
Last year we were discussing blended finance, what are we discussing now?
Published on: 14/04/2023
At the All Systems Connect International Symposium, experts and decision-makers from around the world will be discussing why and how to prioritise investment in water, sanitation and hygiene as a human right - and in water security - as a requirement for economic growth. In this blog, Catarina Fonseca, IRC associate, economist and water and sanitation advocate, gives a preview of some of the themes.
In the last couple of years, global finance discussions in the water, sanitation and hygiene (WASH) sector have been focusing on blended finance (public finance used to de-risk and attract private finance), and financing from potential sources, particularly climate funds. The latest discussions are adding a third needed pathway, which is food security and ultimately, sustainable growth. This takes a macro-level angle, and is more complex than previous pathways – because of the different stakeholders and cooperation needed far beyond the WASH sector.
The Global Commission on the Economics of Water presented some scary data and trends about the impacts of and on water, at the recent UN Water Conference 2023. It is expected that in seven years, given the demand, there will be a 40% freshwater shortage. It might be difficult to imagine how this will affect more than the known water stressed countries (China, Brazil, India, etc), but the evidence shows that unpredictable floods and droughts are already aggravating displacement, migration and food insecurity. They also inflict costly damages to infrastructure; and devastate livelihoods, quality of life, and biodiversity – ultimately undermining economic growth and human security.
We are already feeling the impact of the war in Ukraine on food prices and energy - imagine a 10- or 20-fold impact as a result of water insecurity.
These statistics find their root causes in two interrelated challenges:
We now must recognise that to meet these challenges head-on, we need to think beyond the drinking water sector. We also need to think beyond the 3Ts: taxes, tariffs and transfers. These sources provide only piece-meal finance solutions. They are not - and will not be - enough to cope with the growing finance gap.
Major productive sectors with high water use, such as agriculture, energy, garments, beverages, manufacturing, mining and others will need to internalise the costs of water use (including pollution) which are currently passed on as externalities to others. For example, costs are passed to utilities who need to spend more on water treatment and re-use, or need to drill and pump water from deeper aquifers given the over abstraction.
What does it mean for private investors who are not able to legally invest in equity or transfer financial resources to shareholders?
The answers are not easy, because the issues are complex. The International High-Level Panel on Water Investments for Africa has released its flagship report (also available in French here) at the UN Water 2023 conference which sheds some light on the most important areas and steps.
The critical steps identified by the High-Level Panel include:
Establish cross-sectoral political leadership at the highest level, with commitment to substantially increase public budgets and investments for water security and sustainable sanitation;
Track progress and enhance mutual accountability for results in the mobilisation of water investments - including recommitting to the allocation of at least 5% of national budgets for the the drinking water and sanitation sector and 0.5% of GDP per annum for sanitation and hygiene programmes;
Mobilise new sources of funding and innovative finance, such as institutional investors by actively supporting matchmaking platforms to bring together the supply and demand for finance;
Strengthen institutional regulation for water investments, create incentives and penalties for increased water efficiency across multiple industries to lead water stewardship efforts, biodiversity, and ecosystem protection; and
Use aid to de-risk water investments and leverage larger funding streams. This includes support to improve the implementation capacity and quality of bankable projects.
Photo by Rifath @photoripey on Unsplash
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