Tapping the Market: Opportunities for
Domestic Investment in Water and
Sanitation for the Poor
Crawford School of Public Policy
September 13 2013
Bob Warner
Jae So
@WSPWorldBank
09/11/2013
Slide 2
NA
SSA
LAC
EA
SAR
ME
Water supply
128
22
333
Oceania
13
35
599
31
1,005
170
E. Asia
484
SE. Asia
184 Sanitation
Source: JMP, 2012
13 17
35
35 118
333
333
599
31 22
31
1,005
170
128 484
184 71
4
SE.ASIA
4
2.5 billion people lack access to improved sanitation
780 million people lack access to water supply
A market out of exclusion
Slide 3
World Bank Group Goals
1. End extreme poverty by 2030
2. Boost shared prosperity for the
bottom 40%
Slide 4
Benin
Burkina Faso
DR Congo
Ethiopia
Kenya
Mozambique
Niger
Senegal
Tanzania
Uganda
Zambia
Bangladesh
India
Pakistan Bolivia
Honduras
Nicaragua
Peru
Cambodia
Indonesia
Lao PDR
Philippines
Vietnam
Support poverty reduction by helping countries and their people achieve
sustainable access to water and sanitation and safe hygiene practices
WSP’s Mission Leveraging Global Knowledge and Country Presence
SIX BUSINESS LINES
1. Scaling Up Rural Sanitation and Hygiene
2. Creating Sustainable Services through Domestic Private Sector Participation
3. Targeting the Urban Poor and Improving Services in Small Towns
4. Mitigating and Adapting WSS Delivery to Climate Change Impacts
5. Supporting Poor-Inclusive WSS Sector Reform
6. Delivering WSS Services in Fragile States
Slide 5
The study - questions We set out to understand what constrains more private supply to the poor
Questions:
1. ‘Is investment constrained by low market potential and a lack of demand?’
2. or, ‘Are firms not viable and their business models poorly adapted to take
advantage of the market opportunity?’
3. and, ‘How does investment climate affect the costs and perceived risks of
firms?’
Commercial Factors
Costs Perceived Risks
Firm’s
Investment
Decision
Investment Climate Factors
Slide 6
Introduction to the study
• Approach
• Findings
– Market potential
– Water
• Demand, supply, investment climate issues
– Sanitation
• Demand, supply, investment climate issues
Slide 7
The study – approach
Sanitation
Customer focus groups (682 people)
Enterprise surveys (109 firms)
Supply chain reviews
Country policy & regulatory analysis
Water
Customer focus groups (1,100 people)
Enterprise surveys (89 firms)
Supply chain reviews
Country policy & regulatory analysis
Six countries, seven country studies
On-site sanitation Rural piped water
schemes
Bangladesh Indonesia
Tanzania
Bangladesh
Benin
Cambodia Peru
Instruments
Slide 8
Market Potential - On-site Sanitation
8
As yet untapped market is $2.5 billion: with replacement worth $500 million a year
• In 4 study countries, present sales are estimated at $ 300 million per year
• Market drivers
Rising incomes and falling poverty
Urbanization
BGD:$452 million; 80% poor
INO: $1.7 billion; 11% poor
TNZ: $240 million; 30% poor
PER: $155 million; 40% poor
Slide 9
Market Potential - Piped Water
Market Potential – Piped Water
9
Present market supplied by private sector is large and projected to increase
Country Specific Market Drivers
BGD: Water Quality Issues
BEN: Public Investment in Systems for Lease
CAM: Demand, Service Gap
In 3 study countries
projected revenues
in current systems
will expand to
$90 million annually
by 2025
120 piped water schemes , 30% of total, privately
operated: approx. 500,000 people
In addition to 200,000 using 75 piped schemes , + 60 M
supplied through hand pump supply chains
1.4 M people rely on 370 piped schemes: outside Phnom
Penh, private operators provide 60% of piped connections
Slide 10
• Open defecation can statistically account for all of the India-Africa height gap
• Sanitation alone explains 54% of international variation in child height
• GDP only explains 29%
• Height predicts adult cognitive achievement and productivity
Source: Each data point is a collapsed DHS survey round (country-year),proportional to population. Spears (2012)
Sanitation affects stunting
Lack of sanitation has serious
consequences for generations
India
Piped Water
Slide 11
Demand
Demand for network water is price sensitive
• Competition from other sources
Households prefer a private connection, and will pay
for them if prices are reasonable
• Convenience, and longer availability is valued
Ability to pay water tariffs is not an issue except for
the extreme poor
Slide 12
Business model
Three distinct models • Benin – public investment and ownership, private operation, standpipes,
volumetric charging, regulated tariffs
• Cambodia – private investment, private operation, private metered
connections, volumetric pricing
• Bangladesh – co-investment, private or NGO operation, private un-metered
connections, flat monthly fee
System
design
capacity
large (over
design)
Fixed fees
based on
design
capacity
High levels
of
