Access to improved water source in a developing country

Very recently, I had to write a policy essay as part of the application process to an American University. I chose to focus on a problem that is common to many Sub Saharan countries: water provision. Although it is relatively large, I guess it could be posted here (of course, I'm open to any comments and criticism of the opinions expressed). Goal number 7 of the United Nations Millennium Development Goals (MDG’s) is to Ensure Environmental Sustainability and one of its targets is to halve, by 2015, the proportion of the population without sustainable access to safe drinking water and basic sanitation. While, overall, the world will be able to meet or even exceed this target if it maintains its current trend, progress in this area has been uneven, with Sub-Saharan Africa (SSA), for instance, clearly failing this target – according to the African Development Bank (Stampini et al. 2009), coverage of improved drinking water improved from 49% in 1990 to only 58% in 2006. Universal access to safe drinking water, besides satisfying basic needs, carries several positive externalities, such as health improvements, which in turn reduce illness rates and mortality, thus reducing medical costs and enhancing productivity (Dagdeviren and Robertson 2009). Having water access nearby also allows for reducing the time burden faced by women, who generally spend more time on domestic work (Costa et al. 2009), thus allowing them to spend more on remunerated activities, on leisure, or attending school (Costa et al. 2009; Hailu and Tsukada 2009) – in either case, contributing to gender empowerment. It comes as no surprise, then, that returns from water coverage are very large, ranging from US$3 to US$34 for each US$ invested (Hailu and Hunt 2008; Dagdeviren and Robertson 2009). Such large externalities (and returns) further stress the importance of extending water coverage. Zambia is a case in point. Although data on water access differs – World Bank (2006) estimates water supply coverage decreased from 73% in 1990 to 53% in 2005, while other sources point to a slow progress, from 50% in 1990, to 54% in 2000 (the year MDG’s were established) and 58% in 2006 – it is clear that, whichever data source is used, at the current rate, Zambia will fail to attain this particular goal of the MDG’s by 2015. Zambia opted for fully public water provision until 1989 when the central government, confronted with its budget problems, opted to initiate commercialization process, thereby beginning the process of creating 10 municipal utilities that were commercially run, though publicly owned (Chisala et al. 2006). With commercialization of water provision, full cost recovery became the main goal. However, this policy, while prioritizing cost recovery, produced results that can be portrayed, at best, as weak:

• Tariff hikes of between twofold and eightfold in real terms mean that water is unaffordable (considering a threshold of income spending on water of 3%) for 60% of the population (Dagdeviren and Robertson 2008);
• Despite tariff increases, cost recovery was not attained by any of the 10 utilities (Chisala et al. 2006);
• Persistent underinvestment in water and sanitation sector – between 1998 and 2002, investments were less than 3% of what was required just to maintain existing access rates (Dagdeviren and Hailu 2008);
• Also as a result of underinvestment, major inefficiencies persisted, with water losses representing about 50% of total supply (during the commercialization period) and 25% of the billed amount remaining uncollected (Dagdeviren and Hailu 2008).

Privatization and commercialization were also pushed by donors and International Financial Institutions, although some now recognize that they made a mistake, with the OECD recognizing privatization’s weak results in SSA, while the World Bank now accepts that private participation in infrastructure had been disappointing and that case specific solutions are required, as opposed to universal solutions (Bayliss and McKinley 2007; Hall and Lobina 2009). Privatization does not necessarily yield bad results. However, where it worked, it relied on some basic features:

• Current developed countries (e.g., USA or UK) did not develop their water systems through full cost recovery and only privatized water provision when access had already reached 100% (much higher than Zambia’s; Hailu 2008) and when their real GDP per capital was much larger than that of Zambia today;
• Even today, the EU continues to support investment on water improvements in its poorer members (Hall and Lobina 2009), any of which is still vastly richer than Zambia;
• Brazil has successfully opened up the water sector to private participation, with the positive outcome apparently coming from contract design (which included investment obligations, for example) and from the existence of staff capable of monitoring and enforcing such contracts (Rossi de Oliveira, 2009). Despite some progress, Zambia still suffers with poor contract design and lack of regulatory capacity (Dagdeviren and Robertson 2008).

It seems clear that, in a low income country with limited coverage, the emphasis should not necessarily be on privatization (or commercialization) and full cost recovery, since that will almost certainly keep the poorest sectors of the population excluded (by not extending coverage and/or by making tariffs so expensive that they become unaffordable). It appears to be what happened in Zambia, trapped in a vicious circle of unaffordable tariffs, low coverage, low investment and high system losses. Therefore, opting for public provision might be the best option available, but even if they should decide to continue with commercialization, some steps should be taken:

1. Contracts should set clear accountability systems, besides penalty and incentive schemes that are indexed to performance, while also setting the obligation to serve the poorest segments of the population, placing emphasis on extending affordable coverage (through the use of progressive tariffs, or income-based subsidies or cross-subsidy that specifically and efficiently target the poor), which would also allow to absorb network benefits (Brown 2009);
2. Institutional framework improvement, both through the clear establishment of laws and rights and through the human resource training that allows the regulator to actually enforce existing contracts;
3. At best, the measure set out in 1. would likely allow for covering variable costs. Therefore, the Zambian government would still need to find a way for financing the construction of infrastructure that would allow it to expand water access. Although its public debt level is low (under 25% of GDP in 2009), it is unclear whether it would be able to secure the required funds without compromising other crucial areas for its development. Therefore, infrastructure expansion would likely be dependent on external aid. Unfortunately, Zambia (and many other low income countries plagued by both very high poverty rates and inequality) seems to be highly dependent on that factor to be able to break the existing vicious circle that dooms the poorest segments of its population.