The Gulf Cooperation Council (GCC) region’s water and wastewater treatment equipment market has benefited from massive investments in the region’s infrastructure, real estate, petrochemicals, and oil & gas sectors. By Nideshna Naidu.

The global downturn and financial crises took a toll on the GCC countries due to the sharp fall in world oil demand. However, 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 of industries, improving water supply and sanitation for the growing population, and planning to prevent depletion and contamination, and optimisation 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 CEO’s PERSPECTIVE

Technology impact

The major water treatment technologies include demineralisation, 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 in membrane 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 Bioreactor (MBR) and Sequential Bioreactor (SBR) is expected to increase in the coming years.

Global opportunities

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.

Indian water market

  1. Market size close to $1 billion for water and wastewater treatment equipment
  2. Water stress in South India led to two large RO membrane desalination projects worth $220 million, one of which has already started.
  3. State governments have allocated significant budgets towards setting up and upgrading water and wastewater infrastructure

Chinese wastewater market

  1. Many major municipal projects announced since 2002
  2. Opportunities for equipment suppliers and contractors
  3. Vast need for improvement by both municipal and industrial sectors
  4. Enforcement of legislation steadily improving

Best practices

The GCC is a market where performance is rewarded. As opportunities in recycle and re-use grow, the market is seeking innovation and newer technologies to treat and re-use wastewater/sewage. 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.

End-user perspective

Municipalities form the major chunk of end users for the water and wastewater treatment equipment, accounting for 60% of the overall market in 2010. Industrial end users account for the remaining 40%. 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% 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.

Industry convergence

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 because of six per cent 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, recycle and re-use. 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 $53 billion to be invested in a variety of water projects over the next 15 years. Around 70% 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% to 14.1 million m³/day by 2016.

Funding projects is becoming a major hurdle in the growth of infrastructure projects. The GCC governments are 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.

Economic impact

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 $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.

Competitive analysis

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 like valves and pumps.

Large players like Metito (Overseas), Veolia Water Solutions and Technologies, WETICO, Aquatech International, and Metito Arabia Industries hold a combined share of 56% of the overall market. The intensity of competition is expected to increase with Indian and East Asian players in the fray.
MARKET OUTLOOK

Strategic outlook for the year 2011

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%. The GCC is expected to see a rise in projects based on BOO, BOOT and BOT models to overcome financial constraints. Wastewater re-use 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.

Mega trends

Infrastructure development: The Oil & Gas sector continues to be the locomotive of the Middle Eastern economies, by contributing about 40-50% 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.

Smart cities: 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.

Technology trends: Desalination has been the key to overcome water shortages in the region so far. Today, more emphasis is on wastewater recycling and re-use. Wastewater re-use 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.

About the author: The author is Senior Research Analyst, Environment Practice, Middle East, North Africa & South Asia, Frost & Sullivan. For more information on this report, email tanu.chopra (at) frost.com