Download INVESTMENT IN WATER AND SANITATION IN ETHIOPIA MAKES

ETHIOPIA
BRIEFING: ECONOMIC IMPACT OF
WATER AND SANITATION
INVESTMENT IN WATER AND
SANITATION IN ETHIOPIA MAKES
GOOD ECONOMIC SENSE
FAILURE TO INVEST HAS
MASSIVE COSTS
Economic studies conducted in Africa
have shown that impacts resulting from
This briefing note, intended for the
Ethiopian Ministry of Finance, sets out the poor sanitation and hygiene cost the
economies between 0.9% and 2.4% of
case for increased investments in water
annual Gross Domestic Product
supply and sanitation and higher
(GDP)a. This translates approximately
prioritization for the sector when budget
US$ 10 per capita per year. These figures
allocation decisions are made. The need
for water and sanitation is fundamental to reflect the a) adverse health effects
associated with poor sanitation and water
all citizens, and increased coverage of
supply, b) costs of treating these health
these essential services will significantly
contribute to population welfare as well as problems, c) loss of productivity that
results when individuals are sick and
the wealth and stability of Ethiopia.
others have to care for them, and d) time
spent to access services (see Figure 1).
Figure 1: Cost, as a proportion of
These estimates do not include the costs
selected African countries’ annual GDP, of
associated with environmental impacts
not investing in improved sanitation
(e.g. polluted water) and the adverse
Niger
impacts on tourism and business.
Chad
Liberia
Burkina Faso
Ghana
DRC
Benin
Zambia
Nigeria
Mozambique
Mauritania
CAR
Uganda
Sudan
Congo
Malawi
Tanzania
Madagascar
Rwanda
Kenya
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
% of GDP
Source: WSP, 2011, 2012.
The impact of poor sanitation on Ethiopia’s GDP
is expected to be significant
a
An important contributor to these costs is
child mortality: the World Health
Organization (WHO) estimates that
diarrheal diseases caused the deaths of
around 85,000 children under five years
old in Ethiopia in 2008. The indirect
effects of malnutrition – to which poor
water and sanitation contribute 50%
according to WHO – cost a further 3,800
lives. Malnutrition is widespread in
Ethiopia, as evidenced by high rates of
moderate and severe stunting and
underweight in children under five: 51%
and 12%, respectivelyb. Studies have
World Bank, Water and Sanitation Program. 2011, 2012. www.wsp.org
“Tracking progress on child and maternal nutrition. A survival and development priority”. UNICEF. 2009.
“Environmental health and child survival: epidemiology, economics and experience”. Acharya A, Paunio M and Ahmed K. World Bank: Washington DC. 2008.
d
Healthy Life Years (HLY) are defined as ‘a year of life lived in full health’. They make it possible to compare different health interventions.
e
Figures refer to WHO AFRO region, epidemiological sub-stratum E: “Estimating the costs and health benefits of water and sanitation improvements at global level”. Haller
L, Hutton G and Bartram J. Journal of Water and Health 5:467-80. 2007.
f“
Economic assessment of sanitation interventions in Southeast Asia”. World Bank, Water and Sanitation Program. 2012.
b
c
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BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
shown that malnutrition leads to lower
school productivity and work productivity
from impaired cognitive function and
learning capacity c.
Other benefits of improved water and
sanitation rarely captured in economic
studies are ‘intangible’ impacts, so-called
because they are difficult to measure.
These include dignity, comfort, privacy,
WATER AND SANITATION ALSO
security, and social acceptance. Water
OFFER NON-MONETIZED
and sanitation at schools can improve
BENEFITS
school enrolment, attendance and
There are also other benefits which create completion, and at the workplace can
powerful arguments to invest in water and increase female participation in the
workforce. Hence water and sanitation
sanitation: health cost-effectiveness,
promote social equality and economic
safety and security, less water pollution,
greater dignity and equality between men growth.
and women, nutrient reuse, tourism, and
Emerging evidence suggests that if a
business.
country like Ethiopia has a reputation for
In Africa, the cost of basic water and
sanitation has been estimated at US$ 534
per Healthy Life Year gained de. When a
cost per Healthy Life Year gained is below
three times the GDP per capita of a
country, the intervention is deemed by the
WHO as a cost-effective use of health
budgets. In Ethiopia, where GDP per
capita is US$ 345, a strong argument
exists for investing health budgets in
water and sanitation. When, in addition to
improving access to water supply,
interventions are added to improve water
quality by treating it at the point that it is
used, the cost-effectiveness is even more
favourable, approximating those of other
preventive health interventions such as
those commonly used against malaria and
HIV/AIDS.
poor environment, polluted water and an
unhealthy workforce, it can affect its ability
to earn foreign currencies, and hence
hinder economic growthf. Furthermore, as
the effects of climate change are felt –
with increased predictions of extremes
such as flooding and droughts – it will
become even more important to invest in
resilient water supply and sanitation
systems.
