• For worldwide public health, especially in developing countries where water-related diseases kill from 5 to 7 million people annually, about 1.5 billion people lack safe, reliable water supplies, and up to 3 billion have no sanitation. An estimated 80% of all infectious disease is water-borne.
• Water is essential to support industry and economic growth, from industrial production to transportation to tourism.
• Food production for growing populations and the generation of power also place substantial demands on water resources. Adequate supplies of clean water are essential for the natural habitats and ecological systems on which life depends.

• U.S. national security interests are prejudiced by the likelihood of conflict arising from water scarcity, threats to water supplies by terrorists, and the potential for disruptive levels of migration.
• The lack of safe, clean water, the growing absolute shortage in many places, and the pervasive threats from floods and droughts typically put the heaviest burden on the most vulnerable members of societies around the world.
• Water-related problems originating outside U.S. borders directly affect the health and well being of U.S. citizens, creating epidemics that may spread to the United States, for example.
• With adequate water supply a requisite for economic growth and prosperity, more and more U.S. companies looking abroad for new and expanded markets may find their prospects constrained by water shortages. And without suitable water availability, companies seeking to open plants overseas may be forced to curtail their plans or face higher costs.

• The total U.S. effort to address world water challenges falls seriously short. Nearly every federal trade and development agency can point to programs or activities that respond to the water challenge on some level. Yet the sum of these programs fails to add up to an effective response; activities are scattered across agencies and aimed at disparate parts of the problem, rather than being integrated into a coordinated, well-articulated program.
• The water industry itself is not yet well positioned to meet the challenge abroad or capitalize on opportunities. The U.S. industry is highly fragmented, composed primarily of small to midsize companies that each supply only parts of the solution: design and construction services, finance, chemicals, equipment or products, and so on.
• Development of a water or wastewater project is so costly even at the feasibility stage, requiring preliminary engineering, economic, legal and other analyses, that, given the often modest returns, U.S. firms are unwilling to take the very real risk that a project will not meet the test of viability. The result is a paucity of viable projects ready for private investors. Another barrier is the lack of reliable information about water technologies and options. There is a compelling need for a comprehensive and integrated body of data to guide local procurement decisions.

• Strengthening in-country regulatory capacity and removing trade barriers;
• Mobilizing financial markets and institutions;
• Promoting effective private sector responses to opportunities;
• Developing internet-based initiatives to improve information dissemination and communication within the sector;
• Fostering broader, earlier full-scale testing and adoption of new technologies, innovative approaches, and responsive local institutions for water.

• Technologies that U.S. companies, large and small, can bring to the table;
• Expertise in project finance and mobilization of private capital without which the daunting investments required cannot be made;
• Detailed knowledge by U.S. companies of conditions on the ground in a large number of countries; and
• Experience in implementing measures to strengthen water management.

There is considerable opportunity for U.S. manufacturers, suppliers, designers, builders, and financiers to be part of the solution to global water problems. The technologies offered by U.S. companies in the water sector are excellent, the engineering know-how in crafting cost-effective solutions is extensive, and the expertise in financing and packaging projects is broad. Although a number of observers do question the real commercial opportunity for U.S. companies in some areas – as operators of large urban water systems, for instance – there is broad agreement on the significant opportunities in “green” chemistry (pollution prevention), in information management, in water treatment for smaller communities and decentralized applications, and in other sectors.

The private sector perspective on these issues could be summarized as follows:

The coming global water shortage poses a significant risk to the prosperity of the United States and U.S. trading partners. The resources of the U.S. private sector – in partnership with federal, state and local government, and the nonprofit sector – can turn this challenge into an opportunity for leadership. The U.S. environmental sector is strong, with some of the best technologies in the world. It employs more than 1.3 million workers in over 115,000 companies and revenue-generating public enterprises. Most of these are small businesses, yet they accounted for almost $200 billion in sales in 1999. Environmental technology exports, a sector in which the United States has a positive trade balance, generated $18.9 billion in export sales and supported 170,000 jobs in 1999. Yet, only 10 percent of U.S. environmental businesses export. These exports account for less than 10 percent of the U.S. environmental sector output; the market share outside the United States is only about 7 percent. By helping the world to solve this urgent problem, the United States will help to build new opportunities for thousands of small companies at home.