depreciation
High cost
hurdle per
unit volume
sold
High price,
low
consumption
Low
revenues,
leading to
poor
profitability
BEN
Flat rates
and no
metering
High
uncontrolled
consumption
Total cost of
operations
goes up
High O&M
cost, flat
revenues
Poor system
maintenanc
e & reliability
Poor
profitability BGD
System
quality not
optimal, but
low cost &
low
depreciation
O&M
practice
sub-optimal
Energy cost
high, low
labor cost
Strong
revenue
managemen
t
Offsetting
effects
Positive
profitability CAM
Firm profitability is underpinned by ‘cost-revenue’ structure that is determined by government policy and practice
Slide 13
Investment Climate
Policy matters, since it shapes the opportunities available to the private sector
Access to finance and financial sector lending practices are a constraint to
investment
Energy – cost and reliability – is a major issue
0 50 100 150
Electricity
Telcomms
Transport
No. of mentions as moderate to
severe obstacle
Energy Costs are Large
Labor, 47%
Energy, 39%
O&M, 14%
BGD
Labor, 45%
Energy39%
O&M, 16%
BEN
Labor, 17%
Energy, 65%
O&M, 13%
Rent, 5%
CAM
Slide 14
• Profitability is the key to sustainability
• Right sizing if public sector builds
• Private connections
• Appropriate pricing
• Affordability best pursued by helping poor people
connect, not by suppressing prices or forcing non-
preferred solutions
• Energy supply and pricing a priority
• Facilitating access to finance
Factors affecting expanded private
sector supply
Sanitation
Slide 16
$55
average spend/year
on mobile phone
Demand
Sanitation is low in the expenditure
priority of households, often cited
last in the list.
10th out of 10
8th out of 10
66h out of 6
Income is not a reliable predictor
of use of improved sanitation, and
having improved sanitation does
not mean the person is satisfied
Many poor households
can pay if the product
appeals and costs can
be spread over time
vs $30
average cost of a
hygienic pit latrine
17m use unimproved
Non-poor
39m defecate in open
Priority
Slide 17
Demand
• The problem seems to be that households do not find the readily available and affordable hygienic sanitation solutions to be very appealing
Slide 18
Business Model
Except in Peru, most firms found catering to the poor are micro-firms
with small investments and low turnover
• Only in Indonesia did a
majority of surveyed
enterprises see
sanitation as their main
line of business
• Only between 50%
(BGD) and 20% (INO) of
firms spent on
marketing; many relied
on word of mouth and
public programs
63%
19%
7%
11%
Micro < 5
Small <20
Medium < 100
Large > 100
Investments Unit Bangladesh Indonesia Peru Tanzania
Reports no 34 32 3 13
Minimum investment $ 335 21 2 222 286
Maximum investment $ 24 450 60 963 506 556 31 807
Mean investment $ 5 310 4 663 173 296 11 747
Distribution of Firms Surveyed by Size and
Investment
Slide 19
Technology
The prevailing technology is very simple and non-proprietary: not
readily susceptible to consumer oriented marketing
19
• 70s technology developed for
artisanal production
• Not amenable to mass production
and distribution, nor to branding or
coordinated marketing
• Limited scope to reduce prices to
increase sales: cement, steel, sand
are the main components of costs
Slide 20
Supply chain
Supply chain structure poses significant constraints to articulating a sanitation
value proposition for the poor. Requires a lot of coordination by the
household who may not have the appropriate information.
Supply Barriers
• Fragmented agents
manufacturing or supplying one
or more general component
• No commercial support between
vertical agents
• Inputs pass between agents for
whom sanitation is a small part of
business
• Availability and price of materials
driven by general construction
business
The Bundle
The poor looked to a bundle of
service that includes:
Aspirational product
Turnkey solutions including the
collection of sludge
‘Lay away’ support
Warranty
Better buying experience from
credible sellers offering options
Slide 21
Investment Climate
• The impact of current policies is limited – neither hindering nor
promoting private investments
• National sanitation policies tend do little with regard to private
provision of on-site sanitation
• Most sanitation enterprises fly under the radar of business regulation
• Transport emerges as the most severe obstacle to their business
Slide 22
Constraints lie in weak supply chains
and current technologies
• No agent invests in research, development
and marketing
• No vertical and horizontal integration
• High embedded cost of transport
• Results in high costs of coordination for poor
households
• Lack of affirmative policy towards private
provision may be acting as a hurdle to
engagement of enterprises with capacity to
come to grips with these problems
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