Why even social entrepreneurs need strong government.
Published on: 24/01/2019
First off, a very happy new year to all of our readers and partners. I hope that 2019 will be full of professional and personal happiness and success!
Last week I spent an interesting couple of days talking safe (or small) water enterprises with a group of committed practitioners at Stanford University’s beautiful campus in Palo Alto. Not a bad way to kick off a new year – though the famed Californian sun was noticeable only by its absence. The small water enterprises are an exciting group of dedicated social entrepreneurs who are beginning to get some real traction providing high quality water to communities not served by utilities. For example, our friends at Safe Water Network recently announced that they are now serving more than a million people in India and Ghana.
If there’s a commonality to these organisations it’s a dedication to professional management and an unrelenting focus on the twin bottom lines of providing a high quality service while covering costs. On this latter point, although most aspire to attracting private funding and, eventually, achieving profitability (as a necessary precursor for attracting funding) the reality is that most are heavily subsidised through philanthropic or other sources, especially for capital investments.
Discussing why this is, and looking forward to our WASH systems symposium, now only seven short weeks away, I keep coming back to the systems level challenge faced by the enterprises and why they, and the similar private sector based sanitation enterprises, are struggling to scale despite often running fairly exemplary businesses.
At risk of oversimplifying – always a risk in 700 words – I think it’s that with their strong focus on getting the business side right at the level of the enterprise, most of these organisations are putting insufficient effort into getting the broader system right. A broader system that goes under many different names: the market; the enabling environment; the regulatory environment. In essence, most small water (and sanitation) enterprises operate in a legal and regulatory grey zone – outside of the regulated and utility provided mainstream. This, contradictorily, permits the flexibility to experiment with a wide range of tariff and business models, whilst providing an almost insurmountable barrier to growth. Why? Primarily because the reality of operating in a public social sector is that the ability to charge is strongly limited. As a result, getting close to recovering capital costs typically requires time-frames of 15 to 20 years. Yet few if any countries provide the legal and regulatory frameworks for small private operators to run secure concessions for this sort of time. As a result, small water enterprises therefore rely on a range of cobbled together, legally dubious, local agreements (typically with local governments). The result, as for so many other models for rural and informal WASH services supply - is that there is no viable model for “crowding in” the private capital that we are so often told is the only solution to meeting the WASH Sustainable Development Goals. After all, what private investor would provide a company with a 20 year loan where ownership of assets is unclear?
I came away from the meeting thinking that small water enterprises have much to offer the sector – not least in their focus on professionalisation and delivery of a quality service. But, that they are not immune from the hard systems level challenges of our sector: providing a service that is also a human right in a politicised and weakly developed regulatory and legal environment. It’s not that there isn’t room for the private sector to provide WASH services, it’s that the private sector faces the same systems level challenges as the public, municipal or community managed sector.
Addressing those challenges is, above all, the responsibility of governments (supported by their development partners). If small water and sanitation enterprises are trying to understand one part of the service provision part of the challenge, only government can provide the enabling environment needed to allow service providers to thrive – while holding them accountable. It’s this need to think across the different elements of service delivery that, to me, is at the heart of bringing a systems approach to WASH. And it will be at the heart of what we’ll be exploring – with a rich mix of government, development partners, service providers and other actors within the WASH system – at the symposium in March. Looking forward to seeing you there!
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