By Florian Neuhof
Nideshna Naidu, senior research analyst for the Middle East, North Africa and South Asia at Frost & Sullivan’s environment practice, looks at the current state of play in the region’s wastewater treatment market.
The Gulf Cooperation Council (GCC) water and wastewater treatment (W&WWT) equipment market has seen unprecedented activity on the back of massive investments in infrastructure, real estate, petrochemicals, and oil and gas. This region has seen unprecedented economic growth due to the revenues generated by the bullish oil and gas sector, even as the global downturn and financial crises took a toll on the GCC countries, due to a weaker global demand for oil. But the slower growth due to decline in oil prices was cushioned to some extent due to increased spending by the governments of the GCC region.
Shrouded in uncertainty because of the economic slowdown, today’s business environment presents as many challenges as opportunities. The economic diversification strategy also resulted in the increase of urban population, both local as well as expatriates. The region is facing an uphill task of meeting the growing water requirement by industries, improving water supply and sanitation for the growing population, and planning to prevent depletion and contamination, and optimization of available water resources. Due to these factors, the demand for water and wastewater treatment infrastructure is getting special attention from governments across the GCC countries.
The major water treatment technologies include demineralization, membrane technologies, clarification, and disinfection. The GCC countries are among the frontrunners in membrane based desalination technology among their global counterparts. Multi-stage flash (MSF) and reverse osmosis (RO) technologies would continue to provide opportunities in this region inmembrane technologies.
Frost & Sullivan assesses that going forward, the wastewater market will see increased usage of treated wastewater.
Accordingly, it is expected that increasing number of wastewater treatment plants will go for tertiary treatment. Hence, the market for advanced wastewater treatment technologies like membrane bio reactor (MBR) and sequential bio reactor (SBR) is expected to increase in the coming years.
Clean water is the oil of the 21st century. This is believed by countries across the globe. There has been a boom in the Water and Wastewater Industry in regional markets such as China, India, the Middle East, and Eastern Europe.
The Indian Water Market for example, is almost US$1billion in size. Water stress in the south led to two large RO membrane desalination projects worth US $220 million, one of which has already begun. State governments have allocated significant budgets towards setting up and upgrading water and wastewater infrastructure.
In China, a host of major municipal projects have been announced since 2002, opening many opportunities for equipment suppliers and contractors. The country is on need of massive expansion in both the municipal and industrial sectors. The steady improvement of legislation is helping the growth of the wastewater sector.
The GCC is a market where performance is rewarded. As opportunities in recycle and reuse grow, the market is seeking innovation and newer technologies to treat and reuse wastewater. The growing number of build, operate, transfer (BOT) projects indicates increase in adoption of energy-efficient systems. Industry participants must also have the capability to finance the projects and hence cash or the ability to secure funding will play a key role in the market.
Municipalities form the major chunk of end users for the water and wastewater treatment equipment and they account for 60 percent of the overall market in 2010. Industrial end users account for the remaining 40 percent. Governments in the GCC countries have identified municipal wastewater treatment as the priority area for multiple reasons like achieving millennium development goals, concerns about deteriorating ground water quality, and damage to marine ecosystem.
Within the industrial segment, oil and gas and petrochemical industries make up 65 percent of the industrial market. Besides the hydrocarbon sector, the power and water sectors have been driving the growth of the industrial segment. The outlook for the water and wastewater sector is positive and it is expected to continue posting a healthy growth rate.
A massive growth opportunity exists in the GCC region for water and wastewater treatment equipment. Wastewater treatment and desalination plants are seeing a big boom in the GCC because of a 6 percent average annual increase in the demand for water.
All governments are planning to invest heavily in the water sector to overcome present and future water shortages. As fresh water availability is predicted to decline in the coming years, more and more emphasis is on wastewater treatment, its recycle and reuse. The region has lot of potential, as recycled water is widely used in landscaping and district cooling.
Saudi Arabia has announced a massive figure of US$53 billion to be invested in a variety of water projects over the next 15 years. Around 70 percent of this investment is in sewage and wastewater treatment plants, as the region itself depends significantly on desalinated water, which is very expensive. Though expensive, desalination projects continue to be the major water source in the region.
The United Arab Emirates (UAE) is anticipated to increase its desalination capacity by around 76 percent to 14.1 million cubic metres per day by 2016.
Funding projects is becoming a major hurdle in the growth of infrastructure projects. GCC governments is encouraging private sector participation to overcome funding issues. Public Private Partnerships (PPP) through Build Own Operate (BOO), Build Own Operate Transfer (BOOT) and BOT models are also gaining prominence.
The MENASA region as a whole is set to become the second largest economy in terms of GDP by 2050. GCC countries in the Middle East are poised to be the locomotive of the region.
Middle Eastern countries, in general, and GCC countries, in specific, are witnessing rapid economic progress due to firming up of oil prices. It is expected that these economies will book budget surpluses as long as oil stands above US $50 per barrel.
Though the economic situation in Europe and the US still seems dicey, domestic demand in developing countries like India, China, and Brazil is expected to provide a cushion to the slackening global economy. The growth of these emerging economies is likely to keep the oil and gas prices firmer in the next two years.
The market is fragmented with more than 150 participants in the GCC region. The mass market is highly price-sensitive. Consequently, there is intense competition in less technologically complex products. Further, profit margins for such products are under pressure. Similarly, there is immense competition in some of the component categories likevalves, pumps, and the like.
Large players like Metito (Overseas) Ltd, Veolia Water Solutions and Technologies, WETICO, Aquatech International, and Metito Arabia Industries hold a combined share of 56 percent of the overall market. The intensity of competition is expected to increase with Indian and East Asian players joining the fray.
Market future outlook
The long-term drivers for the market are well in place. Post 2010, the market is expected to grow at a healthy rate of over 13 percent. The GCC is expected to see a rise in projects based on BOO, BOOT and BOT models to overcome financial constraints. Wastewater reuse is anticipated to increase across the GCC countries, which would have a positive impact on the growth of advanced wastewater treatment technologies such as MBR and SBR.
These are expected to grow at a faster pace compared to other technologies. Geographic diversification is an effective strategy to tap opportunities. Large companies, which are present all across GCC, should focus on the services segment to ensure sustained revenues. Promising years are ahead for the domestic and international water and wastewater treatment equipment providers in the GCC, particularly in Saudi Arabia and the UAE.
The region is also subject to mega trends, such as Infrastructure Development, Smart Cities, and Technology Trends.
The Oil and Gas sector continues to be the locomotive of the Middle Eastern economies, by contributing about 40-50 percent to the GCC’s GDP. Policymakers are fostering diversification strategies to enable inclusive and sustainable growth in the long term. A diversification strategy has resulted in an increase in the power consumption and urban population in the region. Water is an important resource to build adequate power infrastructure. This will directly boost opportunities for Water and Wastewater treatment equipment in the region.
Going forward ‘green’ would be replaced with ‘smart’ concepts. energy, city planning, and information and communication systems, would be the key elements of a smart city.
Masdar City in the UAE is one of the smart cities in the region.
Desalination has been the key to overcome water shortages in the region so far. Today, more emphasis is on wastewater recycling and reuse concepts. Wastewater reuse is anticipated to increase across the GCC countries. Accordingly, the market for advanced wastewater treatment technologies is expected to grow at faster pace compared to other technology categories. Strategic water storage infrastructure is another key area of growth in this water scarce region.