What is the U.S. doing about it?

Notwithstanding compelling national security, health, and economic interests, the U.S. private sector faces significant barriers to participation in meeting the global water challenge and in benefiting from commercial opportunities. U.S. government agencies do provide some technical assistance and other help, and this is welcomed by the U.S. private sector. But the total package of programs and assistance is not coordinated and ultimately not effective in mobilizing U.S. resources to meet global water needs.

There is no single U.S. agency that has the lead on water and no interagency forum by which to integrate the variety of complex issues and interests. Various missions and responsibilities – technical assistance, for example – are scattered among agencies throughout the government. Each agency seeks to optimize its own performance rather than taking a broad view of how to meet the overall challenge. Each may fulfill its tasks admirably, yet the sum total misses important issues and priorities.

An example is military and disaster assistance, of which the United States is a large funder. There is no means by which the U.S. government helps U.S. companies involved in providing equipment and services used in disaster relief to capitalize on the early entry and good will created to participate in longer-term solutions. The U.S. Agency for International Development (USAID) is beginning to consider how to ensure that short-term disaster assistance contributes to progress over the longer term; the assistance provided in the aftermath of Hurricane Mitch in Central America is an example of a new emphasis.

Even within a single agency, responsibility for water issues is often fragmented. Water has no “home” in USAID, for example. Consequently there is no advocate for water within the agency, nor a strategic focus on water. In contrast, energy has an explicit focus within USAID with up to $1 billion invested worldwide.

The U.S. government does provide important support services to U.S. firms. The government tracks water project opportunities overseas, for example, and disseminates this information to firms interested in tapping into markets abroad. The government also provides a number of crucial supports, risk insurance, export credits, finance guarantees, funding for feasibility studies, direct investment under certain circumstances, and other assistance. These services can and do make an important difference in whether U.S. companies generally can take advantage of international opportunities. Yet, for water, there really is no way at present to integrate this array of services, and the relevant agencies acknowledge that the services are seldom employed in the water sector. Their pipeline of water projects, in other words, is very thin.

U.S. agencies also provide technical assistance to many emerging markets to help them develop regulatory systems – enforcement, monitoring and disclosure, pre-treatment, citizen participation, operator training, and the like – that establishes the context in which U.S. firms operate overseas. Here, too, it is far from systematic whether the assistance programs and priorities are coordinated among agencies or targeted geographically in places where commercial opportunities for U.S. companies are greatest. The U.S. Asian Environmental Partnership has tried with some success to overcome the fragmented approach, drawing on several federal agencies and integrating technical assistance programs with commercial diplomacy helpful to U.S. firms. Other government programs, such as the EcoLinks Program in Central and Eastern Europe, may offer similar opportunities.

The United States has outstanding science and regulatory capabilities and enormous technical sophistication in private-sector corporations. Yet for several reasons, the water industry itself is not especially well positioned to meet the challenge abroad or capitalize on opportunities. By and large, for instance, U.S. companies have not been effective in bringing their expertise and resources to bear to meet the critical need for expanding municipal water supply and treatment. The U.S. industry is highly fragmented, composed primarily of small to mid-sized companies that each supply only part of the solution, design and construction services, finance, chemicals, equipment or products, and so on. For the most part, the U.S. water industry does not include large, full-service companies able to compete against the integrated, well-financed European water providers. The United States lacks private sector water operators since U.S. municipalities have for the most part relied on local, publicly operated authorities or small private companies that have limited markets and are not active internationally, nor do they seek to be.

Contrast the capabilities of the French companies, which dominate the water sector internationally, and those of the United States. The French have a long history of private water system operators. They have large, well-financed engineering divisions and can provide equipment, supplies, chemicals, finance and other requisites directly or through consortia. They receive support from French development assistance agencies to promote their experience. They also have the benefit of long-term revenue streams from ongoing operations the world over to finance marketing and cover project development costs.

