I’m in the mountains in the south of France. I’m supposed to be on my summer holidays, but I can’t go outside because the rain is so heavy I’d be drenched in seconds. Instead of swimming merrily in the pool cut into the edge of the hill, the family is squashed up on the sofa watching repeats of Top Gear. The baby is having her afternoon nap not in dappled sunshine underneath the bay tree, but in the larder (with the door shut so she cannot hear the television).
When the rain first started, the locals shook their heads and said it could never be enough: there had been nothing for months and the ground was so hard the water would just run right off into the river. But, 12 hours on, they have cheered up considerably. A few more hours of this, I’m told, and there’ll be grass tomorrow.
The fields are so dry here in the foothills of the Pyrenees, and the hay harvest has been so inadequate, that the authorities have taken the extraordinary step of allowing people to graze their cows and sheep in the community-owned woodland around the village. There is no better reminder of the prevalence of global drought.
These days, there is not just drought where you expect it — in Africa and on the plains in southern Spain — but everywhere else too. In China, in India, all over Europe and even in Britain. Part of these water shortages can be blamed on inadequate infrastructure, but with Asia industrialising fast and the global population still growing, there just isn’t enough fresh water to go round.
I last wrote about this back in February and suggested investing in various water infrastructure companies or perhaps Pictet’s dedicated water fund, which invests globally in everything from infrastructure engineers and water-treatment firms to bottled-water producers.
Another way for investors to profit from the problem might be to cast around for countries which are unlikely to suffer water shortages over the next few decades and will not therefore need to upgrade their infrastructure.
Invest in Canada: no risk of a water shortage
The first that springs to mind has to be Canada. Fly from Toronto to Vancouver and you look out on lake after lake. Canada is one of the most water-rich countries in the world: when, in 2025, 30% of the world’s people face a water shortage, as is forecast by the Centre for Strategic and International Studies, none of them will be in Canada.
Water isn’t the only thing that Canada has in abundance: it is sitting on huge reserves of gold, timber, uranium and nickel. It also has the second-largest reserves of oil in the world after Saudi Arabia.
The province of Alberta, once thought of as just a nice place to hike, turns out to have oil reserves equal to an estimated 1.7 trillion barrels in the form of tar sands covering an area larger than England.
Invest in Canada: huge oil reserves
Getting oil out of these sands is not easy and, at $12-18 a barrel, it isn’t cheap either. But with the oil price expected to stay high it’s worth doing. About 10% of the sands are now considered cost-effective to extract, which comes to 174 billion barrels of useable oil reserves — more than the total in the largest field ever found in the Middle East.
Right now, Canada is pumping out only a little more than 1m barrels of oil a day. But if things keep moving the way they are, that will be 3m in 10 years’ time, according to the Canadian Association of Petroleum Producers.
By 2030, it could be pumping 6m barrels — not far off double the amount that flowed out of pre-war Iraq. Currently, most of the oil coming out of Canada ends up in the US. But China has been buying up all the Canadian oil sand land it can, as well as investing in start-up producers and working on a deal for a mega-pipeline to supply oil to the Asia-Pacific region.
Invest in Canada: a strong economy
Even if Canada’s oil production infrastructure still needs development, the country is already producing enough other commodities to have done extremely well out of the boom of the past few years. Higher energy, gold and basic material prices have fed through into strong employment growth and rising incomes.
The result? Canada is one of the few developed economies that can claim to have both a current account and a budget surplus. If you assume we are in the relatively early stages of a super cycle in commodity prices (as I do) then this is a situation that can only get better.
There are short-term risks to investing in Canada. It trades heavily with the US so a consumer slowdown there would have nasty repercussions. However, Canada also has a strong relationship with Asia (a third of those living in Vancouver are of Asian descent) so dependence on the US should lessen.
Canada has a lot of most of the things I am bullish on (water, oil and precious metals) and the Toronto Stock Exchange has more oil, gas and mining companies than any other bourse. The best way to invest, therefore, is simply to buy an exchange-traded fund that tracks the market. Barclays Global Investors operates an ETF that tracks Canada’s energy stocks (visit exchangetradedfunds.com or ishares.com)
First published in The Sunday Times 20/8/2006