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Blog: AfricaSan 5: Financing sanitation and hygiene in Africa while leaving no one behind

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The AfricaSan 5 Conference was recently held in Cape Town, South Africa. Every three years it reunites policy-makers, development partners, donors and the private sector to discuss some of the most compelling issues of the sanitation and hygiene sector in order to look for joint learning, new opportunities and shared paths forward. This post presents some of the main discussions about financing the sector in Africa that were featured during the week and concludes with some reflections on how the sector can be financed while leaving no one behind.

(Photo: SDG6.2 Financing architecture—Investment needs, financial data, funding streams and financing mechanisms to meet Africa’s sanitation targets session held by UNICEF, WHO and the Government of Senegal.)

Evidence and partnerships for co-financing sanitation and hygiene targets

Africa needs 16 billion USD annually to reach SDG 6 by 2030. Throughout the conference there was a clear sense that the sanitation and hygiene financing sector is transforming to meet this challenge. The African financing landscape for sanitation and hygiene is expanding not only with entrepreneur founders of new sanitation and hygiene businesses but also investor networks and financing facilitation.

In those African countries where there is low governance in terms of inadequate policies and strategies, fragmented institutional structures and a lack of development planning, there is usually low investment in sanitation and hygiene, lack of ready investment projects and a low cost recovery. There also tends to be weak approaches to technology choices and high inequalities to access them.

However, different financing options are today available for Africa: public finance (loans and grants), green and climate funds, private sector and non-concessional finance (loans, de-risking, partial risk guarantees and equity). It was discussed that the region should not look for additional funding when what is available is not yet being fully accessed and used. There are bottlenecks in the financing of the sector which need to be solved first. And after identifying the financing gaps and needs, governments need to work towards a financing strategy.
Also discussed was the need for the financing sector to have evidence about market tractions and scalable business models to finance the sector. Furthermore, there is a need for evidence that shows the financial benefits linked to improved health outcomes that result from sanitation and hygiene interventions. For example, in Eritrea, a roadmap was created in 2018, and a sanitation workshop with government, local NGOs and community leaders was held together with a costing analysis which went down to the local administrative areas.

Additionally, the Africa Sanitation Investment Fund is building a pipeline of projects that can be financed either by the private sector or other investors. In Ghana, the Ministry of Finance developed new budget preparation guidelines 2018-21 and disaggregated expenditures between drinking water and liquid and solid waste sanitation to better monitor the budget spending of water, sanitation and hygiene (WASH) sub-sectors. In this regards, having current regional, country and sub-national data on funding levels and disbursements is necessary to better understand the financing gaps and to make realistic financial strategies.

Partnerships between sanitation leaders and investors are one path towards building feasible investment opportunities by fostering the financing sector awareness of sanitation and hygiene specific realities. The enabling environment should be clear from the start for financing to materialise. The government, the private sector and community-based entrepreneurs need to be involved and engaged to follow. In the case of Ethiopia, funds from DFID, UNICEF and World Bank were consolidated into a pool fund and dispersed towards the ministries that take part in the One WASH National Programme. In Senegal, public-private partnerships for the sanitation sector were developed and also in Niger loans have been facilitated to service providers through public-private partnerships.

The gap between what enterprise philanthropy can deliver and what is really needed in the sector was also debated. Blended finance was presented as one approach that can leverage development finance to mobilise investments and can also be used in the case of households and service providers without a credit history. However, despite its potential, this approach has not yet been developed far enough to meet sanitation-tech entrepreneurs' needs. Enterprise philanthropy can drive blended finance but for that, first a pilot testing, a business model validation and evidence were identified as highly necessary.

As it was recognised during the conference, capital is not the problem in the sanitation and hygiene sector in Africa; the real challenge is to make a good business case. For that it is necessary to have strong political will and commitment, to have identified bottlenecks, and to have the engagement of the government, private sector and community-based entrepreneurs for co-financing arrangements and joint coordination, generating evidence and promoting innovation and new sanitation and hygiene solutions. Sharing and promoting learnings from pilots and innovative sanitation and hygiene projects with potential developers is key for Africa today.

(An enhanced OECD framework shows financing opportunities and challenges in the WASH sector.)

Roadmaps for identifying financing needs and gaps

There are different costing and budgeting tools and portals available online that are possible to adapt to different government levels and country contexts, and use to estimate the financing  gap to be bridged to reach sanitation and hygiene targets:

To achieve universal access: leave no one behind

Having the right business case and budget plans, joint efforts and partnerships and effective monitoring of financing and budget allocations are all necessary but not enough for achieving universal access to sanitation and hygiene by 2030. Leaving no one behind while achieving this aim is necessary if change wants to be equitable, inclusive and sustainable over time. But, how can sanitation and hygiene financing reach the most vulnerable, the poorest of the poor, people with special needs, those living in hard to reach areas and the most marginalised and excluded?

Firstly, the financing sector should adapt its language making messages accessible at the grassroots level, as not everyone understands finance and specific financial terminologies. Finance should continuously adapt to the context, to the people and to their needs. In this regards, finance needs to be accessible to all.

Secondly, financing frameworks tend to be much more focused on service providers rather than on households, but what about finance for the communities and especially for the rural ones which tend to be the ones that spend their own resources to have access to sanitation and hygiene? In Mozambique a study from UNICEF revealed that government expenditures in rural communities were much higher on behaviour change than on infrastructure, whereas in urban areas most was disbursed in high-income areas. This certainly highlights the need to raise and answer questions about affordability, equity and access before moving to the financing sphere.

Thirdly, countries like Zambia are paying attention to the most vulnerable populations while financing the sector. The country is leveraging the tariff of the water and sanitation service delivery by embedding subsidies among the different customer categories through cross-subsidies and subsidising those who consume less.

All in all, AfricaSan 5 allowed participants to think further about the financing needs of a sector which has the potential to develop new financial opportunities to reach universal access by 2030. Having the right evidence to solve bottlenecks and to shape the right financial strategies, fostering partnerships and paying constant attention to the people most in need are nowadays three of the main requirements for the African region to reach its sanitation and hygiene targets on time.

This blog post was written by Independent WASH consultant Florencia Rieiro.

Date: 19 March 2019