IMPROVEMENTS TO SANITATION
AND WATER YIELD MASSIVE
RETURNS ON INVESTMENT
Economic returns on water and sanitation
projects are highly favourable (see Figure
2). Average rates of return exceed 20%
annually on over 60 projects of
development banks in Africa g. Several
1
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A new global study estimates the benefitcost ratio of investments in water supply
and sanitation for Ethiopia, which took into
consideration health improvements and
time savings. The economic benefits are
estimated to be 1.7 times the costs for
water supply and 3.0 times the costs for
sanitation (see Figure 3)l. Indeed, the
case for investment becomes even more
compelling when one considers that these
results underestimate economic benefit as
Benefit-Cost Ratio
projects supported by the development
Figure 3: Benefit-cost ratios (BCR) of
banks in Ethiopia have high rates of
return, with 15% in an urban projecth, 20% sanitation and water programmes in
5.0
in the nation’s capital Addis Ababai, 21%
4.5
j
for a national programme and 38% in a
4.0
3.5
rural projectk. Such rates of return are
3.0
attractive for sectors which are not
2.5
2.0
traditionally seen as productive.
1.5
1.0
0.5
0.0
Low
Mean
Water supply
Economic rate of return (ERR)
40%
35%
Mean
High
Sanitation
they do not take into account a range of
other health and non-health benefits
associated with improved water and
sanitation.
The average economic rate of return on sanitation and water exceeds 20 per cent.
45%
Low
Water and sanitation programmes have highly
favourable benefit-cost ratios
Figure 2: Annual economic rates of return (ERR) on sanitation
and water programmes in selected African countries (%)
50%
High
The costs of
investments in
better sanitation and
water supply are offset by the benefits
that accrue in other
sectors, such as
health, water
resources, tourism
and employment.
30%
25%
20%
15%
10%
5%
W- Water
S- Sanitation
U- Urban
R- Rural
Ethiopia US
Lesotho UW
Uganda UW + US
Niger UW + US
Senegal UW + RW
Burkina Faso UW
Chad RS
Madagascar RW + RS
Ghana UW + US
Malawi RW + RS
Sierra Leone UW
Senegal W + S
Burundi UW
Côte d'Ivoire W + S
Guinea W + S
Niger RW + RS
Mozambique UW + US
Chad RW
Lesotho W
Ethiopia UW + US
Liberia UW + US
Uganda UW + US
Uganda UW + US
Niger RW + RS
Angola UW + US
Mozambique RW + RS
Mozambique RW + RS
Angola W
Burkina Faso UW
Tanzania RW + RS
East Africa W + S
Mozambique UW + US
Cameroon UW + US
Comoros W + S
Ethiopia UW + US
Kenya US
Uganda W + S
Ghana RW + RS
Tanzania RW + RS
Ethiopia W + S
Gambia RW + RS
Ghana UW
Zambia W + S
Tanzania UW + US
Zimbabwe UW + US
CAR W + S
Rwanda RW + RS
Nigeria RW + RS
Ghana RW + RS
Kenya UW + US
Rwanda RW + RS
Sierra Leone UW + US
Congo UW + US
Congo US
Senegal US
Kenya W + S
Ghana RW
Zambia RW + RS
Burundi RW
DRC UW + US
Congo UW
Chad UW
Nigeria UW + US
Zambia W + S
Senegal RW + RS
Tanzania RW + RS
Cameroon RW + RS
Ethiopia RW + RS
Congo UW
Uganda UW
Guinea-Bissau UW
0%
Programmes
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BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
SIGNIFICANT INVESTMENT IS
NEEDED IN SANITATION AND
WATER SUPPLY COVERAGE IN
ETHIOPIA
Large numbers of people in Ethiopia lack
access to basic sanitation and water
supply. One of the UN Millennium
Development Goal (MDG) targets is to
halve, by 2015, the number of people who
lack access to these services. According
to data compiled by the WHO/UNICEF
Joint Monitoring Program (JMP), the rate
of progress towards achieving this target
in Ethiopia is such that the water target
will be reached but that the sanitation
target will not be reached by 2015m. The
Government of Ethiopia’s own targets for
2015 are considerably more ambitious, at
98.5% coverage of both water supply and
sanitation in 2015.
