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GROWTH OR DEVELOPMENT 
Humanising Water Security
M. Dinesh Kumar, Executive Director, Institute for Resource Analysis and Policy  Hyderabad  18/05/2011 1:48:33 AM

As water scarcity hits many developing regions of the world, there is now a renewed interest in understanding how growing threats to water security affects future progress in human development and economic growth of nations (Grey and Sadoff, 2005). The international development debate is, however, heavily polarized between those who believe that policy reforms in the water sector would be crucial for bringing about progress in human development and those who believe that economic growth itself would help solve many of the water problems, which countries are facing today (HDR, 2006: pp66). Such debates, that are often not healthy, are causing delays in deciding investment priorities in water sector, particularly in the developing world (Biswas and Tortajada, 2001).

The theoretical discussion on the returns on investment by countries in water infrastructure and institutions is rich (Sadoff and Grey, 2005). The evidence available internationally to the effect that water security can catalyze human development and growth is quite robust (World Bank, 2004; 2006a & b; Briscoe, 2005). But, the number of regions for which these are available is too small for evolving a global consensus on this complex issue. Till recently, there were no comprehensive database on various factors influencing water security for sufficient number of countries which are at different stages of human development and economic growth. This contributed to the complexity of the debate. The water poverty index (WPI), conceived and developed for countries by C. Sullivan (2002), and the international comparisons now available from a recent work by Laurence, Meigh and Sullivan (2003) for 145 countries enable us to provide an empirical basis for enriching the debate.

 The WPI is a composite index consisting of five sub-indices, viz., water access index, water use index, water endowment index, water environment index and institutional capacities in water sector (Sullivan, 2002). In order to realistically assess the water situation of a country, which can capture the crucial attributes like access to water for various uses; level of use of water in different sectors; condition of the water environment; and technological and institutional capacities in water sector, a new index called Sustainable Water Use Index (SWUI) is derived from WPI. The paper provides empirical analysis using global database on SWUI and many other water and development indicators to enrich the debate “how water security is linked to human development and economic growth”.

The Global Debate on Water, Development and Growth

The debate on the linkage between water, growth and development is growing strong internationally. While the general view of international scholars, who support large water resource projects, is that increased investment in water projects such as irrigation, hydropower and water supply and sanitation acts as engines of growth in the economy, while supporting progress in human development (Briscoe, 2005; Braga, 2005; HDR, 2006). They harp on the need for investment in water infrastructure and institutions. Grey and Sadoff (2005) suggests that there is a minimum platform of water security, achieved through the right combination of investment in water infrastructure and institutions and governance, which is essential if poor countries are to use water resources effectively and achieve rapid economic growth to benefit vast numbers of their population. They suggest an S-curve for growth impacts of investment in water infrastructure and institutions in which returns continue to be nil for early investments. They argue that for poor countries, which experience highly variable climates, the level of investment required to reach the tipping point of water security would be much higher as compared to countries, which fall in temperate climate with low variability. But, they suggest that for developing countries, the returns on investment in infrastructure would be higher that in management and vice versa for developed countries.

Many environmental groups, on the other hand, advocate small water projects which, according to them, the communities can themselves manage. The solutions advocated are: watershed management; small water harvesting interventions; and community-based water supply systems; and, micro-hydro electric projects (Dharmadhikary, 2005; D’Souza, 2002).

The proponents of sustainable development paradigms believe that the ability of a country to sustain its economic growth depends on the extent to which natural resources, including water, are put to efficient use through technologies and institutions, thereby reducing the stresses on environmental resources (Pearce and Warford, 1993). Here, the focus is on initiating institutional and policy reforms in water sector. An alternative view suggests that countries would be able to tackle their water scarcity and other problems relating to water environment at advanced stages of economic development (Shah and Koppen, 2006). They argue that standard approaches to water management in terms of policies and institutions work when water economies become formal, which are found at an advanced stage of economic development of nations.

