Annum Rafique
The water sector plays an integral role in the economy by providing clean and safe drinking water to households and businesses. They are responsible for collecting, storing, extracting, pumping, treating and distributing water and wastewater from homes and industry.
The water sector also contributes to the economy directly through the employment of individuals, taxes paid to the government, purchases made from other sectors, assets acquired and, indirectly, by providing water as a resource required by other industries.
The linkage between the water sector and the economy is considerable. When mapping the overall contribution of the water sector (in monetary terms) to a country's economy, we looked at all the possible impacts on the sector's economy.
The water sector contributes to the economy in three main ways:
Intermediate consumption (IC), which consists of the value of goods and services consumed by the water sector to produce their own output. It thus implies that by increasing intermediate consumption in the water sector, the water sector is purchasing or consuming more of the output of other sectors in the economy (electricity or chemicals, for example);
Employee compensations (EC), where the sector pays the salaries and wages of its employees. The income generated by the employees is then consumed in the economy through the purchase of goods and services as well as taxes payable to the government.
Fixed capital (FC), which implies acquiring fixed assets such as land, machinery and equipment, and capital acquired via loans for further investments. Thus, a rise in the consumption of fixed capital may imply that the water sector is expanding its infrastructure through additional investments.
We looked at those three contributors in Ireland and the Wales (UK) and how they have changed over time using data for the period 1985 to 2018 from Eurostat, to compare and contrast the water sectors in these two countries. Figures 1 and 2 illustrate the per capita amount of IC, EC and FC for Ireland (in €) and the UK (in €), respectively.
Figure 1: IC, EC and FC per capita for Ireland, 1995-2018 (Eurostat, 2021).
As shown in Figure 1, the overall per capita contribution of the water sector in Ireland rose from €84 in 1995 to €254 by 2009 but then declined to €124 by 2018. The decline sector's contribution was due to austerity measures introduced in Ireland in 2009 (McIntyre, 2014). The austerity measures introduced by the IMF had the most significant impact on IC and EC, which implies that the sector reduced its reliance on employees and purchases from other sectors. Over the years, IC has had a more prominent role in the Irish water sector than EC and FC.
Figure 2: IC, EC and FC per capita in the UK, 1995-2018 (Eurostat, 2021).
As opposed to the Irish water sector, the overall per capita contribution of the water sector in the UK remained relatively unchanged over the years ranging from €174 in 1995 to €167 by 2018 (Figure 2). The average annual growth rate of per capita contribution of the UK's water sector was less than 1%, which implies that the sector moves slowly. This may be because of the structure of the UK's water sector. Compared to Ireland, the UK privatised their water sector in 1989, leading to the creation of local monopolies where commercial and domestic users have no choice in their supplier. Since then, the sector is subjected to economic, environmental and quality regulations by a regulatory authority. This has allowed the individual water companies to reduce their control on the monopoly, which may have lead to inflated water prices (Pointon and Matthews, 2016; Ofwat, 2015). The overall per capita contribution of the water sector in the UK is higher than that in Ireland, implying that the water sector in the UK contributes more to their economy than the water sector in Ireland.
In terms of the water sector providing benefits to the economy, the water sector in the UK outperforms the water sector in Ireland. When comparing the two, studies have found that the UK's water sector has better water quality, wastewater treatment and customer services compared to the Irish water sector (GWI, 2018). Furthermore, the UK's water sector has fewer water losses due to leakage, faulty meters or unauthorised use than the water sector in Ireland (GWI, 2018). The water infrastructure in Ireland is 65 to 85 years old, compared to 36 years old European average, and so is in dire need of repairs and replacements (OECD, 2016).
Since individuals in Ireland do not pay directly for the water like individuals in the UK via water bills, there has been limited funding to improve infrastructure to reduce losses. Furthermore, the approach to control leakages also plays a vital role in reducing losses. Mainly, only reported leakages are repaired, and water utilities do not generally carry out any regular form of tests to monitor or control leakages. The UK water sector reports less leakage than the Irish water sector due to funding available for the water utilities to replace and repair supply pipes (GWI, 2018). It is possible to improve water services in Ireland by introducing water pricing, which may help to inject more capital into the sector. However, water pricing in Ireland has not been a popular opinion with their population in the past. Any government planning to introduce such policies may face serious opposition. For the Irish water sector to improve and become on par with the UK's water sector, continuous investments are required to improve their services and infrastructure.
References
Eurostat (2021) 'National accounts aggregates by industry (up to NACE A*64)'. (Accessed on 30/07/2021).
GWI (2018) International Comparisons of Water Sector Performance.
OECD (2016) Report on the Funding of Domestic Public Water Services in Ireland.
Ofwat (2015) The form of the price control for monopoly water and sewerage services in England and Wales - a discussion paper.
Pointon, C. and Matthews, K. (2016) 'Dynamic efficiency in the English and Welsh water and sewerage industry', Omega, 58, pp. 86-96