Since 1990, there has been little change
in sanitation coverage in Ethiopia –
despite the fact that sanitation coverage
has increased by 8 percentage points, this
is insufficient to meet the targets. The
results of recent national sanitation
programmes has not translated into
increased coverage due to lack of up-todate national surveys, and also because
JMP does not count ‘basic’ technology
options. Based on the most recent
estimates of sanitation coverage in 2010,
Ethiopia needs to increase sanitation
g
coverage from 29% to 61% in urban
areas, and from 8% to 51% in rural areas
to meet the MDG sanitation target in
2015. In rural areas access to safe water
needs to increase by 3 percentage points,
and in urban areas the water target has
been reached (see Figure 4).
Even if Ethiopia meets the MDG target in
both rural and urban areas, 49% of the
rural population and 39% of the urban
population would remain without access to
improved sanitation; and 50% of the rural
population would still be using unimproved
sources of drinking water. Equity in
achieving the MDG targets is important,
not only because the poorest households
are least able to invest in their own
facilities, but also because they have the
most to gain due to their heightened
vulnerability to adverse health outcomes.
Therefore, additional efforts and
resources are needed to ensure the
poorest and most vulnerable are reached.
GOVERNMENT INVESTMENT IS
AN IMPORTANT PART OF THE
FINANCING OF WATER AND
SANITATION
Investment needs in Ethiopia are sizable,
and considerably greater than current
government spending. However, recently
there has also been a significant increase
in financial resources committed to the
sector.
Based on a special survey conducted for Sanitation and Water for All in 2012.
World Bank. Project appraisal document on a proposed credit in the amount US$ 65.0 million equivalent and a proposed grant in the amount US$ 35.0 equivalent to the
Federal Republic of Ethiopia for an urban water supply and sanitation project. 2007.
i
World Bank. Project appraisal document on a proposed credit in the amount US$ 65.0 million equivalent and a proposed grant in the amount US$ 35.0 equivalent to the
Federal Republic of Ethiopia for an urban water supply and sanitation project. 2007.
j
World Bank. Project appraisal document on a proposed credit in the amount US$ 100.0 million equivalent to the Federal Republic of Ethiopia for water supply and
sanitation project. 2004.
k
African Development Fund. Ethiopia. Rural water supply and sanitation programme. Appraisal Report. 2005.
l
“Global costs and benefits of drinking-water supply and sanitation interventions to reach the MDG target and universal coverage”. World Health Organization. 2012.
h
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Figure 4: Water and sanitation coverage,
1990 – 2010, and projection to 2015 (%)n
100
98
89
77
Coverage (%)
80
60
61
47
51
50
40
29
21
20
8
1
0
0
1990
1995
2000
2005
2010
Sanitation rural
Sanitation urban
Water rural
Water urban
2015
Compared to current or anticipated
financing, a major share of the costs of
meeting the water target is expected to be
met, with a significant contribution (US$
169 million annually) anticipated from
domestic and external public sources.
Households are expected to contribute
US$ 73 million. Hence the capital
expenditure deficit is US$ 24 million
annually.
Year
Progress towards the targets for sanitation in
Ethiopia has stalled and a significant increase in
investment is required
A number of studies have
sought to estimate how
much it costs to improve
access to sanitation and
water supply. In
Investing in
2009/10, the Ministry
sanitation and water
can help Ethiopia both
of Water Resources
improve health and
of the Government
tackle economic
challenges.
of Ethiopia
estimated capital
expenditure financing
needed to achieve the
government’s own water targets at US$
260 million per yearo. Financing estimates
were not made for sanitation. The Ethiopia
Country Status Overview in 2009-10p
estimated the annual capital expenditure
m
requirements for sanitation are US$ 795
million per year.