Water and Inclusive Growth
Before we begin to answer this complex question of “what drives what”, we need to understand what realistically represents the water richness or water poverty of a country. A recent work by Kellee Institute of Hydrology and Ecology which came out with international comparisons on water poverty of nations had used five indices, viz., water resources endowment; water access; water use; capacity building in water sector; and water environment, to develop a composite index of water poverty (Laurence, Meigh and Sullivan, 2003).

Among these five indices, we chose four indices to be important determinants of water situation of a country and the only sub-index we excluded is the water resources endowment. We consider that this sub-index is more or less redundant, as three other sub-indices viz., water access, water use and water environment take care of what the resource endowment is expected to provide. Our contention is that natural water resource endowment becomes an important determinant of water situation of a country only when governance is poor and institutions are ineffective, adversely affecting the community’s access to and use of water, and water environment. Examples are the droughts in Sub-Saharan African countries. This argument is validated by a recent analysis which showed strong correlation between rainfall failure and economic growth performance in these countries. That said, all the four sub-indices we chose significant implications for socio-economic conditions and are influenced by institutional and policy environment and therefore have human element in them. Hence, such a parameter will be appropriate to analyse the effect of institutional interventions in water sector on economy.

All the sub-indices have values ranging from 0 to 20. The composite index developed, by adding up the values of these indices, is called sustainable water use index (SWUI). It is being hypothesised that the overall water situation of a country (or SWUI) has a strong influence on its economic growth performance. This is somewhat different from the hypothesis postulated by Shah and Koppen (2006), where in they have argued that economic growth (GDP per capita) and HDI are determinants of water access poverty and water environment.

It is important to provide empirical evidence to this. Worldwide, experiences show that improved water situation (in terms of its access to water; levels of use of water; the overall health of water environment; and enhancing the technological and institutional capacities to deal with sectoral challenges) leads to better human health and environmental sanitation; food security and nutrition; livelihoods; and greater access to education for the poor (UNDP, 2006). This aggregate impact can be segregated with irrigation having direct impact on rural poverty (Bhattarai and Narayanamoorthy, 2003; Hussain and Hanjra, 2003); irrigation having impact on food security, livelihoods and nutrition (Hussain and Hanjra, 2003), with positive effects on productive workforce; and domestic water security having positive effects on health, environmental sanitation, with spin off effects on livelihoods and nutrition (positive), school drop out rates (negative) and productive workforce.

According to the Human Development Report (2006), only one in every five people in the developing world has access to an improved water source. Dirty water and poor sanitation account for vast majority of the 1.8 million child deaths each year (almost 5,000 every day) from diarrhea making it the second largest cause of child mortality. In many of the poorest countries, only 25% of the poorest households have access to piped water in their homes, compared with 85% of the richest. Diseases and productivity losses linked to water and sanitation in developing countries amount to two percent of GDP, rising to five percent in Sub-Saharan Africa more than the aid the region gets. Women bear the brunt of responsibility for collecting water, often spending up to four hours a day walking, waiting in queues and carrying water; water insecurity linked to climate change threatens to increase malnutrition to 75–125 million people by 2080, with staple food production in many Sub-Saharan African countries falling by more than 25%.

The strong inverse relationship between SWUI and the Global Hunger Index (GHI), developed by IFPRI for 117 countries provide a broader empirical support for some of the phenomena discussed above. In addition to these 117 countries for which data on GHI are available, we have included 18 developed countries. For these countries, we have considered zero values, assuming that these countries do not face problems of hunger. The estimated R square value for the regression between SWUI and GHI is 0.60. The coefficient is also significant at one percent level. It shows that with improved water situation, the incidence of infant mortality (below five years of age) and impoverishment reduces. In that case, improved water situation should improve the value of human development index, which captures three key spheres of human development such as health, education and income status.

That said all the sub-indices of HDI have strong potential to trigger growth in economy of a country, be it educational status; life expectancy; or income levels. When all these factors improve, they could have a synergetic effect on the economic growth. The growth which occurs from human development, would also be “broad-based” and inclusive. Hence, the “causality” of water as a prime driver for economic growth can be tested if we are able to establish correlation between water situation and HDI. This we would examine at a later stage.

