Why the private sector is needed to close the WASH financing gap

Globally 4.4 billion people still lack access to safe drinking water at home and about half the world’s population lack access to proper sanitation [1]. In order to achieve Sustainable Development Goal (SDG) 6, clean water and sanitation for all by 2030, the World Bank estimates that closing this gap will cost $150 billion a year [2]. Water is often thought of as a public good. Thus the prevailing notion is that the public sector must close this gap. However, public institutions are unable and ill suited to cover it all. This article will highlight the current challenges and the importance of the private sector and Safe Water Enterprises (SWE) in achieving SDG 6.

In the developing world, public institutions cover the majority of water, sanitation, and hygiene (WASH) financing, making up 91% in Asia alone [3]. However, publicly funded WASH policies are often underfunded and poorly implemented. Public funds tend to focus on large, centralized infrastructure projects which aim to increase the number of piped connections. However, these preferred centralized models are slow moving, expensive, and will not achieve universal safe drinking water access by 2030, according to SDG target 6.1. Furthermore, access to piped water is not the same as access to safe drinking water. In Indonesia for example, piped water utilities reach only 23 percent of households. But because of the higher costs and unreliable quality, only 9 percent of households used piped water for daily use [4]. 

Public WASH funds also tend to go to subsidies, which are expensive and poorly targeted. According to the World Bank, governments spend around $320 billion a year on WASH subsidies [5]. That’s enough to cover the WASH financing gap for two years! These subsidies often go to the rich, rather than the poor who need them the most. This is because subsidies usually go towards utilities which typically do not reach low income areas.

Even with better designed policies, it is unlikely that cash strapped governments will be willing or able to fork over the amount needed to fill the $150 million a year funding gap.

Market based, private solutions succeed in filling the WASH financing gap where the public sector has failed. 

The private sector is more flexible, agile, and can move to respond to customer needs. Rather than being bound by government mandates, the private sector is guided by market demand.  Enterprises such as Nazava Water Filters, Safe Water Gardens,  Naandi Water, and Hydrologic are just a few examples of private sector companies that provide innovative WASH solutions that are more cost effective than their public sector counterparts. Safe Water Gardens (SWG) for example offers an all in one WASH solution that includes a Nazava Water Filter. The system is easy to build, requires no heavy machinery and the cost per household is less than half of the cost of the system promoted by the Indonesian government. Check out this article to learn more about the SWG & Nazava partnership! 

SWEs offer decentralized, innovative, sustainable, and impact-oriented models to address SDG target 6.1. SMEs provide WASH services faster than the public sector especially in rural communities that centralized utilities often miss. The sector is growing with the number of SWEs doubling in the last ten years. Despite their effectiveness, SWEs have a difficult time accessing financial services needed to scale their impact. This is due to their relatively small scale, short track record, and lack of collateral. 

Climate change is widening the WASH financing gap 

In the face of climate change, the challenge of providing safe drinking water for all will become even greater. This is because extreme weather events such as flooding and drought affect the quantity and quality of water. According to the World Bank there will be a 40 percent gap between water supply and demand by 2030. Providing enough safe drinking water will require an additional $1.7 trillion in financing, three times the current investment levels [6].

As a whole the water sector receives a substantial 41 percent of committed climate adaptation financing [7]. However, basic WASH services receive a small share of that investment, with most of it going to middle income countries. Increasing the proportion of climate adaptation financing going towards WASH would improve climate change resiliency and secure a basic human right to billions of vulnerable people. Furthermore, increasing basic WASH services also contributes to climate change mitigation. Nazava Water Filters for example, eliminate the need for boiling to purify water, thereby reducing CO2 emissions.

Governments and international institutions have an important role to play in unlocking financing for SWEs

The Asian Development Bank (ADB) published an article which outlines recommendations that can help unlock financing for SWEs. These actions include:

1. Giving micro, small and medium-sized enterprises access to financial market instruments.
2. Providing financing and technical assistance.
3. Improving incentives for lenders.
4. Strengthening the role and mandates of local financing institutions and multilateral development banks.

Governments and international institutions have an important role to play in turning ADB’s recommendations into reality. A first step should be to look beyond utilities and towards market based, household level solutions to drinking water access. Governments can provide tax incentives for SWEs that provide affordable safe drinking water to populations not covered by the national system. International donor institutions could fund projects that expand the use of household water treatment and safe storage (HWTS) solutions, instead of pouring money into large, unsustainable projects. 

Governments could also promote the use of HWTS solutions. HWTS provide a cheaper and faster way to ensure universal access to safe drinking water, helping governments to achieve their development targets on time. Furthermore, since they can be used as a complement to centralized utilities, promoting HWTS does not necessarily mean that governments have to give up on longer term projects to increase piped water access.

Nazava Water Filters to present at the UN 2023 Water Conference

While the public sector plays an important role in safe drinking water and other basic WASH services, governments cannot do it alone. Especially in countries that lack strong institutions, it is highly unlikely that publicly funded WASH programs will achieve SDG 6.1 in time. Despite this, Unicef’s recently published WASH Finance Strategy Guide puts great emphasis on the role of the public sector in implementing a successful WASH strategy.

The UN 2023 Water Conference will take place March 22-23. Nazava Water Filters along with other SWEs, will present our sustainable model and why HWTS are needed to achieve SDG 6.1. Be sure to follow our LinkedIn and subscribe to our newsletter for the latest updates as we continue to move the agenda and achieve our mission to provide safe drinking water for all!

Authors:

Steven Ramsey ([email protected]), Head of Global Partnerships
Noah Kercher, contributing author

References:

[1] WHO/UNICEF Joint Monitoring Programme (JMP) for Water Supply and Sanitation – https://washdata.org/

[2] Hares, S. (2017, August 28). The cost of clean water: $150 billion a year, says World Bank. Reuters. Retrieved from https://www.reuters.com/article/us-global-water-health-idUSKCN1B812E

[3] Bracey, P., Walder, C., & Woodruff, A. (2022, November 21). Micro, small and medium-sized enterprises play a crucial role across the water and sanitation value chain. They need innovative financing solutions to help millions of people obtain clean water and decent sanitation. [web log]. Retrieved from https://blogs.adb.org/blog/we-need-help-small-businesses-front-lines-water-and-sanitation-asia. 

[4] World Bank. 2021. Indonesia Vision 2045 : Toward Water Security. World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/36727 License: CC BY 3.0 IGO.

[5] Andres , L., Thibert, M. D., Joseph, G., Danilenko, A., & Borja-Vega, C. (2019, August 28). Smarter subsidy design and the SDG Agenda for water and sanitation. World Bank Blogs. Retrieved from https://blogs.worldbank.org/water/smarter-subsidy-design-and-sdg-agenda-water-and-sanitation 

[6] Jha, S. K. (2022, October 21). Water: An Accelerator for Green, Inclusive, and Resilient Growth [web log]. Retrieved from https://blogs.worldbank.org/water/water-accelerator-green-inclusive-and-resilient-growth. 

[7] 12 November 2020 Posted by WaterAid in Finance, Posted by WaterAid Tagged in: Finance, 9 February 2023 Cambodia, 14 November 2022 Climate change, 22 September 2022 Climate change, & 1 September 2022 Asia and Pacific. (2020, November 12). Just add water: A landscape analysis of climate finance for water. WaterAid. Retrieved from https://washmatters.wateraid.org/publications/just-add-water-climate-finance