The value of improved water supply to microenterprises in sub-Saharan Africa : the case of Wobulenzi and Lugazi, Uganda

Micro and small enterprises contribute in many ways to economic development in less developed countries. They provide self-employment opportunities for the poor and use labor-intensive technologies; use and develop local human capital; provide economic opportunities for women; and encourage "bottom-up" development approaches, They also help to diversify agricultural economies, develop new skilled and productive activities, reduce dependence on direct foreign investment and vulnerability to world prices, and slows down urban slum development by creating economic opportunities in secondary towns. In five countries in Southern Africa, 40% of new employment was attributable to small enterprises. In Uganda, 90% of all non-farm, private sector workers, some 1.5 million people, work in about 800,000 micro and small enterprises. To better understand the importance of improved water supply to micro and small enterprise, the researchers carried out a comparative survey among owners and managers in a town with an improved water supply, Wobulenzi, and a comparable town, Lugazi, which still depends on traditional surface water sources.

Objectives were (1) to determine current patterns of water use and levels of
expenditure on water supply by small enterprises in the two towns; (2) to develop and test a methodology to assess the value of improved water supply to small enterprises in sub-Saharan Africa; and (3) to explore the impacts of improved water supply on micro-enterprises in Wobulenzi. Most businesses in the study were not directly water related. They were shops selling foodstuffs or dry goods such as clothing, household utensils, stationery, and bicycle parts, or provided equipment repair, photo processing, health and beauty services. Most had 1-2 employees (often the owner and spouse). One in five to one in three businesses operate from private dwellings.

The constraint posed by water supply is the strongest difference in the experienced environment for future development. For the majority of Wobulenzi firms the cost and the quality of water supply is "not at all a constraint". Lugazi firms view water supply, especially its cost, as one of the greatest obstacles to their growth, after access to financing and before quality of electric service). Prior to the implementation of the Small Towns Water and Sanitation Project in Wobulenzi, firms relied on water vendors. They paid an average of 175 Shillings (0.13 USD) per jerrican, roughly 17% higher than current price in Lugazi. Those who now patronize the water kiosks enjoy a water price 86% that is lower than before the project. Moreover, the average price of vended water in
Wobulenzi has fallen 43%; this could be a result of increased competition from kiosks, of
decreased delivery costs for vendors, or both. The authors did not include the value of time and energy savings in water collection. Respondents said these savings were low, as they often had to spend up to half an hour to find a vendor when they wanted a water delivery. Most enterpreneurs spent between 2 and 3 minutes when collecting water from a kiosk or standpost, and 10 minutes from a borehole.

The main experienced impact of the improved water supply in Wobulenzi was improved reliability and/or reduced costs of water supply (56% of the entrepreneurs). Although for most firms expenditures on water are a small part of their budgets, the savings can translate into important economic effects for firms operating on slim profit margins. In one typical example, the savings would work out into a 24% increase in profit over the 1-1, 5 year of the water supply. The second most frequent impact, for 18%, was increased production or sales. Some 13% said that demand for their firm's goods or services had increased. Most attributed this to their use of higher quality water (e.g., in a butcher's shop or a health clinic) rather than to households having greater disposable incomes because of lower water prices. Another 8% said they introduced new goods or services. For example, several dry goods dealers had begun selling beverages. Amounts of water used had not increased much, both when reported by the firms and when comparing water consumption in the two towns.

The policy underlying installed water supply was to follow the demand of the users. This demand was highest for agency-operated kiosks. The agency assumed that some firms and private households would begin to install private connections and start selling water. Other than the water sold from kiosks, this tariff was not subsidized. The growing income from these private 'kiosks' would enable the company to de-commission subsidized kiosks. This has not happened because the utility offered house connections only after installing many kiosks, asking lump sum down payments for connections and subsidizing the price of agency kiosk water too much to make private kiosks worthwhile. The utility now has to raise the cost of kiosk water to remain solvent.

Even when applying these lessons for Lugazi, its firms would still not want private connections given their needs and conditions. Most firms work from rented, rather than owned premises and legal rights and duties of owners and renters are not firmly established. Many firms are young; they operate on narrow margins, do not a 24-hrs in-house supply for their own operations, and prefer to buy per unit to avoid large debts at the close of each month.

The authors conclude that the benefit of improved water infrastructure relative to other types of small enterprise support is an important area for future research, so that national and donor finances are used to greatest effect for small businesses. They recommend timeline studies of different firm sizes, types and settings.
(abstract by Christine van Wijk, senior professional officer, IRC)