Before that, we would first look at how water situation and economic growth of nations are correlated. Regression between sustainable water use index (SWUI) and PPP adjusted per capita GDP for the set of 145 countries shows that it explains level of economic development to an extent of 69 percent. The coefficient is significant at one percent level. The relation between SWUI and per capita GDP is a power function. Any improvement in water situation beyond a level of 50 in SWUI, leads to exponential growth in per capita GDP.

This only means that for countries to be on the track of sustainable growth path, the following steps are needed: (i) investment in infrastructure and institutional mechanisms and policies to: (a) improve access to water for all sectors of use and across the board, (b) enhance the overall level of use of water in different sectors, and (c) regulate the use of water, reduce pollution and provide water for ecological services; and (ii) investment in building human resources and technological capabilities in water sector to tackle new challenges in the sector. Regression with different indices of water poverty against economic growth levels shows that the relationship is less strong, meaning all aspects (water access, water use, water environment and water sector capacity) are equally important to ensure growth.

Major variations in economic conditions of countries having same levels of SWUI, can be explained by the economic policies of which the country pursues. Some countries of central Asia viz., Uzbekistan, Kyrgyzstan and Turkmenistan and Latin American countries viz., Ecuador, Uruguay, Colombia and Chile have values of SWUI as high as North America and northern European countries, but are at much lower levels of per capita GDP. While North America and north, west and southern European countries have capitalist and liberal economic policies, these countries of old soviet block and Latin America have socialist and welfare oriented policies.

Can Water Security Ensure Economic Growth?
International development discussions are often characterised by polarised positions on whether money or policy reform is more crucial for progress in human development (various authors as cited in HDR, 2006: pp 66). If the stage of economic development determines a country’s water situation rather than vice versa, the variation of human development index, should be explained by variation in per capita GDP, rather than water situation in orders of magnitude. We have used data for 145 countries to examine this closely. The regression shows that per capita GDP explains HDI variations to an extent of 85 percent. But, it is important to remember that HDI already includes per capita income, as one of the sub-indices.

Therefore, analysis was carried out using decomposed values of HDI index, after subtracting the GDP index. The regression value came down to 0.69 (R2=0.69) when the decomposed index, which comprises education index and life expectancy index, was run against per capita GDP. What is more striking is the fact that 16 countries having per capita income below 2,000 dollars per annum have medium levels of decomposed index. Again 42 countries having per capita GDP (PPP adjusted) less than 5,000 dollars per annum have medium levels of decomposed HDI. Significant improvements in HDI values (0.30 to 0.9) occur within the small range in per capita GDP. The remarkable improvement in HDI values with minor improvements in economic conditions, and then “plateauing” means that improvement in HDI is determined more by factors other than economic growth. Our contention is that the remarkable variation in HDI of countries belonging to the low income group can be explained by the quality of governance in these countries, i.e., whether good or poor.

Many countries that show high HDI also have good governance systems and practices and institutional structures to ensure good literacy and public health. For instance, Hungary in eastern Europe; some countries of Latin America viz., Uruguay, Guatemala, Paraguay, Nicaragua and Bolivia; and countries of erstwhile Soviet Union viz., Turkmenistan, Kyrgykistan and Armenia have welfare-oriented policies. They make substantial investment in water, health and educational infrastructure.

Incidentally, many countries, which have extremely low HDI, have highly volatile political systems and ineffective governance, and are characterized by corruption in government. In spite of huge external aid, consequently, the investments in building and maintenance of water infrastructure are very poor in these countries. Sub-Saharan African countries, viz., Angola, Benin, Chad, Eritrea, Ethiopia, Burundi, Niger, Togo, Zambia and Zimbabwe; and Yemen from Middle East belong to this category. Sub-Saharan Africa has the lowest irrigated to rain-fed area ratio of less than three percent (FAO, 2006, pp 177), where as Ethiopia has the lowest water storage of 20m3/capita in dams (World Bank, 2005). How water security decoupled human development and economic growth in many regions of the world were illustrated in the recent human development report (HDR, 2006: pp 30-31).

