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Private money can only be attracted where government leads and strong systems exist.

Chinese money tree

The Water, Sanitation and Hygiene (WASH) world is engaging with the importance of finance in a way it wasn’t even five years ago. This is a good thing, yet I fear that blended finance is becoming the latest magic money tree – a potential source of new money that sounds – and is – too good to be true.

WASH systems

My World Water Week this year seemed to revolve almost entirely around WASH systems and WASH finance. Systems language and concepts that, five years ago were largely unheard of within WASH seem to be becoming pervasive. There’s always the risk of old wine in new bottles, but I’m also cautiously optimistic that, with the wind of the Sustainable Development Goals (SDGs) behind us, we’re finally turning the corner on the days of “WASH as new infrastructure” and starting to get to grips with “WASH as sustainable service delivery”. Let’s see.

Finance is of course both part, and a crucial enabler, of the WASH system (indeed most things in systems are – that’s part of systems thinking!). Having beaten the drum for more realistic life-cycle costing of WASH services for many years, it’s gratifying to see the start of a more grown-up discussion around how to pay for those costs. That said, there is more than a whiff of magical thinking about some of the discourse around WASH finance – not least around blended finance, which was almost as much of a buzz word as system in Stockholm.

Private finance

That public finance and aid cannot possibly cover the WASH SDG investment gap (US$ 114 billion per year is the most quoted figure) has become something of a WASH truism. That there are billions (or trillions) of footloose private capital seeking to rush in to fill the gap seems to me to be the latest manifestation of a magic money tree: something that we’d all like to believe in – but probably shouldn’t if we want to make good decisions.  That’s because there’s nothing magic about private finance which (as friend and IRC board member Louis Boorstin never tires of saying) is really simple at least conceptually: it flows to where rewards are highest and risk lowest – neither of which are typically true of the WASH sector.

What was encouraging about many of the discussions in Stockholm is that this thinking is shared. People understand that without sector reform - in the form of better performing service providers and clearer and stronger policy and legislative environments – the sector will remain too risky to attract substantial private money. This is doubly so for rural WASH – away from the world of large and relatively well-structured utilities. 

The emerging message from the finance sessions I attended seemed to be that, yes, there is private money available, and yes, it can be attracted to WASH, but only where government leads. By investing in the critical building blocks that make a sector investable in the first place: regulation; institutional reform and monitoring to mention three that are critical. By the nurturing of investable service providers. By the intelligent ongoing use of public money to subsidise services (and thus improve the risk/return calculus).

In the end there is no magic money tree. Not even a private one. But there is money, and the way to bring it to the sector is through systems reform and strengthening that leads to an investable sector.  This in turn requires strong leadership by national governments (political and financial). 

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At IRC we have strong opinions and we value honest and frank discussion, so you won't be surprised to hear that not all the opinions on this site represent our official policy.