A hydropower Plant in Liberia funded by the U.S. through the MCC’s compact program

By Kemi Osukoya

February 2013


This was part of the questions two global giants, International Business Machines and Waterfund–a global water and investment firm, were trying to address when they partnered to combine expertise and resources to develop a water systems index framework that can monitor, measure, analyze and estimate the cost of water in different regions around the world to spur the much-needed global investment in the water sector.

The idea was to create a system that will help water producers and investors make better investment decisions when betting on water investment.

“By creating a benchmark cost for water, we intend to harness the capital market to this supremely important cause,” said Peter Williams, IBM Distinguished Engineer and Big Green Innovations CTO. “If we can make it easier to price investments in the water sector, we can improve the flow of capital into an area where it is desperately needed.”

Worldwide, water scarcity has emerged as one of the biggest threats to population and economic sustainability but also offers huge investment opportunities.

According to the United Nations, about 2.3 billion people, roughly 41 percent of the world’s population, do not have access to clean water or live in water-stressed areas, in addition to the fact that water usage over the last century has been growing at more than twice the rate of population growth.

Population growth, massive urbanization and climate change are also placing increasing demands on water supply and this number is expected to grow to 3.5 billion by 2025.

With news of water scarcity due to climate change, governments policies and concerns for global food security dominating headlines, some investors are seeing ample and long-term investment opportunities in the water and water-related sector.

However, not all investments are created equal and getting the market data needed to gain exposure to the sector, in this case in Africa, can be as daunting as trying to swim across the Nile River without the necessary gears, leaving most investors usually with mixed results.

The backlog of investment in water systems around the world is estimated at $1 trillion—quite apart from the hundreds of millions of people who lack access to basic water supply and clean water.

As the private sector increasingly is being asked by African governments to help fund the construction and maintenance of complex water networks in Africa, governments likewise are being asked to provide data on water infrastructure projects.

Until now, investors often had to rely on inaccurate or dated data from companies to make their investment decisions.

IBM and Waterfund’s latest invention will provide a market benchmark that would help bring transparency to pricing water sector investments for both water producers and investors to spur the much needed global investment in the water sector.

The Rickards Real Cost Water Index will serve as a benchmark to measure critical water projects, infrastructure and water utilities on a like-for-like basis.

The index will reflect estimated water production costs, measured in US dollars per cubic meter, for a variety of major global water infrastructure projects ranging from retail and wholesale water utilities to major transmission projects.

This is especially significant in a place like Africa where 50 percent of its population is expected to live in cities by 2030. Ensuring that sufficient water infrastructure is available to citizens and businesses is one of the greatest fundamental challenges faced by Africa today.

According to McKinsey Global Institute, Africa’s collective GDP is expected to rise to $2.6 trillion by 2020, increasing the demand for water and stressing existing sources of potable water across the continent.

Finding solutions that can provide a catalyst for the capital needed to provide such a vital resource are a crucial. 

Yet, unlike other natural resources found on the continent such as gold, precious gemstones, steel and crude oil, which have indices that help attract huge investments from investors, investments in water are too often relegated as social projects for NGOs because very little data is available on water risk assets that can help investors make smarter decisions.

One African government that is listening and has decided to be part of the IBM and Waterfund LLC’s water initiative to provide data to the private sector is the Uganda Ministry of Water and Environment, making the country the first pioneering member of the Water Cost Index in the continent.

“Uganda is proving itself to be very forward thinking and proactive in the solutions it is seeking to meet the water infrastructure investment challenges it faces,” said Scott Rickards, President and Chief Executive Officer of Waterfund. “This innovative spirit, combined with Waterfund’s first of its kind water cost index and IBM’s unrivaled expertise in Big Data analytics, will bring real financial transparency to Uganda’s water sector and significantly broaden the funding options available to ensure sufficient investment in freshwater infrastructure.”

IBM and Waterfund will work with the Uganda Ministry of Water and Environment to calculate the cost of producing water in the country. The work will be published as part of the Rickards Real Cost Water Index, which will be updated monthly.

The Ministry has allocated $153 million in its 2012/2013 budget for the water sector with plans to supply 77 percent of rural dwellers and 100 percent of urban dwellers with clean water by 2015. However, to achieve this goal the government will have to commit at least $300 million per year of new investment to the water sector until 2020.

“The unprecedented level of transparency that the index will bring to pricing water sector investments in Uganda will be a great asset in attracting private sector funding that can help us provide clean and safe freshwater to all our citizens,” said Ephraim Kamuntu, Uganda’s Minister of Water and Environment. “Becoming part of Waterfund’s benchmark index for water costs will help place Uganda at the forefront of innovation in finding significant funding solutions to realize our water infrastructure goals. It gives us great pleasure to work with Waterfund and IBM and harness their expertise to make this happen.”

The Rickards Real Cost Water Index will give investors a better data to avoid blind allocation to water risk assets. Having the data, in turn could pumps life into water investment across the world and in Africa. “By creating a benchmark cost for water we intend to harness the capital market to this supremely important cause. If we can make it easier to price investments in the water sector, we can improve the flow of capital into an area where it is desperately needed. We look forward to working with Waterfund to bring this about,” said Williams.

With analysts predicting significant growth for the data market in Africa, IBM Africa Research Lab is working with clients and partners to develop a systems and infrastructures solutions that can underpin the continent’s access to potable water, economic and social transformation. IBM has a direct presence in more than 20 African countries including Tanzania, Senegal, South Africa, Morocco, Egypt, Tunisia, Algeria, Ghana, Nigeria, Kenya and Mauritius.

For example in South Africa, IBM is working on a project called WaterWatchers, which is driven by a new mobile phone application and SMS capability that will enable South African citizens to report water leaks, faulty water pipes and general conditions of water canals.

“Our work with Waterfund and the Republic of Uganda shows the difference that IBM’s expertise in Big Data analytics can make to the lives of people in Africa through creating the tools necessary for enhancing the provision of vital services such as the supply of fresh water. We very much look forward to working with Waterfund and the Ministry of Water and Environment in developing such solutions in Uganda and throughout other parts of the continent,” said Magero Gumo, leader for IBM Public Sector for East Africa.

*This article was originally published February 2013 in the publication’s daily newsletter

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