The public expenditure on health and education is extremely low in these African countries and Yemen when compared to the many other countries which fall under the same economic category (below US $ 5,000 per capita per annum). Over and above, the pattern of public spending is more skewed towards military (based on data provided in HDR, 2006, pp 348-351). Besides, access to water supply and sanitation is much higher in the countries which have higher HDI, as compared to those countries which have very low HDI (based on data in HDR, 2006, pp306-309).

Some of the striking features of these regions are high incidence of water related diseases such as malaria and diarrhea, high infant mortality, high school drop out rate mainly due to lack of access to safe drinking water; and scarcity of irrigation water in rural areas, poor agricultural growth, high food insecurity and malnutrition (based on HDR, 2006). Consequently, their HDI is very low, as also shown by the international literature which illustrates how water insecurity decouples human development from economic growth.

Conclusions and Policy
Scholars have provided robust evidence to the effect that water security catalyses human development and economic growth. But, number of regions for which the evidence is available is too limited to evolve a global consensus on this complex issue. Water poverty index, conceived and developed by C. Sullivan (2002), and the international comparisons now available from Laurence, Meigh and Sullivan (2003) for 147 countries enable us to provide an empirical basis for the argument. A new index called SWUI was derived from WPI using four of its five sub-indices to assess the water situation of a country. Analysis was carried out using data on SWUI, GHI, HDI, per capita GDP and per capita water storage in dams to understand the nature of linkage between water situation of a country and its economic growth.

The analysis shows that improving the water situation can trigger economic condition in a nation. As this occurs through the human development route, the growth would be inclusive. This strong linkage can be partly explained by the reduction in malnutrition and infant mortality, with improvement in water situation. Further, nations could achieve good indicators of development even at low levels of economic growth, through investment in water infrastructure and welfare-oriented policies. Many countries of the erstwhile Soviet Union, and communist countries of Latin America, which have low income, spend a significant portion of public funds in health and education, against many poor countries of Sub-Saharan Africa, which spend much less for health and education and more for military.

Countries which fall in tropical semi-arid and arid climate can improve their economic conditions through enhancing the reservoir storage. Greater storage provides increased water security, which reduces the risks associated with droughts and floods. Such natural calamities, which cause huge economic losses, are characteristic of these countries. Nevertheless, the impact of storage could depend on the nature of uses for which the resources are developed, the effectiveness of the institutions that are created to allocate the resource and the nature of institutional and policy regimes that govern the use of the resource.

Findings show that economically poor countries, which also show very poor indicators of human development, need not wait till the economic conditions improve to address water sector problems. Instead, they should start investing in building water infrastructure, create institutions and introduce policy reforms in water sector that could lead to sustainable water use. Only, this can support progress in human development and sustain economic growth which is inclusive. But, a pre-requisite for hot and arid tropical countries is that they invest in large water resource systems to raise the per capita storage. This will help them fight hunger and poverty, malnutrition, infant mortality, and reduce the incidence of water-related disasters. 

(M. Dinesh Kumar is a Ph. D in Water Management. He had worked with engineering consultancy organizations, national and international research/academic institutions and NGOs, and had worked very closely with many reputed international and national agencies, viz., UNICEF, the Ford Foundation, the International Development Research Centre (IDRC), the Aga Khan Foundation, New Delhi, Sir Ratan Tata Trust, Mumbai and Arghyam, Bangalore. He is currently the Executive Director of Institute for Resource Analysis and Policy (IRAP). He has nearly 120 publications to his credit, including three books; one edited volume; many book chapters; and several papers in international peer-reviewed journals.

The views expressed in the write-up are personal and do not re?ect the official policy or position of the organization.)
 



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