Water Resilience for Economic Resilience: Water as an Economic Connector

Report by the Water Resilience for Economic Resilience Initiative Launched

3 May 2024 by The Water Diplomat

On the 8th of April, the Water Resilience for Economic Resilience Initiative, led by the Alliance for Global Water Adaptation, released a report on managing water for economic resilience. The report builds on 15 case studies to draw conclusions about how action on water can enable economic resilience. The report argues that in times of climate change, water has a double role, being both a major hazard of climate change as well as a powerful way of implementing resilience within the broader economy. 

On the one hand, it states, climate change is impacting the economy by changing trade relationships, stranding economic sectors and key investments, and altering the relations between different groups in society. On the other hand, there are clear gaps between our climate science, the process of economic planning, and our investment decisions. Resilience is necessary for economic planning, and water provides us with a key element to promote this resilience and steer economic development.  

In its first section, the report looks at the integration – or lack of integration – of climate science into economic planning. Already in 2006, the Stern Review presented evidence on the economic costs of climate change, warning that climate change would induce economic shocks and arguing that current day investments in emissions reduction would always be less costly than the costs of adapting to the consequences of climate change. Economist Willam Nordhaus argued that that macroeconomic models  do not sufficiently incorporate thinking on natural resource variability, such as for water resources. Evaluations of economic programmes and investments make use of tools such as Net Present Value (NPV), Economic Internal Rate of Return (EIRR), and cost-benefit analysis, but climate change introduces uncertainties which these tools do not incorporate. Some recent attempts have been made to factor in risks specially by tweaking investments to account for them. However, the authors argue, de-risking is not enough to capture system level changes, such as climate transformation.  

Truly integrating resilience into economic thinking may imply up-front costs as planners and investors ensure that critical economic sectors can continue to operate across different climate scenario’s.  However, over the medium to long term, these measures will result in increased economic efficiency as risks fall and progress is enhanced across a broad range of possible circumstances.  This requires moving beyond adaptation to climate change: adaptation may ensure that sectors, projects, or assets remain prepared and responsive despite climate-related challenges. Resilience, however, is a more ambitious goal: resilience is not only the capacity to cope with a hazardous event or disturbance, but it also maintains the capacity for adaptation, learning, and transformation.

Within climate resilience, water is a central element. Water is a primary factor in 74% of natural disasters between 2001 and 2008, affecting close to 40% of the world population. Also, water is strategic because it fuses environmental, social, and economic issues: therefore, through water,  we can introduce systemic and structural changes. To be effective, feasibility studies and risk analyses in the water domain must integrate both low and high climate impacts. We need system analyses to ensure confidence in the robustness of responses to a wide range of different futures. Adaptability must be incorporated into decision making, and water related impacts must be modelled and stress tested. The Water Resilience for Economic Resilience initiative is designed precisely to promote the integration of water resilience into economic thinking in the future.

In its second section, the report presents a range of case studies from across the world that demonstrate how water resilience for economic resilience is currently being planned or already being implemented.  Not all 15 cases are presented here: a selection has been made from the rich overview presented.

The first case presented is Angola, which, following 27 years of war, experienced two decades of oil export-led growth. The economy has been hindered by flooding, coastal erosion and droughts which have undermined both food and water security. Economic losses in agriculture from drought are expected to increase sevenfold during this century, the productivity of fisheries is expected to decline by up to 64%, and hydropower production is expected to decline. A shift is needed from an economy driven by oil and gas towards a more diverse and sustainable economy based on natural capital, building resilience into the water resources, agriculture and fisheries, and renewable energy sectors. For this, Angola’s water resources management offices and frameworks needs to be strengthened, plans need to be developed for water storage at the basin level – including watershed storage groundwater and surface storage for climate resilience. The existing water supply infrastructure needs improved oversight and maintenance, and the existing water and sanitation utilities need to be strengthened to cope with climate change and extend service provision to peri urban areas. In rural areas, investments are needed in the expansion of water and sanitation facilities that are adapted to climate change, and municipal capacity to operate and maintain water points or support community water management efforts should be built.

