A few years ago, an Indonesian farmer named Warga decided to make a career change. Warga, with help from the World Bank’s Water and Sanitation Program (WSP), launched his own business as a sanitation entrepreneur. Now he makes and installs toilets and septic tanks, serving the market in his community. “I am very happy with my life now,” he says. “Not only has my new business boosted my family income, but I am also helping make my village become healthier.”
Developing country governments and the international development community are looking for ways to accelerate access to improved water and sanitation services beyond the Millennium Development Goal targets of halving the number of people without access to improved water and sanitation. One source of the challenge is sheer numbers: 1 billion people still practice open defecation, 2.5 billion people use shared sanitation facilities or facilities that do not meet minimum standards of hygiene, and 768 million people lack access to safe drinking water.
To better examine the potential role of the domestic private sector in accelerating access, WSP and the International Finance Corporation (IFC) published Tapping the Markets: Opportunities for Domestic Investments in Water and Sanitation for the Poor. The report examines a select number of African, Asian and Latin American countries and lays out a vision for how the domestic private sector can scale up water and sanitation services to the poor. The study found that on-site sanitation services in Bangladesh, Indonesia, Peru, and Tanzania is a potential $US2.6 billion market out of which the poor make up a $700 million estimated market, while building and operating rural piped water systems could generate $90 million a year in Benin, Bangladesh, and Cambodia.
Governments, development agencies, and the business community all have critical roles to play in creating the conditions that help entrepreneurs like Warga develop sustainable businesses and increase access to water and sanitation services.
The Demand Side
Entrepreneurs need to understand what the consumer really wants. While price is an obvious important factor, it’s not everything. On the water side, households may have access to free alternative sources of water, including rainwater. People evaluate their options not just on price but also on convenience and access, as well as cultural preferences (surveys show that Cambodians prefer to drink rainwater). Price expectations also play a role. Bangladeshi consumers pay a low, flat rate for water, but the majority of households surveyed in the study indicated the tariffs they pay are still too high. Oversized, expensive systems in Benin translate into water fees that can exceed the affordability benchmark for a typical household’s monthly income.
On the sanitation side, people will make do with what they have, if what they really want is out-of-reach. Or, they will choose to spend their money on a higher-priority product like a mobile phone, which is viewed as ‘better value’ and often seen as a status symbol. In Bangladesh, 100 percent of poor families surveyed owned at least one mobile phone, an expenditure that costs twice the amount of a standard improved latrine/toilet. In Tanzania, 85 percent of the rural non-poor population is currently openly defecating or using open pits. Just because consumers don’t have improved sanitation doesn’t mean they will invest in it – even if they have the money.
The Supply Side
One reoccurring issue is the attitudes of many businesses towards serving the poor. While business attitudes on investing in poor areas varied from country to country, they were generally conservative. Firms believe it is too difficult and costly to serve the poor. Companies also lack incentives to enter harder markets with uncertain consumer demand. To a certain extent these challenges can be overcome by public sector and donor support for connecting poor households to the network.
The study showed that consumers prefer a turn-key sanitation solution, but individual companies typically work on only one part of the puzzle. They supply latrine components or offer construction or pit-emptying services. If consumers were offered a “one-stop” shop by firms that also had the financial, business and marketing knowledge to grow their business, the use of these services would expand significantly.
Unreliable power supply is a major barrier in the water sector, causing disruptions in service provision and inhibiting expansion to energy-poor areas. In all three countries studied, energy is the single largest element of operating costs, placing a large burden on the budgets of water companies.
On the sanitation side, entrepreneurs face capital cost issues outside their control. Cement and steel account for about 65 percent of the cost of latrine production in Tanzania, for example, and reducing costs means less material and lower durability and safety.
The study outlines a number of possible solutions, ranging from better intelligence on consumer preferences to policy reforms to capacity building for smaller firms that can then invest in poor, rural and peri-urban areas. In each country, policy makers, business groups, NGOs and others all have to work together to craft a set of approaches that delivers value to the poor.