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More bang for your bucks

Published on: 18/11/2014

Governments, civil society and the private sector need to work together to make water and sanitation services available to everyone. IRC's event provided an opportunity to discuss how taxes can complement trade and tariffs and to learn from an innovative health insurance model in Africa.

As development aid flows decrease and sector ambitions increase, public finance is critical in achieving the post 2015 goal of providing universal access to water sanitation and hygiene. But, public finance- money derived from taxation- is not a popular topic. This needs to change. Recent OECD figures show that when governments invest, private sector investments increase as well. Across the African continent tax amounted to $US 527.3 billion, 10 times the volume of development aid. Still, in 32 African countries this equalled less than 1$ per person (See Catarina Fonseca’s presentation below). 

What can governments, donors and civil society do to support public revenue generation in developing countries and improve the way it is used? Guy Norman of WSUP stressed the importance of lobbying governments for more, equitable and efficient allocations for WASH and applying conditionalities to loans (See Guy Norman’s presentation below). 

Domestic Resource Mobilisation is the critical missing piece in the puzzle.

Public finance originates from taxes. It does not necessarily mean public service delivery. IRC believe in the mix public and private finance, entrepreneurs who serve ‘the bottom of the pyramid’ and technological innovations. “We want to find ways to intelligently apply subsidies without killing the market”, said Patrick Moriarty, CEO of IRC and event moderator on November 12th. Four panellists, Sjef Ernes (Aqua for All), Katina Gikas (Water Tech Trading B.V.), Pieter Walhof (PharmAcess Foundation) and Guy Norman (Water and Sanitation for the Urban Poor - WSUP) shared their experience and engaged with the audience about partnerships, taxes and innovation.  Watch this video impression of IRC's event on the role of public finance for reaching scale and sustainable water and sanitation services (12 November 2014)

Aqua4All play a matchmaker role between government, innovators and the private sector. Sjef Ernes sees water utility partnerships working by strengthening capacities of local utilities to professionally provide services and in turn making them more ‘bankable’ for private sector investors. The sector needs new business models and technologies too. According to entrepreneur Katina Gikas, success as an entrepreneur hinges on creating an economically sustainable product, but surviving the pilot phase of any innovation is a bottleneck. This is where public funding and development aid could really help. Once an innovation is proven, the private sector is more interested in stepping in.

Pieter Walhof described the PharmAccess Foundation's health insurance model which is powered by a partnership between the public and private sector. Starting in 1990s, PharmAccess has been in for the long haul and is now seeing fundamental change in the health sector. Important elements of this model include:

  • strong international coalitions between the public and private sector
  • a global fund backed by influential investors
  • a focus on solutions for scale and a shared vision for the future
  • agreements on leveraging investments and a shift from international to local financing over time
  • the importance of committed individuals with a shared agenda creating a powerful mix of political will, experience and entrepreneurial approach…and a willingness to take risks.

As Walhof explained, alignment, a shared vision and joint purpose are incredibly important. They also found that they were most successful in areas where there were few donors, because aid often distorts the market. Alongside Dutch development aid, they managed to attract international funders, including the World Bank, Goldman Sachs and the Bill and Melinda Gates Foundation. Once the insurance scheme started to prove its viability, African private sector players stepped in. African Governments needed more time to buy in to the approach. 

Dutch public private partnerships must also be used to leverage domestic funds for WASH and build partnerships with the private sector in developing countries, said Dick van Ginhoven of DGIS, the Dutch Ministry of Foreign affairs. WASH should look for synergy with other sectors too: Health insurance companies that are creating incentives for citizens to invest in toilets, fire insurance companies investing in water supplies. If electricity is in place, it is easier for entrepreneurs to find business opportunities in water and sanitation too.

Public finance for WASH has a critical role to play in three areas: 1) bridging the "pioneer gap" between piloting, proof-of-concept and taking innovations to scale, 2) covering aspects of services or reaching consumers which the market does not reach (e.g. certain aspects in faecal sludge management, or service delivery to the poorest and in remote areas), and 3) creating a favourable environment for private investment in new markets.

Are investments leading to observable change?

Walhof emphasised that successful models are about investing in the right people to catalyse change and associating positive change with their involvement. Whether it's new technologies, new business models or sector change, innovation takes time. Getting from proof of concept to private sector buy-in you might need a period of 7-10 years. 

With all this talk about taxes, the logical question is of course: what services are citizens getting in return? The lack of transparency and accountability unreliable and substandard services reduce people’s willingness to pay. So the water sanitation and hygiene sector needs to increase the willingness to collect and use taxes in a transparent and efficient way. In many developing countries, income inequality is rising despite economic progress. The call for strengthening domestic resource mobilisation must go hand in hand with better services and local governance; improving state-citizen compacts.

Domestic resource mobilisation must go hand in hand with better services and good governance. 

Taxpayers need to see their government is responsive to their needs. “You don’t start with taxes, you start with transfers” said Sjef Ernes. An IRC video interview with a national and a district level government representatives from Ghana shows the discrepancies between national and local levels and points to the need to strengthen domestic fiscal and financial systems.

How do you think we can convince ministers and politicians to pay more attention to domestic resource mobilisation? Can the private sector support development of domestic public finance systems? What can the WASH sector learn from other sectors? The floor is yours!

IRC sees governments as having a key role in smoothing the inevitable equities of the market. Together with WSUP and Trémolet Consulting we are launching an initiative to raise the profile of public financing for WASH and learning how it can be applied for maximum impact. Watch our site for more on this important topic. 

 

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