"It's time to invest in water and sanitation!" - Josien Sluijs - Aqua for All

“It’s time to invest in water and sanitation!” – Josien Sluijs

Published: 21st October 2020

This article was originally published in the Smart Water Magazine Monthly Issue 4 – October 2020.

 

In August 2019 I joined the water and sanitation sector as Aqua for All’s Managing Director. Prior to Aqua for All, I had a similar role at NpM, the Dutch Platform for Inclusive Finance, working with impact investors to provide access to affordable financial services, while obtaining both social and financial returns. The water and sanitation sector fulfils these requirements but has been unable to engage these investors so far.

Investments in water and sanitation cannot be postponed any longer. Clean water and sanitation for all, Sustainable Development Goal 6 (SDG 6), requires an estimated US $114 billion per year in the run-up to 2030. Less than $5 billion per year is currently available in donor funds, however. We urgently need to unlock private funding through blended finance solutions to expand the provision of safe drinking water and sanitation, and to build the sec-
tor’s resilience.

Aqua for All aims to be an influential catalyser within the water and sanitation economy. Our funds de-risk investments and mobilise new and additional capital. We seek partners among companies, foundations and governments interested in financing and other forms of support.

 

Change of mindset

Our priority is to embrace and promote a change in thinking. For sustainable growth of water and sanitation initiatives, project inputs and outputs matter, but results matter most.

Private investments in the water and sanitation sector can provide social and financial return and we need to show successes. However, most investors do not know the sector well enough to understand its risks, financing needs and opportunities. They perceive the water and sanitation sector as too risky, unprofitable or involving delayed returns on capital.

I have seen a change in mindset among all actors when private capital flows into the sector. Access to capital facilitates growth, but more importantly, it often brings different expertise and demands other skills. Impact investors steer towards efficiency, accountability and profitability, which require a different way of running operations, reporting, etc.

The water and sanitation sector has historically been grant dependent and often missed opportunities to scale up. Countless donors have supported good projects, but many ideas focused primarily on health benefits and social wellbeing, whereas economic value languished pending for more grant money. Numerous promising pilots have been replicated elsewhere, repeating minor successes without realising their full scaling potential. One of the reasons is that grants for early-stage initiatives are widely available, whereas funding to scale is hard to find.

 

Innovative financial models and solutions

The good news is that Aqua for All is developing a range of financial models and solutions, to address varying demand and supply requirements in different market contexts. Innovative finance is critical for achieving the large-scale transformation the sector needs. Coupled with our support to enterprises in becoming investment ready, we also use our own funds to provide de-risking instruments, e.g. first-loss tranches and guarantees. This catalyses new sources of finance for viable water and sanitation solutions.

Impact incentives, leasing arrangements, franchise models and carbon credits are part of this innovative approach. Our new partnership with Roots of Impact implements a social impact incentives model. Through this scheme, water and sanitation social enterprises receive temporary, outcomes-linked payments to increase profitability. In turn, this strengthens their business case for larger investments that will enable them to grow from innovators to substantial service providers. Another partner, Spring Health in India, operates subscription- and franchise-based service provision through local shops and motorised rickshaw distribution, partly-financed with carbon credits.

For service-using households, microfinance and mobile phone fee-payment systems offer much potential. Innovative service delivery models targeting lower-middle-class households in low-income countries can contribute to bring safe and affordable water and sanitation to people on low incomes. By building capacity and creating momentum, the ‘last mile’ can be reached, especially with grant support.

 

Out-of-the-box finance solutions to respond to COVID-19

In Kenya, many micro, small and medium enterprises (MS- MEs) in the water and sanitation sector are struggling to survive the COVID-19 pandemic. They face revenue loss and increasing costs arising from the need to meet rising demand, as people more frequently wash their hands and stay at home. An Aqua for All survey of the Kenyan sector in April 2020 revealed an urgent need among MSMEs for capital to repair and expand essential water infrastructure, to support the government’s emergency response to the pandemic and to protect vulnerable groups.

In partnership with Sidian Bank, a pioneer in microfinance for small-scale water infrastructure initiatives since 2007, we have
established the COVID-19 WASH Loan Facility to support Kenyan MSMEs with favourable working capital, to overcome challenges resulting from the pandemic. Our initiative also aims to help service providers respond to new opportunities, such as to make the transition to renewable energy sources that will bring greater sustainability and reduce consumers’ future water bills. We aim to scale up and replicate these approaches with other banking partners in Kenya and beyond.

 

No time to waste

The world is currently not on course to meet SDG 6 by 2030. With less than a decade to go, 2.2 billion people still lack access to safe drinking water, 4.2 billion are without sanitation amenities compatible with the SDG 6 objectives, and 3 billion people lack basic handwashing facilities.

These service and finance gaps have major human and economic consequences. According to the World Bank, 675,000 people die prematurely each year because of poor-quality water, sanitation and hygiene, resulting in losses of up to 7% of GDP in some countries. Another estimate states that the annual economic costs worldwide of inadequate water and sanitation services comes to USD250 billion. The costs of ill health from waterborne diseases in peri-urban and rural populations run into hundreds of millions of US dollars each year.

By contrast, bridging the gaps removes costs and generates value. The Organisation for Economic Co-operation and Development (OECD) has found that investment in water and sanitation in low-income countries can deliver up to US $7 for every $1. Consider for example the loss of an estimated 40% to 60% of piped water in Africa through leakages. If we can mobilise finance to stop this happening, it will bring about huge savings in terms of service provision, while suppliers can increase their income by selling more water to households (keeping in mind affordability for low-income people). There will also be a climate dividend through the energy savings on water extraction, treatment and distribution. Aqua for All has worked towards catalysing an innovative, sustainable and inclusive water and sanitation economy worldwide for almost two decades. We have managed over €140 million in funds, helping to bring access to clean water and/or good sanitation to more than 5.64 million low-income people in 65 countries, especially in Africa and Asia. In addition, we use our funds to mobilise private and public capital to increase investments in water and sanitation. We believe that partnerships with impact investors and innovators/enterprises working on water and sanitation service provision will bring us closer to achieving SDG 6.

 

This article was written with assistance from Miles Litvinoff, an NGO writer/editor and consultant.