Download Briefings on the Economic Impact of Water and Sanitation

GHANA
BRIEFING: ECONOMIC IMPACT OF
WATER AND SANITATION
INVESTMENT IN WATER AND
SANITATION IN GHANA MAKES GOOD
ECONOMIC SENSE
This briefing note, intended for the Ghanaian Ministry of Finance,
sets out the case for increased investments in water supply and
sanitation and higher prioritization for the sector when budget
allocation decisions are made. The need for water and sanitation
is fundamental to all citizens, and increased coverage of these
essential services will significantly contribute to population welfare
as well as the wealth and stability of Ghana.
Type of Impact
Figure 1: Cost, as a proportion of Ghana’s annual GDP, of not investing
in improved sanitation, by impact
An important contributor to these costs is child mortality: the
World Health Organization (WHO) estimates that diarrheal
diseases caused the deaths of around 6,300 children under five
years old in Ghana in 2008. The indirect effects of malnutrition –
to which poor water and sanitation contribute 50% according to
WHO – cost a further 900 lives. Malnutrition is widespread in
Ghana, as evidenced by high rates of moderate and severe
stunting and underweight in children under five: 28% and 9%,
respectivelyb. Studies have shown that malnutrition leads to lower
school productivity and work productivity from impaired cognitive
function and learning capacity c.
WATER AND SANITATION ALSO OFFER
NON-MONETIZED BENEFITS
There are also other benefits which create powerful arguments to
invest in water and sanitation: health cost-effectiveness, safety
and security, less water pollution, greater dignity and equality
between men and women, nutrient reuse, tourism, and business.
Access time
Health mortality
Health productivity
Health care
0.0%
0.5%
1.0%
1.5%
% of GDP
Source: WSP, 2011.
The impact of poor sanitation on Ghana’s GDP is significant
FAILURE TO INVEST HAS MASSIVE
COSTS
An economic study conducted for Ghana has shown that impacts
resulting from poor sanitation and hygiene cost the economy of
Ghana 4.1 Trillion Cedi (US$ 290 million) per year, or the
equivalent of 1.6% of annual Gross Domestic Product (GDP)a.
This translates to an average 172,000 Cedi (US$ 12.2) per capita
annually, or 197,000 Cedi (US$ 13.9) per unserved inhabitant.
These figures reflect the a) adverse health effects associated with
poor sanitation and water supply, b) costs of treating these health
problems, c) loss of productivity that results when individuals are
sick and others have to care for them, and d) time spent to access
services (see Figure 1). These estimates do not include the costs
associated with environmental impacts (e.g. polluted water) and
the adverse impacts on tourism and business.
In Africa, the cost of basic water and sanitation has been
estimated at US$ 510 per Healthy Life Year gainedde. When a cost
per Healthy Life Year gained is below the GDP per capita of a
country, the intervention is deemed by the WHO as a highly costeffective use of health budgets. In Ghana, where GDP per capita
is US$ 627, 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.
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,
security, and social acceptance. Water and sanitation at schools
can improve school enrolment, attendance and retention,
providing security especially for girls to stay in school; and at the
workplace can increase female participation in the workforce.
Hence water and sanitation promote social equality and economic
growth.
Emerging evidence suggests that if a country like Ghana has a
reputation for 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.
“Poor sanitation costs Ghana 4.1 trillion Cedi each year”. World Bank, Water and Sanitation Program. 2011. www.wsp.org
“Tracking progress on child and maternal nutrition. A survival and development priority”. UNICEF. 2009.
c
“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.
a
b
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GHANA
BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
IMPROVEMENTS TO SANITATION AND
WATER YIELD MASSIVE RETURNS ON
INVESTMENT
Figure 3: Benefit-cost ratios (BCR) of sanitation and water programmes in
Ghana
8.0
Benefit-Cost Ratio
7.0
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.
Economic rates of return in Ghana have been measured, from
12% in small towns h to 21% in an urban water projecti, while the
rates of return in three rural water and sanitation programmes are
21%j, 23%k and 26%l. Such rates of return are attractive for
sectors which are not traditionally seen as productive.
6.0
5.0
4.0
3.0
2.0
1.0
A new global study estimates the benefit-cost ratio of
investments in water supply and sanitation for Ghana, which
took into consideration health improvements and time savings.
The economic benefits are estimated to be at least 4.1 times the
costs for water supply and at least 2.1 times the costs for
sanitation (see Figure 3), under the most conservative cost
assumptionsm. Indeed, the case for investment becomes even
more compelling when one considers that these results
underestimate economic benefit as they do not take into account
a range of other health and non-health benefits associated with
improved water and sanitation.
0.0
Low
High
Water supply
Low
Mean
High
Sanitation
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%
45%
40%
35%
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%
0%
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 +…
Chad RW
Lesotho W
Ethiopia UW + US
Liberia UW + US
Uganda UW + US
Uganda UW + US
Niger RW + RS
Angola UW + US
Mozambique RW +…
Mozambique RW +…
Angola W
Burkina Faso UW
Tanzania RW + RS
East Africa W + S
Mozambique UW +…
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 +…
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
Economic rate of return (ERR)
Mean
Programmes
The average economic rate of return on sanitation and water exceeds 20 per cent.
g
Based on a special survey conducted under the Sanitation and Water for All in 2012.
