Israel: How good water management creates economic opportunity

We’re used to talking about how poor water management can impede economic growth.  But the positive case for good water management can be just as compelling. With support from the Israeli government, my colleagues and I recently took a study tour to Israel, and what we saw on the ground shows that combining sound policy, public finance, good governance, and innovative technology can not only overcome water scarcity, but can create economic opportunity that helps to boost jobs and power growth. 

The Sorek Desalination Plant, located about 15km south of Tel Aviv, Israel,
is the world’s biggest seawater desalination plant.

By the numbers, Israel is one of the most water-stressed countries on the planet.  Lying almost entirely in an arid region with frequent droughts, its average total renewable annual water availability of 1.5 billion cubic meters has been roughly cut in half because of drought over the past two years, to 820 million cubic meters.  Annual water demand, meanwhile, stands at 2 billion cubic meters annually, and will increase to 2.5 billion cubic meters by 2050.  Under international protocols, Israel also supplies roughly 110 million cubic meters of water annually to the West Bank, the Gaza Strip, and to Jordan.

Faced with these challenges, Israel made long-term investments in technology, institutions, and policy reforms that have paid off in the form of a dynamic, export-oriented water sector. Water has become a US$2 billion industry for Israel, consisting of at least 300 companies and over 100 startups.  Growth has been rapid: the sector has seen an increase in exports of almost 200% in just three years.[1]  The Israeli government now sees water technology and related services as one of the most promising opportunities for export-oriented growth, underscoring how Israel has managed to turn water scarcity from a brake on development into an engine for it.

The example of Israel therefore offers an enticing model for developing countries facing similar challenges of water scarcity and variability.  Keep in mind, however, that Israel’s strategy has been long in the making, and relies on a complex framework of public finance, technology, policies, and institutions.  Beginning in the 1960s, the Israeli government invested in state-owned enterprises focused on reducing irrigation water use, the single biggest consumer of water.  One of these firms, Netafim, was a pioneer in drip irrigation, which improves the efficiency of irrigation to 90%, as compared to 50% using traditional flood irrigation.  Today, 80% of irrigation equipment produced in Israel is exported.  State investment, including long-term financing arrangements produced by the Ministry of Finance, has also been critical to the expansion of desalination, which now provides some 850% of Israel’s domestic and municipal water.  Using advanced remote osmosis technologies and improved process engineering, Israel’s desalination plants are some of the most efficient in the world, delivering water at a price as low as US$0.54 per cubic meter, well below the global average of approximately US$0.81.[2]   

But Israel’s water technology sector isn’t solely the product of state-led investment.  It’s also sustained by the country’s progressive approach to water pricing, which aims to promote water conservation while also ensuring that investments in water supply and delivery are sustainable, with operation and maintenance expenses financed by tariffs paid by water users.  This tariff, currently set at approximately US$2.455 per cubic meter for most water users, includes only a 4.5% subsidy[3]  This relatively high water tariff creates a dependable revenue for Israel’s utilities, and a strong profit motive for companies whose technology and processes can further reduce water use.
 
Perhaps even more important than these favorable economics, however, is the institutional support that the Israeli government provides to the water sector.  In 2007, the government created the Israel Water Authority, which has responsibility for nearly all aspects of water resource management, and serves as a single point of contact and authority for Israel’s water sector.  Israel’s government-funded Innovation Authority and Export Institute have both identified water as a strategic growth opportunity, and provide water technology companies with startup financing, export assurances, and assistance in promoting products abroad.  A sectoral growth strategy produced by Deloitte on behalf of the Manufacturers Association of Israel has been embraced by the government, including holding a major industry conference – WATEC– every two years.

The Israeli example shows that it’s possible to turn severe water scarcity into economic opportunity with the right investments in technology, financing, policy, and institutions. Israel’s success has depended on a high level of institutional capacity and long-term planning.  However, for World Bank client countries  that are severely affected by water scarcity, the case of Israel suggests that investing in good water management can create substantial rewards, not only in the water sector, but more broadly for economic growth as well. 

 

[1] Ramzi Gabad, Chairman, Israeli Export Institute.  Presentation at WATEC 2017, September 12, 2017, Tel Aviv. 
[2] Data from IDE Corporation. 
[3] Data from Israel Water Authority. 

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