"Wake up, water sector" says McKinsey
Over the last few years, McKinsey have sought to apply their reputation for innovative thinking to the water and sanitation sectors, which admittedly, could do with a "gentle" shake-up and a heavy dose of innovative thinking. This recent surge of interest by "expensive management consultants" has made some top sector experts, such as Mike Muller, former Director General of DWAF in South Africa a little nervous. The subject of this nervousness was a recently published report, "Charting our water future", which developed a standard methodology to compare the costs of alternative options to meet the projected water resource gap by 2030. This methodology, referred to as "cost curves", draws heavily from optimisation techniques in the energy sector, whereby different power plants are switched on and off depending on system demand and their relative production costs.
They applied this methodology to look at how an estimated average “water gap” in the range of 40% by 2030, i.e. the difference between current accessible, reliable supply (including return flows, and taking into account that a portion of supply should be reserved for environmental requirements) and projected water needs, could be "plugged". This global figure is an average, by the way, hiding the fact that in some regions of the world, the situation could be much worse, particularly in developing countries where the deficit could be as high as 50%.
They concluded that the gap could be filled at a reasonable cost, but assuming considerable optimisation was at play, which could involve a whole range of measures to be introduced simultaneously in an optimised fashion. Judging by how long it took European countries to put together "optimised" river basin management plans in the context of the Water Framework Directive, the "gap" between analysis and implementation could prove even larger than the water gap itself, particularly in vast, complex countries like India (China may be a different case given that after, all, they are only too happy to do away with democracy). That said, the methodology is clear and simple and definitely caught the eye of the IFC and other international institutions, who are now considering using it in other places to start deriving a more global picture of the water resource situation, and why not, perhaps, one day, prepare a "Stern-like" review for the water sector. Whether or not we need such a global review for the water sector, and whether it could lead to the same kind of "sensitizing impact" that the Stern report achieved for climate change is another issue.
The management consultants are not planning to stop there, however. They see the sanitation sector as a potential multi-billion industry worldwide (think of these 2.6 billion people who still defecate in the open!) provided such tremendous value could be mobilised through sector re-engineering, Sector re-engineering will take a while as there are many pieces in the puzzle. This would require, for example, establishing new business models that capture the fact that money can actually be made whilst delivering a broader social good in the form of improved health and cleaner environment. This links directly to the "social entrepreneurship" current craze, referred to in our previous blog and about which McKinsey itself has assembled a fascinating list of blogs and resources. Or defining alternative ways of channelling resources into the sector, away from the traditional philanthropist approach, by capturing other financial resource flows, from other actors which are willing to invest in cleaning up the system. For example, the tourism industry may well be willing to channel resources into cleaning up a city's failing on-site sanitation systems, as long as they can benefit from increased tourism revenues in return.
As for water, putting in place such packages of good ideas and measures will most likely take time and change is likely to take place in an incremental and rather messy manner. The biggest chunk of that time may be spent on "waking up" the water and sanitation sector, so that it can take the full measure of the fast pace of change in the traditional business or social entrepreneurship worlds...