Interpreting Middle East Economic News and Analyzing Market Trends

Riyadh, we have a problem!

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Gulf Cooperation Council (GCC)* countries continue to consume large amounts of water even though they are among the driest countries in the world.  Saudi Arabia, the largest of the GCC countries in terms of population and size realizes that something needs to be done.  However, tackling the main issue remains a taboo subject as we’ve mentioned in earlier posts.

The irony is that GCC countries being dry, also have some of the cheapest water rates in the world.  Water consumption continues to rise at a rapid pace, yet the main solution to the problem is to remove the water subsidy, which would eliminate a lot of waste and instill prudent water consumption.  Instead, governments prefer the other route, increasing water supply.

Here’s how Riyadh is addressing this problem:

   

Riyadh Gov. Prince Khaled bin Bandar is launching projects costing SR 1.6 billion ($427 million) in April to add 200,000 cubic meters of water per day for Riyadh. This follows the implementation of projects to support water resources in Riyadh within six months by National Water Company (NWC).

Spokesman of NWC announced that the urgent projects aim at improving water sources and filling the gap in water volumes allocated for the city. NWC will drill 43 wells, and build 27 water desalination plants, in addition to tanks and pumps, at different locations in Riyadh. The company announced that it has reduced implementation period from 18 months (the time required for the implementation of similar projects) to only six months. NWC started implementation in October 2012.

NWC stated that the urgent projects to support water resources in Riyadh come at a time when the Saudi capital is experiencing rapid growth in population, urban and economic sectors. Statistics of the Ministry of Economy and Planning show that Riyadh population is growing by 4.2 percent of the Kingdom’s total population. Population of Riyadh reached 5.2 million in 2012.

Read the full article from Arab News.

   

The first step to solving a problem is admitting you have one.  So Saudi Arabia should be commended on acknowledging it has a problem.  What Saudi government officials fail to acknowledge is that increasing water supply brings on new challenges.  Water desalination plants are heavy energy users.  More water supply means more energy used.  This energy is reducing the amount of oil that is available for export.

Working on the supply side cannot last forever.  At some point they will have to deal with the demand side.  The longer they wait to do so, the more painful the adjustment.  The population of Riyadh is already at 5.2 million, which is already too much for a city in the middle of a desert to handle.  On top of this, the city is growing at a crazy rate of 4.2% per year.  This is a huge growth rate.  It means that the population of Riyadh will double to 10.2 million in 17 years.  This is impossible to sustain.

Remember the Citigroup report, by 2030 Saudi Arabia could end up importing oil if it doesn’t change its ways now.

* GCC countries include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.