Published on: 20/04/2017
As we move into two packed days of intense ministerial discussion on water, sanitation and hygiene (WASH) in Washington DC, the focus will be squarely on finance. Specifically, how to bridge the huge financing gap that comes with the increased service levels embedded in the Sustainable Development Goal targets for WASH.
In their useful background paper for the Sanitation and Water for All (SWA) partnership’s bi-annual High Level Meetings the World Bank and UNICEF suggest that global expenditure on WASH will need to be three times greater than at present to meet annual investment needs of at least US$ 114 billion. Given historically low rates of both government investment and aid in WASH many see private commercial finance (and especially locally sourced commercial finance) as the only realistic option for filling the gap.
Yet there’s a problem, which to put it crudely is that WASH isn’t a particularly appealing investment. This isn’t because WASH isn’t important (it is) or doesn’t represent a great economic return on investment (it does). But because, if we’re honest, large sections of the WASH sector are chronically poorly governed, mismanaged and prone to political interference. As a result, they don’t inspire confidence in the sort of unspectacular but steady and dependable returns that local institutional investors like pension funds are looking for. A related challenge is that where higher and shorter term returns are to be found, it’s typically in providing services to the better off (who can afford to pay for them), yet achieving the WASH SDG is as much about equity as it is about higher service levels.
Our new position paper published today, co-authored by IRC, Water.org, the Dutch Ministry of Foreign Affairs and Simavi, to coincide with the High Level Meetings talks to these challenges, and in particular to the central role that Government needs to play in responding to them: through both leadership and finance. To cut a long story short, we argue that it is part of Government’s duty to the WASH sector to help make it attractive to private finance; as much as it is to ensure that what finance is secured is used to deliver services equitably. We propose that the way to do this is to invest public money in: strengthening key systems like planning, monitoring and regulation; guaranteeing (or removing the risk from) returns to private investors; and ensuring equity (including through targeted subsidy).
There’s a reason that utilities in rich countries have triple-A investment ratings and can relatively easily finance investment – it’s because they are typically well run, efficiently regulated and benefit from implicit or explicit guarantees from government. For utilities (or local government or communities) in poorer countries to benefit from private finance in a similar manner to their rich world cousins, the same conditions will need to hold.
The central message of the position paper is, thus, simple. In order to attract private finance necessary to achieve the WASH SDGs, Government leadership and public finance need to create an attractive investment environment.
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