Grown-up finance for the rural water sector

by , re-posted from Aguaconsult with thanks

The challenge of achieving the SDGs is upon us and with this concrete and short-term objective, the sector is finally taking the issue of financing more seriously, which is a very good thing but not before time. Whilst a few years ago finance was the privilege of a selected few, everyone is now talking about it; however, whether this is a case of better late than never still needs to be proven.

Last week, I chaired with interest the RWSN webinars on “grown up finance” for rural water supply. Kelly-Ann Naylor (UNICEF), Catarina Fonseca (IRC WASH), Sophie Trémolet and John Ikeda (World Bank) and Johanna Koehler (Oxford University) gave great presentations and here are my few take aways from the discussions:

The magnitude of the challenge is huge and greater than we probably think. We often hear about the figure of USD 114 billion to achieve SDGs 6.1 and 6.2, but this is only part of the story. This figure covers investment and maintenance of new services, but excludes the crucial maintenance of existing services and the broader sector support.

We know there is a huge funding gap and the current finance model will not fit the bill. Official Development Assistance (ODA) has not increased as much for WASH as it has for other sectors and concessional finance as well as domestic investments only accounts for a fraction of the required investments. The sector has the potential to attract other sources of finance, but we need to take a few steps.

We need to have an honest conversation about the exact magnitude of the challenge at national and district level to support planning and budgeting. This is taking place at national level as part of the SWA process in some countries, but only partially at district level. More robust data on service levels as well as cost of services, which are currently insufficiently researched, can help us in this direction, but we need to move faster.

We need to get better at understanding budgeting processes and supporting strategic multi-year budgeting both at national and district levels. Most countries are not very good at this at the moment and it has to change.

We need to advocate beyond the WASH sector and target more important political decision makers – Ministries of Finance and even the office of the president) to prioritise domestic investment in WASH and increase it through a larger tax base and increasing tariffs. Again, evidence will take us a long way in bringing politicians round the table.

We need to look at other sources of finance, particularly private finance to complement existing funding sources. Making the sector more attractive to private investment will be a necessary first step, but this will hinge on Governments playing a crucial role in strengthening the enabling environment and de-risking the sector. ODA, currently crowding the sector will need to focus on the riskiest segments and leave space for private investments to come in (e.g. stop lending to urban utilities and focus on rural water supply). Assessing sector entities’ performance and risk profile will be a necessary first step.

We need to start experimenting with innovative “blended finance” models, learn from them and adjust. Examples are already out there from Benin, where subsidised concessions are being tested; but also from Kenya and other countries.

After decades of ODA dependency, the WASH sector is slowly opening up to the real world of finance to reach its ambitious targets. This means being transparent and accountable, providing evidence of performance and better understanding what will incentivize the commercial finance world. A huge task ahead and surely a dramatic and positive change in culture!

Photo: Inspecting community-level financial records in Tajikistan (S. Furey)

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