Is water scarcity a risk to your phone?

  • 13.10.2022
  • UBS

Last month tech giant Apple shifted some of its iPhone 14 production from China to India. One of its major suppliers, Foxconn, also started production in Chennai for the domestic Indian market. These represent another step forward for India’s ambitions to form an innovative ecosystem that is competitive to top-end chipmakers in mainland China, Korea, and Taiwan.

Indian mining group Vedanta and Taiwanese contract manufacturer Foxconn committed to invest USD 19.6bn to set up a semiconductor and display fabrication plant in India’s Gujarat. As a front-runner among emerging markets vying to establish itself as a global manufacturing hub, the Indian government is committed to reaching USD 300bn worth of electronic manufacturing exports by 2026.

India’s level up in manufacturing may seem beneficial. Yet potential risks involved need to be considered by investors who want to take advantage of new growth opportunities. At present, Gujarat possesses only 2% of the country’s water resources, and groundwater accounts for 24% of the state’s total water availability. Parts of the state are heavily geared toward agricultural and industrial activities, where industrial waste has polluted the groundwater.

Water demand will rise partially due to the Vedanta-Foxconn venture, as water and energy are fundamental to semiconductor manufacturing. As reported, the project is likely to benefit from significant government subsidies on semiconductor-grade water and reliable energy. Yet, the hydrology and energy policy currently in place are not enough to reverse groundwater depletion in the region. Gujarat’s groundwater table is declining at 14.16cm per year, suggesting high levels of unsustainable groundwater withdrawals. The question is: will corporates have to bear the water-related risks given the increasing population and industrial activity?

Along with global growing chip demand, water stress from climate change has also contributed to higher water usage across Asia. As a result, Taiwan’s leading semiconductor producer TSMC increased water purchases from municipal sources to 56.75 million tons from 37.5 million tons between 2015 and 2018. Moreover, the Taiwan drought in 2021 highlighted the severity of water risks and costs for all stakeholders in the global supply chain. Both events remind us that water is not an abundant resource, and water risk should be critically considered by investors and corporates.