Water is getting scarcer. Is foreign investment making the problem worse?

The Trump administration earlier this month announced that the Environmental Protection Agency would unwind clean water protection that has been in place for decades. This draws renewed attention to the importance of environmental regulations in protecting access to clean water, not only in the United States, but also around the world.

Freshwater supplies are becoming increasingly scarce, and that’s bad for global health, hunger and poverty. Stress on water resources has direct effects on the global food trade and is also likely to worsen problems of environmental migration and of water-related conflict.

Researchers have focused on how climate change accelerates the problems caused by water scarcity. My research points to an important additional factor: foreign investment.

The problem is particularly bad in South Asia, where governments face two potentially competing imperatives. They must attract foreign investment to spur development, while also dealing with some of the world’s most serious shortages of freshwater resources.

Foreign investment can make water more scarce

To understand how foreign investment affects access to clean water, my colleagues and I examined the impact of foreign direct investment on potable water access in India. India is an increasingly important destination for foreign investment and faces some of the world’s biggest water supply challenges.

We used data on inflows of foreign investment — money from outside of India earmarked to finance new manufacturing plants and other projects — to look at how this investment affected water access in different Indian states.

To measure water access, we used data from the government of India, which tracks the percentage of the population with access to at least 20 liters a day of water from an improved water source within 1 kilometer of their homes. We also used several other government measures of water access to capture the full effects of foreign investment.

Water shortages hit the poor the hardest

Our statistical analyses show that more foreign investment into Indian states in a given year is associated with lower levels of potable water access in subsequent years, with the poorest areas hit the hardest. We find that investment in water-intensive manufacturing and highly polluting industries increases competition for a limited quantity of fresh water, while also affecting water quality. States with larger proportions of marginalized and poor populations see the greatest negative effects of foreign investment on water supplies.

These findings highlight the importance of regulation to restrict water use and wastewater release. Such regulation is harder to enact in states with higher levels of poverty. State governments enact much of India’s water-related regulations, and ordinary citizens compete against multinational firms in lobbying state politicians. Thus, in Indian states with higher proportions of poor and marginalized groups, the public is less able to pressure politicians and bureaucracies to enact regulations necessary to protect water resources.

China’s new infrastructure push may make the problem worse

While foreign investment in general can have adverse effects on water resources, investment through China’s Belt and Road Initiative (BRI) potentially sets many countries on a trajectory toward increasing water scarcity and shortages. BRI, a major infrastructure initiative, aims to connect countries across Europe, Asia and Africa to foster trade and economic ties.

In another research project, my co-authors and I studied China’s construction of coal-fired power plants in Pakistan, a BRI flagship country. Coal-fired power typifies the difficult choices many developing countries have to make. Pakistan faces chronic power shortages, and its generating capacity cannot meet the increasing demand for electricity. But coal-fired power plants are thirsty for cooling water.

In our analysis, we focus on the future water demands of BRI-financed coal-fired power plants in Pakistan. We looked at the technical information for all completed and in-progress coal-fired power plants in Pakistan that are being financed by China under the BRI. We calculated the future water demands of these plants based on technical factors as well as projected changes under different climate change scenarios. Finally, we combined this with projections of local “water stress” across Pakistan.

Our results show that by 2055, water stress in Pakistan will increase by 36 to 92 percent over current levels. In practical terms, this means the water demand of Pakistan’s new power plants will exceed the volume of 32,000 Olympic-size swimming pools. The plants will exacerbate already serious shortages and add to the potential for conflict in Pakistan.

Can foreign investment instead promote water sustainability?

Together, these two pieces of research suggest the need for new ways to ensure that foreign investment contributes to, rather than degrades, global water resources.

First, it is important for countries receiving foreign investment to strengthen regulatory capacity, to ensure that investments will not have negative long-term effects on water resources.

Second, in the context of BRI, both the Chinese government and BRI-involved countries could actively incorporate water use projections and climate models into infrastructure planning to minimize water scarcity in the future. Beijing is pushing water-saving initiatives at home, and thus can appreciate the impact of water-intensive industries and infrastructure in countries receiving Chinese investment. In planning for future water resources, BRI destination countries can also consider how investment projects will affect water access.

Foreign investment — from the West and from China — can foster sustainable resource use and development. Regulating these investments with an eye to sustainability can help countries avoid wasting or polluting an increasingly scarce resource: water.

Meir Alkon is a PhD candidate at Princeton University, where he is a graduate fellow of the Niehaus Center for Globalization and Governance and of the Center for Contemporary China, as well as a Princeton Energy and Climate Scholar. He is also a graduate fellow at the Initiative for Sustainable Energy Policy, Johns Hopkins SAIS.