Development of municipal water projects is quite costly. Although technical considerations in water projects are likely to vary from place to place, because conditions vary widely, attempts to standardize concessions agreements and other elements of project development have not been widely adopted. Each project, so it seems, is unique in its legal and financial underpinnings, making the transactions costs substantial for all parties. Neither municipalities overseas nor U.S. companies can or will provide the substantial funds needed to develop water projects as private investments.

Moreover, water infrastructure projects are highly capital intensive and to date have offered rates of return not sufficiently attractive to U.S. investors, particularly compared to other sectors such as power and telecommunications. The willingness or ability to pay the full cost of providing water service in host countries is often a key barrier. Water has been heavily subsidized in some countries and attempts to get consumers to pay more have met resistance. Additionally, customer willingness to pay for collection and treatment of wastewater is even lower than for water supply. Collecting revenues can be a problem in its own right.

The tariff – how much to charge for clean water – is a major philosophical issue. There is a spectrum of views about water tariffs, ranging from water as a right, whose cost should be subsidized, to water as a good or commodity, the price of which should reflect the true cost of providing it. Many studies have documented that people, even the poor, will and do pay more for decent quality water, and further that transparent, targeted subsidies from the government to water operators offers a viable means of accommodating poor households. Still, water tariffs remain a sensitive, controversial, even explosive issue in many countries. Because in the United States water prices in publicly owned utilities have long been subsidized at less than full cost recovery, it is hard to argue to other countries that they should cut water subsidies or turn water operations over to the private sector.

In sum, development of a water or wastewater project is so costly just to determine the feasibility of the project, including preliminary engineering, economic, legal and other analyses, and the potential returns sufficiently limited, that U.S. firms are unwilling to take the very real risk that a project will not meet the test of viability.

With their funds limited and many competing objectives, multilateral donors and bilateral aid agencies have moved away from directly financing expensive water projects. The relationship of these donor and development agencies with a country is typically at the sovereign or national level, whereas most water authorities are state, provincial, or local in character. The international lending institutions have been helpful in bringing water projects along, especially in large capital cities where financing and know-how may exist, but much less so in the second and third-tier communities in the developing world, where the needs are urgent and resources less available. The U.S. Agency for International Development, for example, with limited funding for technical assistance, sees its primary role as building capacity and fostering the requisite elements of a civil society (courts and legal systems, for instance) so that the private sector can function in developing countries. USAID is focused increasingly on the poorest countries and those activities that the government has to do, rather than on commercial opportunities or commercially attractive countries.

A grants program administered by the U.S. Environmental Protection Agency appears to offer the only successful model within the federal government for actually developing water projects. EPA provides grant funds to the Border Environment Cooperation Commission (BECC), which in turn supports project development in communities along the U.S.-Mexico border. An extensive community outreach program assures citizen buy-in for what’s proposed and for the tariffs. A technical manager is assigned by BECC to oversee planning and design. And the North American Development Bank, which also receives EPA grant money, conducts the financial analysis to assure viability. About a dozen projects are under construction and a dozen more in the pipeline. About half of the projects are in Mexico, half in the States.

Aside from this limited program, the cost of project development coupled with the lack of resources, financing and technical, means a limited number of projects are in the pipeline suitable for U.S. private sector involvement.

Another barrier is the lack of reliable information about water technologies and options. Even though some information would likely need to remain classified or in restricted use, there is a compelling need for a comprehensive and integrated body of data and a better public understanding of the importance of the water sector to U.S. national security and economic well-being, as well as to public and environmental health.

The United States offers a wealth of new and innovative supply and treatment technologies, many of which are small-scale and decentralized. Indeed, technological innovation may be a comparative advantage of U.S. companies in the water sector. Yet even with cost-effective technologies, these companies may be small and unable to take advantage of commercial opportunities abroad or find overseas distributors. Moreover, some promising technologies have not been fully tested and demonstrated for want of venture capital.

There is now no central database or clearinghouse that can provide this information to water planners, procurement officials, citizens groups, and others. Nor is there a means by which technologies can be given an official stamp of approval for reliability and efficacy. To meet this need, at least partially, a number of new websites have entered the arena of water commerce to sell products and equipment. In the nonprofit sector, the Global Environment and Technology Foundation is exploring whether its clearinghouse in pollution prevention and energy efficient technologies could be replicated in the water sector.

