Nearly three-quarters of the earth’s surface is covered by water, but less than 3 percent is suitable for human consumption. Poor environmental stewardship and ill-planned infrastructure development impede availability of potable water around the world.

North America has been blessed with relatively abundant fresh water, but almost two-thirds of Asia’s population has no access to clean, piped drinking water in their homes. Nearly 37 percent of people living in Sub-Saharan Africa lack access to clean, safe water. More than 77 million people in Latin America—15 percent of the population—don’t have water connections in their homes.

An estimated 2.5 billion people—more than a third of the global population—are at risk for disease and death due to inadequate sanitation or lack of access to clean water.

Water is such a scarce yet vitally important resource, it could soon compel increasingly crowded and polluted nations to fight over it. Indeed, tensions recently arose between Egypt and Ethiopia over a new dam project on the Nile River.

The Nile has long been the lifeblood of Egypt. In the days of the Pharaohs, the inundation of the river fertilized and irrigated the country’s arable land, feeding the people for the year. If the Nile failed to flood, famine was sure to follow. Some archaeologists speculate that the great empire of Egypt fell several millennia ago because climate change interrupted this natural dynamic.

The Egypt of today is just as reliant on the Nile as it was 3,000 years ago. It takes just two years of drought to cause crop failures, shortages of drinking water and electricity.

Though Egypt lies at its end, the Nile’s 4,130 miles wind through 11 countries, resulting in a number of competing interests.

Ethiopia is the source of 85 percent of the water that flows through the Nile River, with the Blue Nile serving as one of the river’s main water sources. As with most emerging market nations, Ethiopia is in a constant race to stay ahead of its growing electricity demand and recently diverted the Blue Nile as part of a project to build a massive hydroelectric dam.

Given Egypt’s dependence upon the Nile, the country is understandably concerned that Ethiopia’s dam could reduce the river’s flow. It also sees the project as a violation of two pacts, one from 1929 and the other from 1999, governing how the 11 nations lying along the Nile’s flow use the water.

Egypt asserts it wasn’t properly consulted on the project and the issue has become a key challenge to the year-old government of President Mohamed Morsi. In a recent televised meeting of Egypt’s leading politicians to discuss the issue, ideas such as arming Ethiopian rebels or using fighter jets to knock the dam out where bandied about.

While few honestly think a military conflict will actually come about, it’s a clear indication that water is a critically important geopolitical issue.

Given water’s importance and its relative scarcity, it’s a hugely important international investment theme.

According to a study by the World Health Organization, every $1 invested in water and sanitation generates an economic return of between $3 and $34. Not many investments generate that sort of return and huge opportunities are emerging as spending ramps up.

China’s Ministry of Water Resources estimates that 260 million people in the country have limited access to safe drinking water. China’s water shortage is estimated at around 40 trillion cubic meters per year.

Meanwhile, China’s population is expected to top 1.4 billion in the next 10 years. The country intends to spend USD460 billion on environmental protection-related investments to support 15 percent to 20 percent annual industry growth.

China isn’t unique in its water difficulties. By the end of the next decade, Asian countries are expected to spend about USD380 billion on water and sanitation systems.

Flowing Profits

Two positions in the Long-Term Portfolio provide exposure to water infrastructure: Beijing Enterprises Water Group (Hong Kong: 371), or BEWG, and Companhia de Saneamento Basico (NYSE: SBS).

BEWG currently owns and operates more than 90 water supply and sewage treatment plants in Beijing, Guangdong, Zhejiang, Shandong, Anhui, Hunan, Sichuan, Guangxi, Hainan, Guizhou and Yunnan provinces, with water treatment capacity of more than 10 million tons per day. It is also working to develop seawater desalination facilities to provide additional fresh water to Beijing.

BEWG recently signed deals for three new sewage treatment plants in Xinzhuang and Guiyang City, adding a total of 120,000 tons of additional treatment capacity per day. In addition, BEWG recently acquired 100 percent of Veolia Water’s Portuguese operations, which include four concessions to supply drinking water and waste water treatment in four municipalities and operation and maintenance services in two others.

Demand for drinking water and waste water treatment services will grow apace in China, as the country continues urbanizing. Only about half of the country’s population lives in cities; in advanced economies, typically about 80 percent of the population can be found in urban centers.

As that population transition continues, demand for infrastructure will continue to grow and drive demand for water infrastructure. Beijing Enterprises Water Group remains a buy under HKD3.50.

Companhia de Saneamento Basico, commonly known as SABESP, is another water utility that operates in the São Paulo region of Brazil. SABESP has been treating wastewater and providing water to the country’s biggest city since 1973.

The company currently provides clean water to all of the municipalities it serves and treats more than three-quarters of the sewage produced in the region.

Shares of SABESP have remained under pressure recently, largely due to political turmoil in Brazil.  More than 30,000 people recently took to the streets of Brazil’s capital to protest their government’s profligate spending. Brazilian President Dilma Rousseff has seen her approval ratings plummet as a result.

There’s now talk that Fédération Internationale de Football Association (FIFA) is considering moving the 2014 World Cup games from Brazil, given the tumult in the country, which in turn has been weighing on SABESP. This about-face would be unprecedented, though, and it’s likely aimed to pressure the Brazilian government to get its house in order ahead of the games.

While economic growth may be slowing in Brazil and its politics are in an uproar, the country has had more than a decade of exponential growth. The country clearly has the capacity for further growth and the need for water infrastructure is clear. Companhia de Saneamento Basico remains a buy up to 19.

Japanese company Kurita Water Industries (Tokyo: 6370) is another interesting play on water infrastructure. What’s more, the company isn’t leveraged to any single region or country.

Providing a host of water treatment products and technologies, desalination equipment and high-purity water production systems, Kurita has been benefiting from booming emerging market orders with overseas orders now accounting for 17 percent of sales.

The company also has gotten a boost from the Asian electronics industry, which requires ultra pure water for its production processes. Largely thanks to those two drivers, the company’s net sales have grown from JPY146.8 billion in 2004 to JPY180.1 billion today.

Over the long term, management sees its greatest opportunity in the emerging markets, which it anticipates will account for about a third of revenues over the next few years. Particularly, it expects to benefit from manufacturing’s shift away from China to other Southeast Asian countries where water quality is generally lower. That new industry will have to invest heavily in water infrastructure.

This secular trend in the manufacturing sector will help drive the company’s recurring chemical and services revenues, which are expected to grow to about half of total revenues. Recurring business provides a consistency in earnings, which will allow the company to continue dividend increases. The company has boosted its payout each year for more than a decade. Kurita Water Industries is buy up to JPY2,600.