Acumen Fund at Stockholm World Water Week

I was recently invited (with full sponsorship from UN Habitat) to speak on a panel at Stockholm World Water Week. This is the world’s largest annual water conference and I was there to discuss the value of market-based approaches to water and sanitation funding for small towns. The planners of the session wanted to foster a debate and encouraged speakers to take on their opposing roles in earnest. Goaded on by facilitator Dominic Waughrey of the World Economic Forum, we each took polarized positions and provided concrete examples of failures and opportunities of the various forms of financing. With a little humor and expert facilitation, each of us went further than we may have planned in pointing out the inconsistencies and gaps in each others’ arguments.

My team-mate, Moses Banda, Chief Manager of Credit and Business Development at K-Rep Bank, kicked off our team’s discussion by asserting that projects needed to be financially sustainable without subsidies, not only to increase access to capital, but to build local autonomy and capacity among poor communities in small towns, who are currently dependent on donors and often left out of decision-making.

Dr. Richard Franceys of Cranfield University deftly countered that small towns in the developed world, namely the United States and the United Kingdom, have long been subsidized, and asked how much poorer and less organized communities could be expected to sustain small-town infrastructure on a full-cost recovery basis. His teammate, Dr. William Tsimwa Muhairwe of Uganda’s National Water and Sewerage Corporation, (considered by many to be one of the great success stories in the water sector in Africa), asserted that without subsidies for the capital cost of urban water infrastructure, they would never be sustainable.  More specifically, without Official Development Assistance (ODA), he argued that it would be impossible to provide infrastructure in small towns. Hired to make the municipal water utility in Kampala solvent, he determined that there were two options for getting the system out of debt: double the tariff or write off the debt. With an upcoming election, the choice was clear, and the debt was written off.

I took this opportunity to counter-argue that aid is frequently used to subsidize wealthier constituents – in this case, urban residents of Kampala with household connections – and that this is done more for political reasons than to address gaps in access. Why should the wealthy benefit from a subsidy, I asked, when the poorer residents of Kampala and nearby settlements are forced to pay twenty times the official tariff to black-market water vendors? Since subsidies so often fail to address the needs of the poor, why not focus on viable models to serve their needs, and bring in private capital?

The initial positions taken by the panelists led to a lively discourse with the audience that exposed some critical insights into our topic for the day.

• Small towns present a unique challenge because they are often beyond the reach of large-scale infrastructure that has been provided for major cities
• Small, but rapidly growing population centers lack political clout or strong local leadership to lobby for funds
• Small towns also present an opportunity to bring water and sanitation to communities on a sustainable basis, since small towns form around economic opportunities, and could sustain cost-recovery models more effectively than scattered rural communities
• There is insufficient aid to address the gaps in access to water and sanitation in small towns worldwide
• Insufficient private funding has been made available to the sector because of perceived risks, with investors preferring to finance large scale urban projects
• Donor funds are a scarce resource that should be deployed strategically and leveraged as much as possible
• Investing in improvement of governance and management at the local level could open up access to additional private funds
• Some sectors are likely to be beyond the reach of private financing, and should be eligible for additional donor funds – namely the very poorest market segments and sanitation infrastructure
• A strategic combination of subsidies and private capital should be developed to achieve a greater impact in the water and sanitation sectors, particularly in small towns

Our panel concluded that there is room - and a critical need - for both forms of funding in the provision of water and sanitation in small towns.  Though this in itself is not revolutionary, our debate (ending very amicably) did highlight the need for greater creativity in the structuring of financing that can address the weaknesses and strengths of both aid and market-based finance. I am already speaking with both my team-mate, Moses Banda from K-Rep, and my opponent, William Tsimwa Muhairwe from NWSC, about opportunities to collaborate.

I would welcome your own thoughts about the ongoing debate between subsidized and market-based approaches, as well as the unique challenges and opportunities presented by small towns.