World Bank. Project paper for a proposed additional financial credit in the amount US$ 15.0 million equivalent to the Republic of Ghana for a small towns water supply
and sanitation project. 2009.
i
World Bank. Project appraisal document on a proposed credit in the amount US$ 103.0 million equivalent to the Republic of Ghana for an urban water project. 2004.
j
Millennium Challenge Corporation. Water and Sanitation sub-activity, rural services development project. Investment memo (Excel spreadsheet). 2008.
k
African Development Fund. Ghana. Rural water supply and sanitation initiative. Appraisal report. 2003.
l
World Bank. Implementation completion report for a proposed credit in the amount US$ 25.0 million equivalent to the Republic of Ghana for a second community water
and sanitation project. 2005.
m
“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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GHANA
BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
Large numbers of people in Ghana 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 Ghana is such that the
water target will be reached but that the sanitation target will not
be reached by 2015n. The Government of Ghana’s own water
targets (termed MDG+) for 2015 are more ambitious, but are still
on track to be met by 2015. Ghana’s national targets are 53% for
sanitation, 76% for rural water supply, and 80% for urban water
supply.
Since 1990, there has been little change in sanitation coverage in
Ghana – despite the fact that sanitation coverage has increased
by several percentage points, this is insufficient to meet the
targets. Based on the most recent estimates of sanitation
coverage in 2010, Ghana needs to increase sanitation coverage
from 19% to 56% in urban areas, and from 8% to 52% in rural
areas to meet the MDG sanitation target in 2015. In rural areas
access to safe water needs to maintain coverage above 76% to
meet the MDG+ target, while in urban areas the MDG+ water
target of 80% has been reached, and the MDG target of 92%
almost reached (see Figure 4).
Even if Ghana meets the MDG target in both rural and urban
areas, 48% of the rural population and 44% of the urban
population would remain without access to improved sanitation;
and at current coverage levels, 20% 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 Ghana 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.
Figure 4: Water and sanitation coverage, 1990 – 2010, and projection to
2015 (%)o
100
91
84
92
80
80
Coverage (%)
SIGNIFICANT INVESTMENT IS NEEDED
IN SANITATION AND WATER SUPPLY
COVERAGE IN GHANA
68
60
40
56
52
36
19
20
12
8
4
0
1990
1995
2000
2005
2010
Sanitation rural
Sanitation urban
Water rural
Water urban
2015
Year
Progress towards the targets for sanitation in Ghana 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. The Ghana
Country Status Overview in 2009-10p estimated
the annual capital expenditure as well as
operating expenses to meet the MDG+
target for water supply, and the MDG
target for sanitation (see Figure 4).
An estimated US$237 million in
capital investment (CAPEX) is
required annually to meet the
water supply MDG+ targets. This
compares closely to US$ 234
million from assessments of
responsible agenciesq for
CAPEX requirements to meet
MDG+ targets: US$63 million for
rural and small towns and US$171
million for urban water supply.
Anticipated public investments are 50
percent of what is required, leaving a
deficit of US$119 million per year.
Investing in
sanitation and water
can help Ghana both
improve health and
tackle economic
challenges.
With respect to sanitation, the total CAPEX (hardware)
requirements to meet the MDG target are estimated at US$ 402
million per year, using the CSO2 model. With the shift to
Community-Led Total Sanitation (CLTS), households are
expected to meet the full costs of sanitation hardware. For
progress in the sector, the significant poverty in parts of the
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.
p
An initiative led by the African Ministers' Council on Water (AMCOW) “Water supply and sanitation in Ghana. Turning finance into services for 2015 and beyond.” An
AMCOW Country Status Overview.
q
The Community Water and Sanitation Agency and Ghana Water Company Ltd
n
o
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GHANA
BRIEFING: ECONOMIC IMPACT OF WATER AND SANITATION
country (especially the northern regions) may still require
continuation of subventions for household sanitation. Only US$ 28
million per year is anticipated from external sources.
The water cost estimates are for meeting the Government of
Ghana’s own targets by 2015, termed the MDG+. This requires
improved access to be extended to an additional 1.14 million
water users per year. The sanitation MDG target involves
extending coverage to 1.63 million users per year.
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. These funds will need to be allocated, 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$ 68 million for sanitation and US$ 66
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, long-lasting, 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 countriesf.
RECOMMENDATIONS
The recommendations for Ghana are
as follows:
Governments have
1. Policy: Implement policies that
an important role to
lead to increased public and
play in catalysing
private spending on water
investments from other
and sanitation services,
sources, including the
especially sanitation, in areas
private sector.
where the country is most offtrack. This includes a focus on
increasing demand for services
among the population through
sensitization and marketing campaigns, which will encourage
households to invest.
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.
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 large-scale implementation, ongoing monitoring and
evaluation, and improved knowledge management.
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-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.
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