NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Thursday, August 25, 2005

Private Sector Can Get Water Flowing to the Poor

Worldwide, 1.1bn people, mainly in poor countries, do not have access to clean, safe water. The shortage of water helps to perpetuate poverty, disease and early death. However, there is no shortage of water, at least not globally. We use a mere 8 per cent of the water available for human consumption. Instead, bad policies are the main problem. Even Cherrapunji, India, the wettest place on earth, suffers from recurrent water shortages.

Ninety-seven per cent of all water distribution in poor countries is managed by the public sector, which is largely responsible for more than a billion people being without water. Some governments of impoverished nations have turned to business for help, usually with good results. In poor countries with private investments in the water sector, more people have access to water than in those without such investments. Moreover, there are many examples of local businesses improving water distribution. Superior competence, better incentives and better access to capital for investment have allowed private distributors to enhance both the quality of the water and the scope of its distribution. Millions of people who lacked water mains within reach are now getting clean and safe water delivered within a convenient distance.

The privatisation of water distribution has stirred up strong feelings and met with resistance. There have been violent protests and demonstrations against water privatisation all over the world. Western anti-business non-governmental organisations and public employee unions, sometimes together with local protesters, have formed anti-privatisation coalitions. However, the movement’s criticisms are off base.

The main argument of the anti-privatisation movement is that privatisation increases prices, making water unaffordable for millions of poor people. In some cases, it is true that prices have gone up after privatisation; in others not. But the price of water for those already connected to a mains network should not be the immediate concern. Instead, we should focus on those who lack access to mains water, usually the poorest in poor countries. It is primarily those people who die, suffer from disease and are trapped in poverty.

They usually purchase their lower-quality water from small-time vendors, paying on average 12 times more than for water from regular mains, and often more than that. When the price of water for those already connected goes up, the distributor gets both the resources to enlarge the network and the incentives to reach as many new customers as possible. When prices are too low to cover the costs of laying new pipes, each new customer entails a loss rather than a profit, which makes the distributor unwilling to extend the network. Therefore, even a doubling of the price of mains water could actually give poor people access to cheaper water than before.

There is another, less serious, argument put forward by the anti-privatisation movement. Since water is considered a human right and since we die if we do not drink, its distribution must be handled democratically; that is, remain in the hands of the government and not be handed over to private, profit-seeking interests. Here we must allow for a degree of pragmatism. Access to food is also a human right. People also die if they do not eat. And in countries where food is produced and distributed “democratically”, there tends to be neither food nor democracy. No one can seriously argue that all food should be produced and distributed by governments.

The resistance to giving enterprise and the market a larger scope in water distribution in poor countries has had the effect desired by the protesters. The pace of privatisation has slowed. It is therefore vital that we have a serious discussion based on facts and analysis, rather than on anecdotes and dogmas.

True, many privatisations have been troublesome. Proper supervision has been missing. Regulatory bodies charged with enforcing contracts have been non-existent, incompetent or too weak. Contracts have been badly designed and bidding processes sloppy. But these mistakes do not make strong arguments against privatisations as such, but against bad privatisations. Let us, therefore, have a discussion on how to make them work better, instead of rejecting the idea altogether. Greater scope for businesses and the market has already saved many lives in Chile and Argentina, in Cambodia and the Philippines, in Guinea and Gabon. There are millions more to be saved.