Water: Opening the tap

Better regulations could encourage investors to dip their toes into MENA’s water sector.

A salmon would find it a hardscrabble life in the waterways of the Middle East and North Africa (MENA). Not because of dried riverbeds, overfishing or pollution, but because the region has more dams per cubic metre of water than any other place on earth.

Water here is heavily managed and heavily consumed. Domestic consumption in the Gulf states runs 50% higher than in the US, although the per capita amount of water available per year is 1,200 m3, compared to 7,000 m3 globally. Drinking water only accounts for 8% of consumption; 22% is for industrial use, and 70% for agriculture.

Fortunately, the region boasts some of the world's best hydrological engineers and is a leader in innovative technologies like desalination and wastewater recycling. Unfortunately, many of these efforts fail to bring the expected returns due to inefficiency, poor regulation, bloated subsidies and underinvestment in maintenance. When the conversation turns to the MENA water sector, investors' mouths go dry.

The economic crisis has not helped. The MENA-OECD Investment Programme Steering Group announced that OECD inward foreign direct investment (FDI) in MENA had dropped 13%, and outward FDI fell 6%. Gulf countries fared the worst, losing an estimated 21% in the run-up to the crisis, between 2007 and 2008.

In July, the MENA-OECD Initiative on Governance and Development met with Arab experts to discuss ways to improve governance in the water sector. Geographical and political factors complicate the situation. About 60% of MENA water flows across international boundaries, raising questions of sovereignty. This trans-jurisdictional aspect of water governance is one reason why governments are wary of privatising the sector, even though only 2 of 13 MENA countries have succeeded in covering their operational and management costs.

One of investors' bugbears is inefficiency. Agriculture uses 70% of water reserves, but because of leaks and waste only half of this water reaches crops. Farmers and other consumers would find the situation intolerable if heavy subsidies did not buffer them from the unpleasant reality. A consumer in Egypt, for instance, pays only 20% of water treatment and delivery costs.

Weak regulation is another deterrent to investment. When low-cost drilling arrived in the 1960s, individuals began extracting water from aquifers (the layer of permeable rock, gravel, sand, etc. that stores groundwater) at a pace that overwhelmed regulators. Over-extraction now drains national assets in some countries at a rate equivalent to 1-2% of GDP. Governments must shift their efforts from augmenting supply to managing demand.

Available water per capita in the MENA region is expected to halve in forty years. In just 15 years, the area's population of 300 million is projected to reach 500 million, for which some 100 million new jobs will have to be created. MENA countries are struggling to cope with this surge in demand, and are turning to OECD instruments, such as Private Sector Participation in Water Infrastructure: Checklist for Public Action, for guidance.

Public-private partnerships (PPPs) would certainly help, but investors are leery of PPPs without a sound regulatory framework. The type of regulation chosen depends on whether the political system functions according to civil or to common law. Civil law informs most choices in the Maghreb, where horizontal, cross-sectoral approaches are favoured, whereas the Gulf states prefer sectoral regulation, granting considerable discretion to the delegated authorities.

Unlike salmon, investors don't like to swim against the current; but sheltered by better regulation, transparency and predictability, they are likely to return to MENA's water sector. LT

Visit www.oecd.org/water

© OECD Observer, No. 275, November 2009


Economic data

GDP growth: +0.6% Q4 2017 year-on-year
Consumer price inflation: 2.3% Dec 2017 annual
Trade: +4.3% exp, +4.3% imp, Q3 2017
Unemployment: 5.5% Dec 2017
Last update: 23 Feb 2018


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly

Online edition
Previous editions

Don't miss

  • Ambassador Aleksander Surdej, Permanent Representative of Poland to the OECD, was a guest on France 24’s English-language show “The Debate”, where he discussed French President Emmanuel Macron’s speech at the World Economic Forum in Davos.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018