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Water Stress Index identifies areas at extreme risk

Tom Styles, water and climate change analyst, explains how Maplecroft’s recent Water Stress Index points to a concentration of extreme risk in the Middle East and North Africa.

Maplecroft provides global risks analysis, researching, indexing and mapping over 500 risks and issues to identify exposures and opportunities in both countries and companies. These offer businesses, investors and others analysis and insight into complex political, economic, social and environmental risks.

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Water is recognised as a direct requirement of many business operations and an indirect pre-requisite for all. Water shortages have the potential to constrain economic development and create social unrest if dwindling resources result in higher prices and limited access for their populations. For example, the recent events in the Middle East and North African (MENA) region show an alarming relationship between water shortages, spikes in food prices and subsequent political unrest.

Sub-national map of Maplecroft Water Stress Index 2011Maplecroft Water Stress Map(image courtesy and copyright, Maplecroft, 2011)

Recent analysis of water stress in 186 countries by risk analysis and mapping firm, Maplecroft, shows that the MENA countries are most at risk. The region is home to 16 of the 17 countries rated ‘extreme risk’ in Maplecroft’s Water Stress Index. However, the results also reveal that a number of large emerging economies are vulnerable to water stress, with India (30) and South Korea (36) both categorised as ‘high risk,’ whilst China (56) is rated ‘medium risk.’ These findings are a wakeup call to investors and businesses to identify water related risks to supply chains, operations and investments, as their operations could be severely constrained, interrupted or prevented by a lack of suitable water.

This global imbalance can have significant consequences even for water rich nations – and not just as a result of a negative balance of trade on water intensive commodities, such as beef. As a more secure means of offsetting shortfalls, India, South Korea and China, along with the oil rich Gulf States, are acquiring water rich land for agricultural purposes in developing countries. They use the water to produce food to ensure the security of supplies for their domestic market and decouple themselves from volatility in global food prices. This phenomenon, dubbed ‘land grab,’ is taking place on a huge scale across many countries in Africa, especially those involved in post conflict reconstruction with poor levels of development.

Deals like this, while prompted by the aim of ensuring food security of the growing population of the home state, can negatively impact on human rights of local communities in project host states as they often fail deliver on extravagant promises of work and income. This can affect human rights such as the right to water, food, adequate housing and the right to gain a living by agricultural work. The impacts of climate change, including increases in global temperatures and changes in rainfall patterns, may also mean that countries rated as ‘low risk’ for water stress now may not be so in the future. Therefore, contracts signed between countries now will not seem as appealing should water resources decline.

Where this puts foreign investors and operations into competition with the rights of local people, and where access is being sold to external entities, there exists a high risk of human rights violations. Local communities can lose access to water supplies; this is especially the case when there is no meaningful community participation in the decision-making process.

Businesses and investors should ensure that water rights are administered fairly and equitably, to protect themselves and local populations. There are two principle risk areas surrounding this: firstly, if a business is seen to be overusing water supplies to the detriment of the local population it is likely to incur significant reputational damage, possibly triggering a consumer boycott. Secondly, if water rights are administered weakly, this may result in a ‘tragedy of the commons’ scenario, whereby each party seeks to maximise their own use of water, to the ultimate detriment of all parties. In turn, this may lead to absolute water shortages in the area, interrupting, constraining or preventing normal business operations.

To facilitate a greater understanding of water issues at the local level, Maplecroft’s Water Stress Index is accompanied by an interactive sub-national map charting water stress down to 10km2 worldwide. Identifying where a business is at risk is the first step for practitioners looking to develop a strategic understanding and implement solutions to combat the chances of interruptions to water supplies to global operations or supply partners. It is also an essential tool in locating where fragile water supplies might become a source of conflict between business and local communities, allowing companies the opportunity to develop risk mitigation strategies and sustainable investment programme.

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