McKinsey and IFC add Cost Curve Analysis to Water Debate

January 15, 2010

Water scarcity is damaging livelihoods, human health and ecosystems around the world – both in urgent situations, such as Haiti, and in long term crises in the making. But strategies are at hand according to a report from McKinsey & Company, undertaken in partnership with the World Bank’s International Finance Corporation. Charting Our Water Future finds that in just 20 years, demand for water will be 40-percent higher than it is now. Unless local, national and global communities come together and dramatically improve the way water is managed, increasing efficiency and productivity, there will be many more hungry villages and degraded environments, according to the report. And it will be very difficult to meet related resource challenges, such as providing sufficient food or generating energy for the world’s population.

The report was developed as part of the 2030 Water Resources Group, a consortium of public and private-sector actors working to advance solutions in presentations to governmental, commercial and philanthropic decision-makers. It offers a “cost curve” as a means of analysis—one which demonstrates the long-term costs associated with failure to make near-term investments in infrastructure or conservation. And it demonstrates that multiple interventions are needed at all levels of investment and at differing stages, which is a reminder that we can each play a role within a larger strategy.

The report is meant to provide a means by which to compare the impact, cost and achievability of a range of measures and technologies that address water scarcity by boosting efficiency, augmenting supply and lessening the water-intensity of a country’s economy. Through case studies of India, China, Brazil’s Sao Paulo state and South Africa, the study reports that while improved efficiency in industry and municipal water systems is critical, enhanced agricultural productivity – increasing “crop per drop” – is essential to closing the gap between demand and supply. Agriculture today consumes 70 percent of the world’s water.

As the report makes plain, business as usual on the issue of water is not an option for most countries. Philanthropists and foundations that work in the area of international development are similarly committed to increasing awareness and promoting policies that address this issue. Family foundations have been key players in this space, and the Global Philanthropy Forum will feature access to safe water and sanitation as among its major foci at its annual conference in Silicon Valley, April 19-21. This gathering will include foundation executives, key officials from governments, private sector leaders and such expert voices as Peter Gleick of the Pacific Institute; Atiq Rahman of the Bangladesh Center for Advanced Studies; Barbara Frost of WaterAid; Gary White of Water.org; Monica Ellis of the Global Environment and Technology Foundation; Gebisa Ejeta, recipient of the 2009 World Food Prize Award; as well as an author of Charting our Water Future.

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