The private sector perspective on these issues could be summarized as follows:

The total U.S. effort to address world water challenges is seriously lacking. Nearly every federal trade and development agency can point to programs or activities that respond to this challenge on some level, with many demonstrating creativity and professionalism. Yet the sum of these programs falls far short of an effective response, in the first instance, because the resources available are dwarfed by the massive scale of the problem. More importantly, the response falls short because the individual programs do not rise above the narrow focus of agency missions; the response is scattered across agencies and aimed at disparate parts of the problem, rather than being integrated into a coordinated, well-articulated program.

Despite the high quality of many individual agency efforts, the sum total of federal global water programming fails to provide the clear assignment of responsibility for results, the effective mobilization of diverse public and private resources, and the commitment to achieving results that this urgent problem demands. As a result, the United States has missed opportunities to create new markets for its firms in export markets, and has been largely ineffective in mobilizing private sector resources to meet this urgent challenge to human health and well-being. The United States has failed to draw together the capabilities of the public and private sectors into a coherent program that makes the most of all available resources. If there is one change that would most help to redress this situation, it would be to recognize that the involvement of private sector investment, technology, and human resources in foreign assistance for the water sector cannot be an afterthought. Instead it must be a core element of any realistic global strategy.

How can we improve what we are doing?

At one level, providing water and managing wisely a nation’s water resources falls to each country itself. Yet given the lack of resources, financial and technical in many of these places, U.S. leadership can catalyze action. The United States can also pressure international and other multilateral development agencies to provide needed resources.

For its part, the U.S. private sector – including both service and technology providers and major companies operating around the world that need clean, reliable supplies of water for their business activities and their employees – has specialized knowledge and expertise in each of the five roles cited in the opening section. In some, such as irrigation, this expertise is shared with public sector agencies such as the Corps of Engineers and the Department of Agriculture. In other areas, such as watershed management, the private sector has highly technical and applied knowledge, which complements that of the public sector. In still other areas, such as project finance for urban and industrial water projects, most of the capability resides in the private sector. State and local governments, as well, have considerable experience in managing water resources and water supply and treatment projects. These resources and more will be critical to meeting needs for clean water worldwide.

If more water projects are going to get off the ground in countries where they are urgently needed and U.S. firms are to become more competitive in this marketplace; if the goal of developing local capabilities to mobilize capital, of overcoming traditional fragmentation in the U.S. water industry, and of removing barriers to project development are to be met, a more careful, coordinated, and considered response will be needed to address the global water challenge.

The scope of the global water challenge is so all-encompassing that any effort to define a comprehensive agenda risks getting mired in describing the problem and its parameters. A focus on cross-cutting issues is needed to serve as a guide to action in mobilizing the private sector and fostering the use of innovative technologies. From the standpoint of the private sector, five areas have particular merit:

Strengthen in-country regulatory capacity and remove trade barriers: strengthen environmental regulation and develop government and market-based institutions able to regulate or oversee technical programs, mediate between competing users, foster economic efficiency, and promote efficient public and private investments in water; identify and eliminate trade barriers impeding U.S. firms from providing environmental goods and services abroad.

Mobilize financial markets and institutions: develop public-private partnerships, project development funds, legal frameworks, and institutions promoting the mobilization of capital for needed water investments.

Promote efficient private sector responses to opportunities: create mechanisms to promote and encourage collaborative efforts across and within countries, such as initiatives to address the fragmentation of the water industry, which currently inhibits an efficient response by the U.S. private sector and by the private sector in many developing countries.

Develop internet-based initiatives to improve information dissemination and communication within the sector: launch public and/or private initiatives to link technology users with technology sources more efficiently, particularly as relates to public sector information on technological options for the water sector and e-commerce systems for small businesses as well as large.

Foster broader and earlier full-scale testing and adoption of new technologies, innovative approaches, and responsive local institutions for water: create mechanisms to mitigate sensitivity to risk in the adoption of new approaches for the sector, without which potential efficiencies and expansions of service areas will be difficult to realize.

