Water Financialization 101

This post is informed by the webinar ‘Water Financialization 101: Water Futures, Water Markets and Reclaiming the Global Water Commons’ organized by Food & Water Watch, the Institute for Agriculture & Trade Policy, the Transnational Institute, and the Blue Planet Project, held on March 24, 2021, to mark World Water Day.

Gambling on Water

At a recent investment conference, “a fund manager from a pension fund in Germany raised his hand and said, ’I hear there’s going to be water shortages. How can I make money off of it?’” recalls Anuradha Mittal, Executive Director of the Oakland Institute.

Investors are always looking for the next soft commodity to invest in, regardless of human rights and crises that are looming. First, it was land and now it’s water.

The 1980s were filled with a myriad of post-colonial efforts to reform newly formed nation-states in keeping with neoliberal principles such as privatization. These further perpetuate poverty, enhance inequality and ensure environmental degradation at the expense of the Global South. Water is just one of its many victims.

Goal Six of the Sustainable Development Goals calls for universal access to safe and adequate access drinking water and sanitation services. Despite decades of market-led efforts, billions of people still lack access to safe water.

The financialization and privatization of water have and continue to lead to scarcity and entails principles of profit maximization rather than long-term sustainability in water management. Many policymakers have taken note – since the year 2000 there have been 337 cases of water ‘re-munipalisation’ citing poor performance, soaring water bills, and poor service quality as reasons.

Examples like in Nigeria, which has seen a 34% increase in failures in the water system due to water privatization, are many. This is the dichotomy that exists – the economic efficiency of water, and water as a basic and necessary human right. Water is too important of a natural resource for us to simply trade away and privatize at the expense of those affected most.

It is in this context and the novel and emerging threat of water futures contracts, of bringing water into speculative markets, that prompted a number of activists and academics to come together on World Water Day 2021 to discuss the implications of these latest developments.

Renowned water activist and author Maude Barlow, Chair of the Blue Planet Project and Food and Water Watch, opened the meeting by noting that the financialization of water via water futures and the establishment of water infrastructure as an asset class means three things: “we’re gambling on scarcity, gambling on drought and gambling on water running out.” And gambling, as we know, rarely ends in sustainable wins, but instead, on assured losses, especially for those made most vulnerable around the globe.

As quoted earlier, the fund managers at investment conferences looking to profit from the water shortage raise many red flags as water becomes commodified. These are the powerful people and organizations fighting for water commodification. Detrimentally, they can influence those creating the policies that affect everyday human life. The hedge funders, the financiers, the capitalists, seem to care more for immediate gains and the deepening of their pockets. Regardless of a future filled with thirst, turmoil, and consequence for the world’s majority.

Speculating on Water

Water markets like the one recently launched on the Chicago Mercantile Exchange, trade on water and water futures. Consequently, they undermine the reality that water is a common heritage and a human right. Public hearings can be (and are) evaded in such markets, illustrating that democracy is lacking in matters that affect us most.

Steve Suppan, Senior Policy Analyst at the Institute for Agriculture and Trade Policy (IATP), explains that the problem with water futures contract trading is that water is being left to the whims of speculators. Speculation allows the possibility of price manipulation as the market becomes corrupted to favor those in control of prices. This can lead to risks and ramifications such as ‘large-scale, permanent dry-up of agricultural lands; less water availability for other water users and local, rural and Indigenous communities suffering economically.’

The implications of these changes include the possibility that water scarcity—periods of drought for example—could become synonymous with good business for financiers. A vital public resource is reduced to a commodity to be traded, withheld, and sold at the whims of the market.
Suppan highlights a number of other red flags:

Historically, the World Bank has used public money to prepare private markets. Consequently, if you find out that the World Bank officer in your country is talking about preparing a water market toward the preparation of entering into water futures contracts, that is definitely a red flag. Another red flag would be if the IMF says, ‘Well, you can use special drawing rights, but only to, you know, create these environmental markets.’  Suppan

With the global demand for freshwater expected to increase by 50% with an over 40% shortfall in freshwater in about 10 years, would you have your source of life traded like this?

