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Fixing the leaks to attract commercial investment for sustainable urban water services in sub-Saharan Africa and beyond.

I was struck by the clear consensus that emerged from the financing sessions at Stockholm Water Week. This consensus is best described in the form of an analogy where a bucket represents existing financial flows into the water sector. To close the SDG financing gap, we need to both fix the leaking bucket and fill more buckets. At the moment, the sector leaks badly!

A typical inefficient urban water utility effectively wastes up to half of the financial resources available to it. Moreover, existing financial flows are not large enough to deliver safe drinking water to all. To meet SDG 6.1 in urban areas, at least two additional buckets are needed.  We know that these additional buckets will need to be filled with a substantial share of commercial finance, and that this money has to be repaid. Clearly, financiers are reluctant to pour more water into a leaking bucket. Thus, the two components – fixing the bucket and creating more buckets – are inextricably linked. 

The good news is that it is both possible and practical to fix the leaking bucket. The GIZ-commissioned study "Improving access to urban water sustainably in sub-Saharan Africa and beyond: A way forward for German Development Cooperation and its Partners based on a review of two decades of involvement in urban water sector reforms in Africa."  (June 2018), presented in Stockholm, showed that urban water utilities, when well-managed, can achieve both high levels of access to piped water and raise sufficient revenues to repay loan finance – the two are not mutually exclusive. [This study is available on request. Please contact Regina Rossmann (Regina.Rossmann@giz.de)].

Table 1:  Performance of well-performing urban water utilities compared to median performance in Sub-Saharan Africa

Utility (country)

SDE
(Senegal)

Nyeri
(Kenya)

ONEA
(Burkina Faso)

NWSC
(Uganda)

Median
(SSA1)

Access to piped water

97%

91%

90%

78%

68%

Hours of supply

24

24

23

18

18

Operating cost coverage ratio

1.39

1.39

1.18

1.28

0.92 3

Cash collection efficiency

98%

~100%

97%

~100%

91%

Nonrevenue water

20%

18%

18%

28%

38%

Staff productivity 2

3

3

4

6

10

Sources:  Case studies, Heymans et al (2016) and IBNET (for median data). The IBNET database may not be representative of all African utilities as it relies on voluntary reporting. Consequently, the median for all utilities is likely to be lower than that for utilities reporting performance data. Notes: 1 SSA = sub-Saharan Africa. 2Staff per 1000 connections. 360% of 212 reporting utilities in 2014 reported an OCCR of < 1.

In fact, commercial finance serves to reinforce good governance and an ongoing commitment to management effectiveness. The data from 5 countries show that good utility performance is possible even in poor countries and in challenging country-level governance contexts. In other words, specific local conditions may be more important than the more general country conditions.

Some key questions emerged from the discussion of this study in Stockholm:

  • Can development aid and financing be used as a catalyst for effective utility management? 
  • Is it possible to identify and incentivise the core conditions necessary for effective utility management?
  • And can finance flow preferentially to where these conditions exist or can be created?  
  • Can bilateral agencies sequence finance so that operational improvements follow from a credible commitment to these core conditions, and so that infrastructure investments take place in a context where  they can be much more effectively used and sustained?

These are some of the questions to be discussed in Frankfurt at the water sector financing conference jointly hosted by GIZ and OECD on the 4th and 5th October, 2018, 'Closing the financing gap for water in line with SDG ambitions: the role of blended finance'.

Documentation on the conference is available on the OECD website.

 

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