Water, Sanitation and Economy

Naomi Radke (seecon international GmbH)

Water, Sanitation and Economy 1

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Water, Sanitation and Economy

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Contents

1. Introduction
2. Economic Value of Water and Sanitation
3. Economic Costs of Water and Sanitation Services
4. Economic Benefits of Improved Water and Sanitation Services
5. Tools of Economic Analysis of Water and Sanitation
6. The Problem of Water and Sanitation from an
Economic Perspective
7. References

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1. Introduction
Access to improved water and sanitation services

Problem: diseases associated with poor water and sanitation still have
considerable public health significance – mainly in developing countries

2,5 billion people without access to

improved sanitation
= 27% of global population

Source: WHO/UNICEF (2012)

780 million people without access to

improved drinking water
= 11% of global population

Source: WHO/UNICEF (2012)

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1. Introduction
Access to improved water and sanitation services

Worldwide use of improved sanitation

facilities in 2010
Fact: in many countries of Sub-Saharan
Africa and Southern Asia, sanitation
coverage is below 50%.
Source: WHO/UNICEF (2012)

Worldwide use of improved drinking

water sources in 2010
Fact: Sub-Saharan Africa has the lowest
drinking water coverage of any region
Source: WHO/UNICEF (2012)

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2. Economic Value of Water and Sanitation

Economic Value of Water (1/2)

For water: Economic value ≠ Market price

Economic The price
measure of paid for it on
the value of the market
e.g. its
usefulness

Water is highly useful but costs per se nothing (unless

the provision is so poor that the water price per units
becomes a important part of daily expenses in unserved
areas such as slums, etc.).

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2. Economic Value of Water and Sanitation

Economic Value of Water (2/2)

Past failure of recognizing the economical value of water has led to

wasteful and environmentally damaging use of the resource.
Example: Vanishing Aral Sea, a lake between Kazakhstan and
Uzbekistan, due to excessive irrigation.
Managing water as an economic good is an important way of achieving
efficient and equitable applications and encouraging conservation and
protection of the resource.
Example: Implementation of water charges for freshwater and
wastewater often leads to more efficient use of water

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2. Economic Value of Water and Sanitation

Economic Value of Water

• People with low income spend on

average a significantly greater
proportion of their income on water
than wealthy  less money to spend
on other basic needs!
• Basic human right: access to clean
water and sanitation at an affordable
price in order to sustain human and
nature’s life and health also for the
poor

Water takes a large share of household

spending for the poorest 20%.
Source: UNDP (2006)

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2. Economic Value of Water and Sanitation

Water Value and Charge

value ≠ charge
Value of water Applying an
in its economical
alternative instrument
uses

Rational water Support

allocation disadvantaged
between uses groups, affect
behaviour towards
conservation, etc.

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3. Economic Costs of Water and Sanitation Services

Is it economically wise to invest in water and sanitation?
• Difficult to quantify costs and benefits of such an investment
• Best estimates: for each dollar invested, 8 dollars benefits through
averted costs (for healthcare, illness etc.) and increased
productivity (TEARFUND, 2008)
• Total costs of the deficit in investment in water and sanitation was
in 2006 170 billion dollars (2,6% of all developing countries’ GDP)
(UNDP, 2006)

Clean water reduces typhoid deaths.

Source: UNDP (2006)

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3. Economic Costs of Water and Sanitation Services

Costs of Millennium Development Goal on water and sanitation (1/2)

Millennium Development Goal:

Halve, by 2015, the proportion of the population without sustainable
access to safe drinking water and basic sanitation.

Costs: 20-30 billion additional

investments, depending on the technology
(TEARFUND 2008).

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3. Economic Costs of Water and Sanitation Services

Costs of Millennium Development Goal on water and sanitation (2/2)

Source:
http://www.un.org/millenniumgoals/e
nviron.shtml

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3. Economic Costs of Water and Sanitation Services

The economic costs of water and sanitation provision for a household
Sum of seven components (for modern technology):
‐ Opportunity costs of diverting raw water from alternative uses to the household
- Storage and transmission of untreated water to the urban area
- Treatment of raw water to drinking water standards
- Distribution of treated water within the urban area to the household
- Collection of wastewater from the households
- Treatment of wastewater
- Any remaining costs or damages imposed on others by the discharge of treated
wastewater

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3. Economic Costs of Water and Sanitation Services

