The transformation towards an open market economy, a growing emphasis on environmental technologies, coupled with the drive towards international standardisation and compliance with EU legislation are expected to stimulate the growth of the market for residential water meters in central and eastern Europe.
A new study from Frost & Sullivan (http://water.frost.com/) estimates the value of the central and eastern European market for residential water meters at $66.1 million for 2001. This market is expected to grow to $83.4 million by 2008, reflecting a compound annual growth rate (CAGR) of 3.4 per cent for the forecast period. This corresponds with a projected increase in unit sales, up from 4.1 million in 2001 to 6.5 million in 2008, predicated on falling costs of meters and increased consumer demand.
However, the region will face a number of challenges if it is to capitalise on these positive trends. Matthew Barker, Industry Analyst at Frost & Sullivan, identifies these challenges as: "Securing and allocating the necessary funding for the required utility industry projects, infrastructure improvements, implementing the large number of relevant pieces of EU legislation into domestic regulations and carrying out the necessary reforms, improving the enforcement of legislation and revising national water management definitions for harmonisation with the EU." How and when these challenges are addressed by each of the countries is likely to determine the future course of the market.
The transition to market economies has presented significant growth opportunities, especially in terms of the extent to which private enterprises will be allowed to penetrate the market. As privatisation spreads, the market will be characterised by increasing consolidation, professionalism, and competitiveness.
Barker explains that increasing privatisation is likely to propel the market in three ways. "First, it will increase the number of water meters being installed. Second, without the buffer of government subsidies, it will make cost-reflective pricing a reality. Third, it will inform the increased acceptance of water as a limited resource," he notes.
The current market is largely legislation-driven, albeit hampered by administrative failings and regional problems of limited funding. Among the most important drivers of the market over the forecast period is expected to be EU expansion and harmonisation, leading to the increasingly urgent need to raise standards and improve infrastructures. This will be vital for first-tier CEE countries such as the Czech Republic, Hungary, and Poland.
Administratively, the lack of government instruments controlling the installation of meters and the subsequent monitoring and regulation of meter testing is likely to disappear as a restraint, once the EU influence spreads. In markets where the replacement sector will form a large percentage of revenues in the future because of improvements in meter lifetime, growth is expected to be inhibited if governmental guidelines on increasing replacement times are pursued.
As the former Eastern Bloc countries move towards open market systems, financial institutions such as the Economic Bank for Reconstruction and Development (EBRD) are aiding the rebuilding of infrastructure. There have also been active attempts to solicit foreign investment and participation from foreign companies in the environmental technology and services market. However, ongoing political and economic uncertainties will continue to deter potential investors. Barker warns: "Until full economic recovery of the region starts sending out `healthy' signals, this is expected to act as a major obstacle to market growth."
In these emerging markets, decentralisation and local networking will be the key to addressing regional differences. "As far as the water meter market is concerned, suppliers need to possess country-specific market knowledge, a local contact network, previous experience and local references in order to make a successful entrance," Barker states. Also, the strong regional presence of local companies capable of bulk production at lower costs will make price-cutting an effective strategy response for new entrants.
Report Code: B058, Publication Date: January 2002
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