Following are brief statements about possible activities in each of these themes, each designed to respond to the challenges from a private sector perspective:

• Promote the adoption of a stronger legal framework in such key areas as contracts and concession law, property rights, and dispute resolution, encouraging consistency across countries as well as within each nation.
• Assist countries to strengthen their ability to monitor and enforce environmental standards, particularly for water, including use of disclosure and public comment to encourage local industry compliance.
• Mobilize the tremendous capacity of U.S. state and local governments, using exchanges and collaboration to educate wherever possible, rather than relying solely on expensive technical assistance.
• Encourage collaboration between countries within the developing world to share models and experiences, and coordinate fully with the World Bank and other donors to ensure consistency.
• Create mechanisms to mobilize the financial market and the technical expertise resident in the U.S. private sector, ensuring solutions that meet the test of the marketplace.
• Include a strong emphasis on dispute resolution, mediation among competing users – local and national – and attention to community education and dialogue so that public misunderstanding of the need for economic efficiency in water use does not become a constraint to meeting public needs.
• Document and address country-specific tariffs and non-tariff trade barriers that impede U.S. market access.
• Involve a wide range of NGOs and private sector groups in a dialogue on trade and investment, water sector development, and environmental quality.

• Strengthen local financial markets, with particular attention to the creation of municipal bond markets, an area of special U.S. expertise.
• Build collaborative programs between U.S. foreign assistance programs, the U.S. private sector, and the multilateral development banks.
• Recognize the need to provide greater access to project development funds, so that private developers can undertake the necessary project feasibility work without being asked to assume unreasonable risks. Such a response might build on the successful experience of the U.S.-Mexico Border Environmental Cooperation Commission (BECC), which used small infusions of grant funds to ready municipal projects for private sector funding.
• Be highly experimental, open to new institutional solutions, and focused unwaveringly on the need for solutions that work to mobilize private water investment capital.

• Build local private sector capacity by encouraging strong local firms to enter the water market internationally.
• Help to organize coalitions or consortia among small, technically capable U.S. firms.
• Mobilize major U.S. firms outside the water sector to consider water-related investments to meet urgent needs.
• Focus special attention on secondary cities and smaller markets that otherwise go unattended, developing new mechanisms to consider unsolicited proposals in these cases by, for example, providing an independent, professional review to ensure transparency, fairness, and soundness in such projects.
• Encourage innovative approaches suitable to smaller-scale projects to expand the menu of technologies available to the developing world’s communities and help train local officials in how to consider and implement such options.

• Combine public and private sector information channels in innovative and effective ways, using public channels to mobilize private technology, encouraging communication between local governments across distance and culture, and disseminating technical information at a tiny fraction of the pre-internet cost.
• Identify and promote water technologies in which U.S. technical innovation, excellence and cost-effectiveness provide a competitive advantage.

• The nonprofit GETF created, at federal request, the Global Network of Environment & Technology (GNET), a worldwide website that provides environmental technology information and encourages community and business interaction on line (www.gnet.org). This information is helping meet the need for independent review of system capabilities, currently a major barrier to the adoption of innovative technologies.
• The GTN, currently managed by USAID, works with public and private clients in the developing world to identify technology-based market opportunities, matches U.S. firms having the needed capabilities, and disseminates these opportunities over the internet, bringing together developing country buyers and U.S. sellers who would otherwise never meet.

• Build on the United States’ acknowledged leadership in technology and public-private partnerships, mobilizing the expertise of manufacturers of environmental goods, providers of environmental services, universities, publicly-supported research laboratories and dynamic venture capital markets to accelerate technology development for all aspects of water technology.
• Support joint, collaborative research projects in the nation’s universities in partnership with the national laboratories and the private sector.
• Analyze water technology markets to highlight areas in which current U.S. technologies enjoy a competitive advantage and in which opportunities exist for U.S. firms to fill gaps and develop innovative strategies.
• Emphasize clean and energy-efficient technologies for industry and agriculture as well as for municipal use.
• Be linked to funding to support commercial-scale testing and verification, and to private venture funding that would accelerate the move into production and commercialization.
• Share the risk appropriately between the public and private sectors, through insurance schemes or public-private venture funds, which could also contribute to the early development of new solutions ready to be applied in developing countries.
• Support a nonprofit fund for technologies with special application to low-income populations, for example, to supplement private funding and increase program impact.