Sanitation, on the other hand, is
anticipated to receive under US$ 50
million annually from public sources, and
hence the annual shortfall from public
sources of US$ 745 million will need to be
met from household sources. In
sanitation, the national policy is one of
increasing coverage through promotion of
sanitation and hygiene behavioural
change, rather than by offering public
subventions for household sanitation
facilities.
As noted by the Civil Society
Organisations (CSO), the assumptions
of public sources of investment funds may
be overoptimistic given the low levels of
budget utilization in donor programmes. In
recent years the combined utilization rate
amongst major donor programs was
below 50 percent.
World Health Organization and United Nations Children’s Fund Joint Monitoring Programme (JMP) for Water Supply and Sanitation. Coverage estimates for 2010.
The rural – urban target breakdowns presented here are not official JMP data, but are used to indicate what progress is needed in rural and urban areas separately to
meet the global MDG target. National targets are also provided for comparison.
o
Plan for Accelerated and Sustainable Development to End Poverty (PASDEP-2). 2009/10.
p
An initiative led by the African Ministers' Council on Water (AMCOW) “Water supply and sanitation in Ethiopia. Turning finance into services for 2015 and beyond.” An
AMCOW Country Status Overview.
3
n
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BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
These cost estimates are for meeting the
Government of Ethiopia’s own target of
98.5% coverage by 2015. This requires
improved access to be extended to an
additional 6.65 million water users per
year and 10 million sanitation users per
year, mainly in rural areas. The costs of
meeting the MDG target would be
considerably lower, given that in rural
areas the target is approximately 50% for
both water supply and sanitation.
Importantly, as well as hardware costs,
financial planning has to take into account
program costs (program establishment,
population sensitization, monitoring,
evaluation) which can be significant, but
are largely excluded from the above
estimates due to a lack of data. A rough
estimate made by the CSO puts the total
anticipated investment for sanitation
promotion at around US$50 million per
year. These funds will need to be
safeguarded, and utilized efficiently, to
successfully promote sanitation amongst
the rural population remaining without
sanitation access.
In addition, future operation and
maintenance commitments need to be
considered in selecting interventions to
invest in now, given the high percentage
of system failure when operations and
management costs are not considered.
The estimated annual operating expenses
of US$ 104 million for sanitation and US$
82 million for water will need to be met
largely by the user. If any of these
expenses have to be covered from public
budgets it will reduce the amount
available for capital expenditure
SOME WASH INTERVENTIONS
ARE MORE COST-EFFECTIVE
THAN OTHERS
Recent evidence shows variation in
economic returns from different
technologies and approaches. For
instance, in rural areas, improved pit
latrines provide the best value for money,
as they are generally low-cost, longlasting, and provide a range of
quantifiable benefits. The findings from
the World Bank Economics of Sanitation
Initiative (ESI) showed that pit latrines had
a more favourable benefit-cost
performance than septic tanks in rural
areas of selected countries. Findings were
similar in urban sites of the same
countries.
The ESI study found that technologies
that ensure the complete isolation or
treatment of human excreta have the
highest health and environmental benefits.
However, these technologies usually cost
more. Furthermore, when selecting
sanitation solutions, decision makers
should bear in mind that well-functioning,
simple technologies can provide better
services than poorly performing “high-
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BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
tech” systems. Hence capacity building
should focus on service delivery and not
just technology, and investments should
only be made in higher level technologies
if the funding mechanism is available to
operate and maintain the service over the
full life-span of the technology.
RECOMMENDATIONS
The recommendations for Ethiopia are as
follows:
1. Policy: Implement policies that lead
to increased public and private
spending on water and
sanitation services,
especially sanitation, in
areas where the country
is most off-track. This
Governments have
includes a focus on
an important role to
play in catalysing
increasing demand
investments from other
for services among
sources, including the
private sector.
the population
through sensitization
and marketing
campaigns, which will encourage
households to invest.
3. Sustainability: Ensure funds and
mechanisms are in place for adequate
operations and maintenance in order to
sustain services, avoid wasted
investments and maximize costeffectiveness of services.
4. Targeting: Provide additional support to
increase access for the poorest and most
vulnerable households, to ensure socioeconomic benefits are spread equitably
among the population.
5. Maximizing Efficiency: Seek to
maximize efficiency gains through largescale implementation, ongoing monitoring
and evaluation, and improved knowledge
management.
2. Scaling-Up: Focus scaling-up efforts on
the most affordable and sustainable
services that have proven health and
environmental benefits, and for which
there is demand.
4