The Colonial Lens & Africa

The rhetoric during the colonial period promoted civilization and enlightenment. The rhetoric employed today centers around fostering productivity on ‘unproductive land’ and achieving food security through infrastructure development and economic opportunities. 75% of land grabs that happened in the past two decades are in Africa – sound familiar?

The land grabbed is usually the most fertile, has the best access to water, and is hoodwinked from local communities who are dependent on it. And of course, the highest bidder wins through the promotion of large-scale land deals that devastate the Global South. And so hunger continues, poverty ensues and violence erupts in countries like Ethiopia and many more. This is all spurred by capitalistic short-term horizons and monetary gains.

The Latin American Experience

And it gets worse. Resistance to land grabs and water privatization has been seen as an obstacle to investment and business. ‘Adopt the western capitalist notion of privatization,’ they say, ‘this is the way of development,’ the likes of the World Bank and IMF’s assert. In Latin America, over 50% of privatized investments from the 1980s onwards were in water and as a whole, the region was seen as a laboratory for privatization. Water policies that are linked to extractivitism have resulted in territorial conflict and militarization.

In Latin America, processes of neo-liberalization have come with strong resistance against privatization and commodification of water. Their struggles are the modern-day efforts to decolonize the water struggle. It’s important to reiterate that the commodification and financialization of water in Latin America, as in many regions, is a subtle and almost hidden process. Consequently, policies linked to extractivism are also linked to the green economy. As such, the mechanisms to commodify water are embedded and intersect with a multitude of policies. For example, Venezuela has crypto assets linked to gold and oil reserves that threaten ecosystems. As a result, “life and territory become commodities.” Emiliano Mantovani, from the Observatorio de Ecología Política de Venezuela advances.

The label of water as a commons, the notion of water as a means of life for communities is a constant struggle for all. Water being deemed a scarce resource by many pro-market organizations, including the UN, has also contributed to its financialization. Consequently, this has created new narratives and new water markets that “guarantee great profit at a time of high volatility” reflects Mantovani.

World Bank & World Woes

Organizations like the World Bank promote predominantly western-centric and capitalist solutions which often come at the expense of the supposed beneficiaries of their policies and ventures. They talk of ‘unlocking the economic potential’ of land without fully taking into account the consequences left in place in various countries.

As echoed by Barlow and Mittal, the focus has to be on challenging the commodification and privatization of our basic rights and the language weaponized to do so. These efforts make it sound like we have an opportunity to advance development in countries and communities, yet the jargon and means employed result in greater poverty. Little to no benefits arrive in the communities or to the national economies in question.

This should be of concern to all those still taking advice from organizations that led many southern countries into deep rabbit holes of debt through the structural adjustment programs in the 1980s and 90s. One big criticism is their overly intrusive behavior in economically vulnerable countries. For example, the International Monetary Fund (IMF) and the World Bank took advantage of countries like Ukraine in their desperate economic situation in order to create a land market.

“It’s the old-fashioned Western capitalist organs that continue to explore it and extract and colonize third world countries. That has to be challenged. This is not a new struggle, it comes up like a monster with a new face. But this is a struggle that goes back to 500 years.” — Mittal

Local struggles become global because privatization is being advocated for and pressured by international organizations claiming to represent the plights of all on the global stage. Shiney Varghese, Senior Policy Analyst at the IATP,  notes that southern economic elites enable the plundering too: “We cannot keep saying that it’s all West, it’s also the South.”

In the Sustainable Development Agenda discourse; partnership, sustainability, choice, and prosperity are weaponized in place of words such as globalization, deregulation, free trade, and privatization to stifle scrutiny. As a result, a myth is created that selling water and converting water licenses to Real Estate Investment Trusts (REITs) is actually beneficial for the common person. But in fact, those that benefit most are big financial corporations, big agribusinesses, and elites with connections to northern governments.

Beyond the ramifications of the Washington Consensus, Mantovani posits that there is a context when it comes to all those in relation to water such as the state, the financial and economic policies. The context is neoliberalism. The manifestation of it, however, has become far more complex and sophisticated, making it harder to grasp as Mantovani explores in the webinar. More concerning is that in Latin America, as in many regions, there is a turn to the ‘right’, with financialization and privatization at the core of this movement. Even actors who seem to be using a left-wing narrative are not stopping the very ‘right’ tendencies that conservatives are pushing forward.

