There is no question that modern water and sanitation services are drivers to development. And it is the wealth generated by those services that will make them sustainable.
Published on: 28/03/2014
Modern water and sanitation services that are closed, clean, safe and on demand are irreplaceable drivers to development. The wealth indirectly generated by such services in turn is what will make them financially sustainable in the long term, and this is why these services should primarily be funded through public funding, complemented by transfers, for a limited period of time, and by tariffs. Tariffs, transfers and taxes cannot be interchangeable and need to be carefully set up. For example, tariffs should never exceed the expected wealth users will generate from the service they have access to.
A comprehensive financing strategy includes regulatory and financing mechanisms to ensure that the wealth generated by the development of WASH services is sufficiently reinvested in the sector to expand services for all.
When equipment only allows people to survive (ie provides a very rudimentary solution), such as a borehole equipped or not with a hand-pump, it hardly leads to development per se, but rather keeps people above the emergency line. When, 10 or 20 years later, the time comes to rehabilitate, redevelop or just improve these systems, insufficient capital has been accumulated from this initial investment, and development aid or transfers are once again required to cover these bulky costs.
There is however a solvent demand for modern water services that translate into genuine development. In a rural and poor region such as the Sahel in Burkina Faso, users can – directly through tariffs – pay to recover the operational and maintenance costs of a piped water scheme (Pezon, 2014). The impact on health, time saving and generation of revenue induced by this type of service is simply not comparable to lower levels of services. This is where water turns into wealth. And this is where users can contribute through tariff to the service they directly benefit from, and later on as tax payers to further develop services across their country.
A comprehensive financing strategy includes regulatory and financing mechanisms to ensure the wealth generated by the development of WASH services is sufficiently reinvested in the sector to expand services for all and accumulates enough capital to sustain services for future generations.
There is no question that large scale public finance investment must be done to achieve universal access to WASH, serving first areas where beneficiaries' wealth can rapidly be extracted to contribute to rolling out further investments and strengthening institutions. This is not a new idea and everyone knows for a fact that there is not a single country in the world where universal access had been achieved without large-scale public financing in both water and sanitation covering periods of time as long as one century.
It can be argued that this is quite a challenging process to go through in countries where tax systems and/or fiscal policies are embryonic, if at all in place. There are different ways of collecting taxes to invest in WASH, and in many countries water-connected users offer a larger tax basis than other taxes (from the formal sector only by definition - or commercial and industrial benefits, import/export, VAT, etc.). The main advantage of raising taxes through water bills is that it ensures an increase in public funds proportionate to the increase of connected users or water consumption: the more services expand, the more public funding is available to invest in water and sanitation infrastructure and institutions. Logically, you start where the cost per capita of supplying those services is the lowest and end the process with those more expensive to reach.
In the early 20th century, in a country like France, the majority of the population lived in rural areas and relied on wells or protected springs with no access to latrines. Collective infrastructure such as drinking troughs for cattle or washing places for clothes slowly started to emerge and the government only did more in rural areas when the rate of water-borne diseases outstripped the national average for three consecutive years. Various short-term rural infrastructure plans registered some progress in the provision of water services in the first half of the 20th century, but 13 million rural inhabitants were still to be provided with tap water.
In rural France, in the last villages serviced and where density was below 50 inhabitants per km2, the investment cost for the provision of tap water amounted to as much as €15,000 per household.
From 1953, a tax was raised on water-connected users. To begin with, this public fund was mostly used as a tax on urban users for rural purposes, for while all urban dwellers were served, only a third of the rural population was. However, as more rural households were connected and with the increased average of water consumption per capita, the basis of the tax enlarged and ensured increasing and reliable financing resources to cover the total population. Although this took place in a very favourable macro-economic context, it still took 35 years to achieve. In the last villages serviced and where density was below 50 inhabitants per km2, the investment cost for the provision of tap water amounted to as much as €15,000 per household.
Surely, they are many other tax-based mechanisms that succeeded in achieving universal access. In developing countries, public finance deserves more attention as a valid and primary funding source for WASH, both in time (first capital investment) and as an important political agenda.
Let's take the example of Burkina Faso. Burkina Faso is a West African land-locked Sahelian country, among the poorest in the world, with 78% rural population (12 millions) and only about 8% of water-connected users (1.25 million). Water-connected users already pay a tax in the form of VAT equalling to 18% of their bills. This tax amounts roughly to US$10 million in 2013. If fully directed to the WASH sector, this is enough to extend annually 160 small piped schemes in smaller towns and growing rural centres where the existing demand will shortly turn into 2,000 to 3,000 potential contributors per scheme to the national WASH fund. In four years, the funding available can cover the extension of all rural piped schemes in the country, providing good levels of service to 3 million people, with a portion gradually seeking private connections. The tax basis can thus grow from 1.25 million users to 4.5 million, and in 10 years, Burkina could have access to about US$40 million per year to invest in the provision of WASH services in rural areas. This amount equates to the total capital investment made in rural water supply in 2011, tax and development aid altogether. By ring-fencing the tax already collected on water-connected users and investing it in a way that makes each new beneficiary a future contributor, Burkina could already do much more than is currently done in the sector.