By Fritz Egger
Headwinds facing U.S. water and wastewater equipment and service equipment exporters are currently greater than at any time I can recall in my 16 years in the industry. Despite a large number of global and regional issues, some of which are detailed below, significant potential remains in many markets and segments.
First and foremost, the strong dollar has affected ownership cost of U.S. equipment around the globe, in some cases dramatically. In the past two years, we have seen dollar appreciation levels of 23 percent against the euro, 32 percent against the British pound, 8 percent against the Chinese yuan, 38 percent against the South African rand and 26 percent against the Australian dollar. In order to effectively compete, high levels of technology, differentiation, and expertise are a prerequisite to success.
Middle East turmoil, both economic- and conflict-based, has created a high degree of regional uncertainty. This is particularly evident in Saudi Arabia. The Saudi 2015 budget was based on $60/barrel oil, and according to the International Monetary Fund, the Kingdom could run out of money within 5 years if prices stay under $50/barrel. Additionally, significant government resources are being diverted to the Yemen conflict. Recently, severe budget cutbacks, a historic increase in gasoline prices, and other fiscal measures have been announced. Fortunately, to date, infrastructure project cancellations have not been significant, but funding delays have become more evident, even in focus areas such as the country’s east and southwest. But again, optimism persists, as most projects remain on the books.
As ISIL’s territory continues to shrink, it’s also reasonable to expect rebuild opportunities in the recaptured areas of Iraq. Israel, Oman, and the UAE continue to present decent potential. Down the line, if accessible, Iran could become a focus area for many of us.
Virtually all developing countries feature high infrastructure needs, but funding is lagging behind actual need in many areas. Southern Africa continues to show potential, particularly in South Africa and Botswana. In Egypt, where a measure of stability is returning, interest in foreign technology is high and procurement is increasing. India, although a relatively difficult market to access, presents a strong growth opportunity in the environmental sector but generally only with strong partners or localization. Vietnam, Indonesia, and the Philippines are developing rapidly, although the latter presents a level of uncertainty after the recent presidential election.
The economies of Australia and New Zealand remain relatively healthy, but Australia is not growing at the torrid pace that we saw for many years, primarily due to the decline in raw materials from China. Acceptance of foreign environmental technology is very high and barriers are few, so growth potential continues to be good.
Certainly, the real health of the Chinese economy is a topic for debate as skepticism of the official numbers may be warranted. That said, the environmental market in China continues to grow at a rapid pace, but a major shift toward domestic supply is occurring due to government regulations, import duties, and increasing levels of local expertise and supply. Unless a company has a proprietary (and protectable) technology, high levels of localization are required to maximize longer term market share.
Potential in Japan is moderate, as local expertise is high and - due to the declining and aging population - infrastructure spending is under pressure. For suppliers who have an installed base, excellent potential persists for parts and repairs.
In Europe, although the initial fall-out from Brexit appears severe, the typical initial overreaction of the financial markets is certain to settle out in the medium term. Good potential continues both in Western and Eastern Europe. Russia is the exception, where sanctions are having an increasing effect and availability of funds is decreasing.
Latin America continues to provide moderate potential, particularly in Colombia and Chile. Brazil continues to be a tough market in terms of protectionism and recent economic and political issues have exacerbated the difficulty.
As discussed, there are many challenges - regional, global, economic and political. The good news is that the high level of expertise, technological advancement, robust design, and quality provided by American suppliers, coupled with strong local representation, can continue to yield positive results in selected markets.
About the Author: Fritz Egger is managing director of Asia, Pacific, Middle East & Africa Regions for JWC Environmental LLC (Santa Ana, Calif.). He is a long-time member of the Water & Wastewater Equipment Manufacturers Association’s Board of Directors.