“Financialization scares us, frightens us, but there are many other things that are there too. And we need to keep them in mind because, in this plundering, there is materiality, we need to tune in, in order to connect what’s happening at a financial level, with what’s happening in the territory in a material level. We need to articulate those levels because this last neoliberal wave is very complex. It’s really sophisticated. So it’s much more difficult to grasp it. And we need to make it visible as a whole in its own complexity.” — Mantovani

The Pandemic and Water

Varghese also highlights the role of COVID-19 in spotlighting the global water crisis. In her words “we saw how water pricing and other inequities in water access impacted communities across the world through the COVID period”. In realizing that half of the population of the world lacked safely managed sanitation and water, the pandemic has perhaps forced many to acknowledge that water must not be held or controlled by private interests for profit. The language orbiting water’s financialization and the destruction of nature are being scrutinized and challenged.

Barlow compares this new fight for equity, against environmental racism, extraction, and financialization to the Women’s movement over the last 100 years (which she was deeply involved in). In some countries, there has been substantial action to propel forward women’s rights and female empowerment, albeit changes have happened slower in others. But the changes have happened.

This has also occurred in other struggles. In places like Canada where there has been historic resistance to pipelines, people have not only used climate change as a defense. Rather, Indigenous peoples have brought forward claims around treaty lands, food sources, and fishing grounds in opposition to the move towards financialization. Their very livelihoods are being threatened by the encroachment of environmentally destructive enclosure, privatization, and financialization, including water financialization.

The resistance to water financialization goes to the very fundamental understanding that water is the inherent right of each and every one of us, it is our source of life and our well-being.

“I just want to be hopeful because I believe that people care about water. When we fought the Energy East pipeline in Canada, it was not climate change that people talked about, it was their water. This is going to destroy my water base here and I feel that this is a moment to really put this case forward, that water must be maintained as a public trust and that public service and access must be decided upon democratic principles.” Barlow

A Fight For One, A Fight For All

Water financialization has also been linked to infrastructure with many large infrastructure projects in the sector. Consider Colombia’s utility company Empresas Públicas de Medellín (EPM) and its aim to build the second biggest dam in the country to avoid a national energy rationing. A ‘disaster hydropower project,’ caused the most severe environmental damage in Colombia’s history. This led to parts of the population being displaced and the environment is damaged extensively.

Marcela Lopez, Center for Metropolitan Studies at the Technische Universität Berlin, contends that had they not faced this terrible situation, some questions would have never arisen such as “does the power plant have a limit in commercialization? What is it for? Who will it benefit.” The repercussions are that because this is a public company “it means that this debt is public as well. So at the end, who will pay for the damage done?” Her recommendation to solve this is that “we need to analyze the context in which these big power plants are created, rethink how to produce energy, in order to reduce the cost of it.”

Ultimately, this debt disconnection, from infrastructure, the environment, and financial considerations results in local populations paying the price for investors’ profit-driven choices. A rise in water tariffs results in the inability to pay, leading to debt and water disconnection, a loss in public revenue, and a community full of suffering without access to water. And of course, everything mentioned goes back to the nation-state and a country’s public financial stability.

“What the central banks do, what municipal finance does, enables you to explain how politically and financially destabilizing these kinds of private equity investments, or the World Bank, promotion of private equity and water does. They really need to understand that it’s not just a bunch of NGOs or Indigenous groups they have to worry about in protest, but the actual financial destabilization of the country.” Suppan

Encouraging partnership and solidarity with Indigenous communities and fostering exchange between the Global South and North is integral to this movement as we organize beyond the local. As Mantovani states “it is essential that our local struggles are connected with global struggles because the phenomenon of privatization has to be busted at an international global scale.”

The fight to de-financialize water is going to be a long, resistance-filled one but asserting that water is for all and not just a few to monopolize makes it a cause worth fighting for.

Husnah Mad-hy is an intern at the Blue Planet Project and is a Master of Global Affairs Candidate at the MUNK School, University of Toronto.

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