WaterLydia Whyatt

Villagers in India or Africa pay three to five times more for a litre of water than we do in the developed world. This will get worse as the climate continues to change; whether or not we accept global warming, we cannot ignore changing weather patterns.

The developed world relies on a very old water infrastructure of pipes and treatment plants. Such infrastructure has not been built in much of the developing world, particularly in rural areas and the picture is very similar for both drinking and waste water systems. The key issue is who is going to fund infrastructure work, in both developed and developing economies.

Luckily, we are not short of water on Earth-the problem is that 97 per cent of it is saline. Saline water can be treated, and a lot of money has been invested in desalination plants, but this is an energy intensive and expensive process. Add in the cost of transport, and desalinated water becomes very expensive. It is not a viable solution for most of the developing world.

But where there is a problem, there is an opportunity. The focus has been shifting from desalination to water reuse. General Electric, for example, has said that this will be the main focus of its water business. Industrial and domestic waste water can be collected, treated and reused. In some markets that are very short of water, suppliers are considering using reclaimed water as drinking water, after intensive treatment. In most cases, it is cheaper to treat waste water than to desalinate and transport it.

Over all, the water industry is growing at a moderate rate of 6 per cent per annum, but the market for reuse is expected to grow at double digit rates in major markets. Another key focus for us is energy efficiency in water treatment and transportation. Energy is both a major component of operating costs for water treatment and a growing environmental and regulatory issue, resulting in increasing pressure on water utilities and plant operators to reduce consumption.

Investors should also be aware that the cheap finance from governments and banks for the water industry is no longer forthcoming. Now, technologies that can quickly pay back the initial investment via operating cost savings will do well. "Quick fix" rather than major capital expenditure is what customers will be looking for in the next few years, and companies that can think in this shortened time frame are likely to prosper in the near future.

Lydia Whyatt is managing director of FourWinds Capital Management