The second case presented is Namibia, one of the most water scarce countries in the world and a country which is highly vulnerable to droughts. Although the country only receives 350 mm of rain per year on average, this water supports an economy with rapidly increasing water demand that revolves around mineral resources, fish exports, and tourism. Recent droughts in 2021 pushed almost a quarter of the population into food insecurity, and groundwater is becoming increasingly overexploited. Nevertheless, Managed Aquifer Recharge (MAR) is an adaptation mechanism whereby heavy rain and flood events are utilized to enhance the infiltration into the ground and recharge of underground aquifers. The city of Windhoek, which faces a doubling of water demand by 2050, studied MAR as an alternative to piping water in from distant aquifers or the Okavango Delta and found that this was in fact a more cost-efficient option. Currently, surplus water not directly needed for the city is purified and injected into a local aquifer for future use.  In economic terms, combining MAR with a desalinization plant yield a higher internal rate of return than when the scenario of piping water from the Okavango is included.  The MAR scheme in Windhoek has therefore proven to be a reliable and cost-efficient water augmentation option to serve the rising demand and to avert the threat of water scarcity being exacerbated by droughts and climate change.     

The third case presented is the Inner Niger Delta: the Upper Niger Basin and the Inner Niger Delta are an extensive interconnected wetland system extending across the Sahel and providing livelihoods for millions of people. The Niger River Basin is a huge basin, covering more two million km² across nine different countries, and it is the principal water resource for much of the Sahel region. The Inner Niger Delta expands and contracts seasonally, receiving most of its water from the upstream highlands. The Delta is a key asset both in the economy of Mali and in regional terms, supporting cereal and rice production as well as fisheries and dry season grazing. For local livelihoods, agriculture, fisheries and livestock are important sources of subsistence as well as production for the market.  The Office du Niger, a parastatal agency that manages a large irrigation scheme, currently diverts water from the Niger for the irrigation of more than 100,000 hectares of land. This has made the Office du Niger known as the rice bowl of West Africa – in addition to ensuring the production of hundreds of thousands of tonnes of vegetables and other produce. In the meantime, an additional dam – the Fomi Dam – is being planned by Mali and Guinea both for hydropower purposes and to extend the scope of irrigation of the Office du Niger. However, in the light of the available water resources of the Niger River, it is questionable whether building an additional dam would indeed secure more water, especially during the dry season. This needs to be seen also against the livelihoods in the basin which have been built on the natural expansion and contraction of the river and its related wetlands: building another dam may upset the balance, disrupt livelihoods and even generate tensions and conflicts. Therefore, safeguarding and optimizing the role of the IND needs to be central in future thinking around planning and investment.   

Another country facing high levels of water scarcity is Jordan. Jordan is facing significant challenges in the area of water resources, compounded by the effects of climate change which include the prevalence of droughts and changes in precipitation patterns. Jordan also ranks fifth in the world in terms of water scarcity: the available annual renewable water resources per capita is only 93m³ (well below the threshold for ‘absolute water scarcity’ which is 500m³/capita/annum). 32% of the water is surface water: amongst others the waters of the Jordan and Yarmouk Rivers, and 55% of the water is groundwater. A further 15% is added through the reuse of treated wastewater.

Among Jordan’s challenges are the growth of the population from 5 million to 11 million over the past decade, in part fueled by the influx of refugees from conflicts in neighbouring countries. Groundwater is being over-abstracted, and as a result groundwater levels are declining by an average of 5m per year.  The country has experienced temperature increases of 1,5-2°C over the past two decades. Water demand is expected to increase over time, even if the existing water resources are already fully exploited.  And indeed, previous planning assumed a constant increase in available water resources. However, currently the government of Jordan is working together with GIZ to develop a Third National Water Master Plan which will embrace all the critical factors that affect water utilization in Jordan, including future projections, and their impact on water supply security and overall resilience. Key focal areas for this plan are the improvement of the water resources allocation plan and alignment with investment planning, the establishment of a water resources allocation committee, a critical reexamination of water costs and pricing across different sectors, the expansion of the reuse of treated wastewater to the industrial sector, incentives for farmers to reuse treated wastewater as well as monitoring of water consumption, and the strengthening of evidence based programming through a  Water Evaluation and Planning (WEAP) analysis.