Economic values for estimating costs and benefits of intervention

Examples:
•Unproductive hours (off work) due to e.g. fetching water, queuing at
public toilets
•Disability-Adjusted Life Years (DALY): number of years lost due to ill-
health, disability or early death
•Workdays lost/gained due to (averted) sick leaves
•School days attended
•Patient’s expenses (avoided)

Calculating
Disability-Adjusted
Life Years. Source:
http://en.wikipedia.org/wiki/Disa
bility-adjusted_life_year

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4. Economic Benefits of Water and Sanitation Services

Investing in water and sanitation improvements ... (1/2)
... Leads to direct and indirect economic benefits:
• By reducing direct and indirect health costs (especially reducing diarrhoea
infection)
• By saving time (e.g. reduce queuing up in public toilets, collecting water)
• By increasing the return on investments in education (e.g. by providing
toilets for students and teachers)
• By gaining productivity (especially reducing diarrhoea, which causes about
3,2 billion missed working days for people aged 15-59 (TEARFUND 2008))

Water, Sanitation and Economy 15

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4. Economic Benefits of Water and Sanitation Services

Investing in water and sanitation improvements ... (1/2)
... Leads to direct and indirect economic benefits:
• By reducing direct and indirect health costs (especially reducing diarrhoea
infection)
• By saving time (e.g. reduce queuing up in public toilets, collecting water)
• By increasing the return on investments in education (e.g. by providing
toilets for students and teachers)
• By gaining productivity (especially reducing diarrhoea, which causes about
3,2 billion missed working days for people aged 15-59 (TEARFUND 2008))

Water, Sanitation and Economy 16

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4. Economic Benefits of Water and Sanitation Services

Investing in water and sanitation improvements ... (2/2)
• By protecting investments in improved water supply (lack of
sanitation can contaminate drinking water, harm human health and
consequently education and economic development)
• By safe-guarding water resources (because water contamination
environmentally and economically harms fish production, agriculture,
recreation as it requires higher treatment and other costs)
• By boosting tourism revenues (as health, safety, and aesthetic
considerations heavily influence people’s choice of a holiday
destination)

Water, Sanitation and Economy 17

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5. Tools of Economic Analysis of Water and Sanitation

Inputs (1/2)
Input data:
• Financial cash-flows (costs that are financed with cash)
◦ Sanitation technology parts that get installed
◦ Wage of workers that install the sanitation technologies
◦ Operation and maintenance costs of sanitation system

• Non-financial costs: In-kind (contribution of labour or material) or external costs and

benefits
◦ Unpaid working hours to install/maintain sanitation technologies
◦ Local material that is collected (not bought)
◦ A growing economy due to less sick leaves
◦ Reduction in school drop-outs

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5. Tools of Economic Analysis of Water and Sanitation

Inputs (2/2)

Health and environmental costs measured in variables (e.g. cost per

kg of biochemical oxygen demand (BOD) removal for a certain type
of a wastewater treatment technology)

Attaching an economical value to health and environment can be

difficult. If an economical estimation is possible:

Cost-benefit analysis!

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5. Tools of Economic Analysis of Water and Sanitation

Possible outputs cost-benefit analysis

• Costs and benefits as a share of household income

• Economic analysis on household-level (in-cash (financial flows)
and in-kind (e.g. Labour of operation and maintenance))
• Cost-benefit ratio
o Discounted benefits/discounted costs of the W+S intervention:
comparison to “doing nothing”
• Internal rate of return
o Return on investments in percentage
o Monetary cash-flows as well as non-monetary costs and
benefits over the lifetime of the sanitation improvement
• Cost-effectiveness ratio
o Compares costs with a single outcome expressed in physical
(non-monetary) units of W+S improvement (e.g. inhabitants
better served, health gain,...)
Water, Sanitation and Economy 20
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6. Economic Problems of Water and Sanitation

Demand and Supply
• Generic problem of W+S: matching supply with demand in terms of
o Adequate quality

o Location

o Time

o Affordability

Mainly problem of governance and

cost allocation (due to high fixed costs of W+S
infrastructure)!

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7. References

TEARFUND (Editor) (2008): Water and sanitation: the economic case for global action. Teddington: Tear Fund. URL: not
available

UNDP (2006): Beyond Scarcity. Power, Poverty and the Global Water Crisis. New York: United Nations Development
Program (UNDP). URL: http://hdr.undp.org/en/reports/global/hdr2006/chapters/ [Accessed: 21.08.2013]

Water, Sanitation and Economy 22

 “Linking up Sustainable Sanitation,
Water Management & Agriculture”

SSWM is an
initiative
supported by:

Created
by:

Water, Sanitation and Economy 23