As development aid from wealthy nations is projected to decline over the coming decades, its focus is also shifting towards measurable impacts that empower recipient countries and reduce their long-term reliance on aid.
Published on: 27/11/2024
The national reforms needed to make the water and sanitation sector more attractive and creditworthy are well-known and generally fall under the headings of enabling environment, capacity building, institutional development, or systems strengthening. These reforms, outlined in frameworks like the African Water Vision 2025, have been identified and recommended for decades. For at least 23 years, they have been included in declarations and commitments made at the highest levels by African leaders. Governments across the continent have pledged to implement these reforms, supported by donors and development partners (ODA), who have contributed in various ways over the decades.
However, despite these longstanding efforts, the sector continues to struggle with persistent issues of attractiveness and creditworthiness. This disconnect underscores the need for a fresh perspective, where sustainable funding mechanisms take centre stage in securing the sector’s future. One of the most pressing changes is the declining role of traditional aid in financing water and sanitation capital investment, making it essential for countries to explore alternative and sustainable funding mechanisms.
As development aid from wealthy nations is projected to decline over the coming decades, its focus is also shifting towards measurable impacts that empower recipient countries and reduce their long-term reliance on aid. This trend reflects growing donor expectations for sustainable results and greater accountability. Consequently, developing countries must pivot towards the international financial market as a more reliable and scalable source of funding. However, this transition requires countries to embrace repayable financing, making creditworthiness an indispensable consideration. By addressing governance, transparency, and financial performance in the water and sanitation sector, countries can enhance their ability to secure market-based financing. This shift not only aligns with global financing trends but also positions the sector for greater resilience and independence from fluctuating aid flows.
While the pivot to market-based financing provides a pathway for scaling investments, it also demands a stronger alignment between reform efforts and measurable financial outcomes. One major shortcoming is that reform initiatives are not systematically aligned with specific and measurable objectives related to the sector's creditworthiness. For instance, while reforms often focus on capacity building and infrastructure upgrades, they fail to directly address key financial indicators, such as cost recovery ratios, credit scores, or risk perceptions by financial institutions. Without clear benchmarks tied to these outcomes, it is difficult to demonstrate progress or build confidence among investors.
Weaknesses in governance and management systems exacerbate the issue. These systemic shortcomings are frequently interpreted as credit risks by financial institutions, even when significant investments have been made in infrastructure. Effective management practices—such as transparent financial reporting, appropriate tariff, reliable revenue collection, and sound reinvestment mechanisms—are essential to establishing the trust and confidence of potential funders. Without them, the sector remains inherently risky, regardless of infrastructure quality or political commitments.
The fragmented implementation of reforms further limits their impact. Isolated improvements, such as better infrastructure or regulatory frameworks, cannot address the broader challenges unless they are integrated with comprehensive governance, risk management, and financing strategies. The success stories in the sector, such as the recent progress in Benin, demonstrate that reforms must be systemic and mutually reinforcing to yield meaningful results.
The case of Benin illustrates how targeted reforms, coupled with strong political leadership, can significantly improve the performance and creditworthiness of the water and sanitation sector. Over the past decade, Benin has undertaken strategic actions that enhanced its credibility with international financial institutions while delivering concrete outcomes for its population.
Benin’s success underscores the importance of aligning institutional, financial, and regulatory reforms with clearly defined outcomes. By creating an enabling environment, mobilizing domestic resources, and fostering effective partnerships, Benin has demonstrated that resource-constrained nations can build a creditworthy and sustainable water and sanitation sector.
The persistent challenges in financing the water and sanitation sector stem not from a lack of available funds but from insufficient solvency and creditworthiness. By shifting the narrative towards financial resilience and measurable impacts, African nations can transform their water and sanitation sectors into attractive investment opportunities, unlocking sustainable development for all.
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