Another example cited in the study is Spain, which, although not as water scarce as Jordan, faces a gradual decline in water resources and increased climate variability. The economy of southern Spain is strongly reliant on agriculture and tourism, both of which require scarce water resources. Providing water supply involves managing tensions between the needs of agrilculture, tourism, ecosystem protection, energy production and urban demand. Historically, infrastructure development has taken place to provide water services where needed. However, on the whole the infrastructure that has been developed has underperformed relative to expectations, and new prerogatives are emerging such as increasing the productivity of irrigation and balancing the need for water services with the preservation of the ecological status of water bodies.  The tourism sector is important to the economy, and by combining desalination with groundwater use, the needs of this industry have been satisfied, but increasing competition over water resources is challenging further development of the sector.

In general, Spain cannot continue down the path of a growing intensity of water utilisation: it is becoming essential to ‘decouple’ economic growth from its impact on water resources. Rather than continuing to invest in bulk supplies, investments need to be focused towards taking care of the existing resources. Water infrastructure decisions need to be evaluated from an economic perspective, comparing the cost-benefit ratios of different alternatives and embracing nature based solutions. Groundwater, in particular, needs to be protected from decline in quality and overexploitation, especially as it is a strategic resource in times of drought. To enable an economic water transition, the rules for water allocation needs to be adapted to become more flexible and adapted to emerging needs while maintaining the overall aims of that transition.

Based on all the case studies covered, the publication finished with a set of seven modalities for the implementation of economic resilience through water. The first of these is introducing planning support for economic resilience across and within different sectors. Resilience needs to be defined and measured in the context of planning, recognizing the interrelationships between water and the economy. Existing economic models need to be modified to embrace the uncertainties that are associated with water, and targets for water use need to be set that recognize limitations on water utilisation and yet remain flexible to respond to changing conditions. Water scarcity and drought response programmes need to be tiered based on severity and intensity and need to respond to the needs of vulnerable groups and ecosystems. 

A second modality is a procedure for risk identification and reduction: existing and future water uses in the economy need to be viewed from the perspective held against different future scenario’s. Water supply systems – including water in products and services - need to be evaluated against the background of these risks. At individual project level, climate assessments.

A third modality is ensuring that water strategies balance efficiency, diversity and resilience. Existing assumptions about the effectiveness of technical efficiency measures need to be critically revisited, the potential for the diversification of water sources needs to be investigated, and investment planning needs to be evaluated from the point of view of risk spreading, the existence of contingency plans, and the use of undeveloped spaces for flood mitigation and groundwater recharge.   

The fourth modality is a review of water governance for resilience. Building resilience requires making changes to the ways in which institutions operate and how they define and implement policies, along with review of regulatory frameworks.

The fifth modality is the introduction of financial tools and incentives, within a holistic perspective that looks at water across individual projects and economic sectors. For example, the strategic use of subsidies can be considered in support of resilience. Introducing appropriate pricing for water services can be used as a means to encourage nature-based solutions. Cost-benefit analysis can consider indirect benefits and costs.

The sixth modality is tailored finance: leveraging climate finance mechanisms to pay for the additional costs of adaptation and resilience is needed, alongside a regulatory environment which makes climate-water risks visible to both investors and the public.

Finally, the seventh modality is investing in capacity building to create durable, permanent institutional changes and fuel a reorientation towards resilience. Structural reforms in water management must be complemented by dedicated efforts in capacity building and raising awareness.