers was slashed. Similarly, Japan’s GDP and global industrial production dipped significantly following the tsunami of March 2011.

Too little water can also have systemic impacts. Drought in Russia in 2010 led to restrictions on agricultural exports, causing the price of staple grains to rise across North Africa and the Middle East. Resulting food shortages and price rises aggravated the tensions that led to the Arab Spring. Some studies suggest that water scarcity could reduce grain production by as much as 30%.

In the future, geopolitical tensions over access to strategic water resources could become more systemically impactful, and water shortages coupled with poverty and societal instability could weaken intra-state cohesion.

Because of the systemic importance of water for global economic activity, any failings in its planning, management and use in one country can ripple across the world. That management is becoming increasingly complex and difficult as populations expand and people grow wealthier, demanding more freshwater to supply cities and factories and consuming more foods, such as dairy and meat products, that need more water to produce. Water is equally key for energy production. While the world population grew fourfold in the 20th century, freshwater withdrawals grew nine times.

While there is growing concern about future climate change exacerbating water-related risk, many countries cannot even manage today’s climate variability. Drought and flood could increasingly ravage the economies of poorer countries, locking them more deeply into cycles of poverty.

Beyond water quantity, water quality is another critical issue. Pollution incidents have paralysed business operations in parts of China and elsewhere, disrupting global value chains and damaging corporate reputations - poor water quality or shortages are often blamed on business operations even when businesses comply fully with regulatory requirements.

How can the global community respond? The overarching prescription is for a package of investments in information, institutions and infrastructure. But successful water management needs the cooperation of a wide network of water users, public and private institutions.

  • n Contributed by the Global Agenda Council on Water Security

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