The latest hot investment is a water investment, one that is particularly liquid but deals in a scarce commodity.
Water has always been a valuable commodity, but it is one that many experts have said is under appreciated, under priced and laced with government subsidies. Hedge fund legend Michael Burry of The Big Short fame first popularized the idea of investing in water, and now the government of Saudi Arabia investing in U.S. water rights is raising eyebrows.
Water is a cheap commodity
The days of “cheap water” are behind us, Ben Grumbles, President of the U.S. Water Alliance, previously told ValueWalk. He says water and its infrastructure has been “taken for granted” and is “a leaking time bomb.”
The commodity that is perhaps most under appreciated in the U.S. was the focus of Michael Burry’s next “big short” for a reason.
“We often spout off the fact that 70% of the Earth’s surface is covered in water,” Burry was quoted as saying. “While this is true, freshwater – the kind we care about – actually only represents 2.5% of that amount. On top of that, only 1% of our freshwater is easily accessible, with most of the other 99% trapped in glaciers and snowfields. In the end, only 0.007% of the planet’s water is actually available to fuel and feed the world’s 7 billion people.”
The United Nations has noted water use has grown at over twice the rate of the world’s population, with today people using nearly 30% of the world’s total accessible renewal supply of water. Projections are that in less than 10 years, that percentage could reach 70% and by 2025, an estimated 1.8 billion people will live in areas plagued by water scarcity, with 2/3rds of the world’s population living in water-stressed regions.
Drinkable water is a scarcity issue, something that they are well aware of in Saudi Arabia.
Saudis pile in on water investment
Almarai Co., Saudi Arabia’s largest dairy company, recently purchased land and water rights in California’s Palo Verde Valley, an area that has preferential access to water from the Colorado River. The Saudi company was reported to have acquired a large tract near Vicksburg, Arizona, a region known for fewer well-pumping restrictions than other parts of the state. The purchase of nearly 14,000 acres enable the Saudis to take advantage of weakened water rules and the move is not sitting well.
“It flies in the face of economic reason,” said John Szczepanski, director of the U.S. Forage Export Council. “You’ve taken on all of the risk a farmer has. The only way you can justify that is that they’re really not trying to make a profit. They’re trying to secure the food supply.”
Indeed, not only does Saudi have a water problem, but it could be getting worse due to recent Government cuts (although at least for now the Government has no plans to stop water investments). A recent report from Jadwa Investment notes:
Another project to commence operations is the $2 billion oil-fired power and desalination plant in Yanbu, with a capacity of 2,500 mw of power and 550 thousand cubic meter a day (cm/d) of desalinated water.
The rapid growth in demand for power and water will continue to be met with continuous project expansion.
Watch water investment, it could be the next big thing.