Water

Water Financing Needs and Trends

Sub-Saharan Africa is unlikely to meet the Millennium Development Goal (MDG) for water supply.  Coverage in urban areas has been declining as utilities have struggled to keep pace with population growth.

The price tag for reaching the MDG for access to an improved water source is estimated at US$16.5 billion a year - roughly 2.6% of Africa’s GDP).  For many countries, these costs look prohibitive.

Spending on the water sector today is US$3.6 billion a year, one-quarter of what is required.  However, some US$2.7 billion available to the sector is currently being wasted due to inefficiencies.

Under-pricing of services is an important inefficiency.  Average water tariffs are about US$0.67 per cubic meter, below the cost-recovery threshold of just over US$1.00 per cubic meter.  By under-pricing water, the sector forgoes at least $1.8 billion a year in revenues.

The operational inefficiencies of water utilities cost the region US$0.9 billion a year and impede service expansion.  Institutional reforms of legal and regulatory frameworks hold the key to improving performance.  Private participation, particularly lease contracts, has significantly affected utility performance, but state-owned utilities will remain the central actors, and greater efforts are needed to improve their governance frameworks.

Even if all these inefficiencies could be eliminated, the overall financing gap for the water sector would still be US$7.8 billion a year, or 1.2% of GDP.

For the majority that does not enjoy access to a piped-water connection, greater thought needs to be given to how stand-posts can become a more effective part of urban water supplies.  In rural areas, the big challenge, in addition to continuing to expand access, is the high breakdown rate from lack of maintenance, which threatens the sustainability of what has already been achieved.

(Source: AICD)