Knowledge and practice review in water sector financing

Abstract

There is global acknowledgement that the financing of water projects is not easy. Preparation of water sector projects is understood to take long and still when they are finally financed, cost-recovery is comparatively difficult. The challenges in preparing water sector projects relate to the fact that water cuts across all spheres of society, and therefore many stakeholders are involved. Bringing them to one table for a single goal (supply water services) has often become a daunting task. Often, because of their complicated nature and their high social flavour, the associated risks in financing water sector projects are usually not well analysed to ensure development of attendant risk mitigation measures. This has particularly been the case where community involvement and participation issues are inadequately addressed. As a result water sector projects, especially in developing countries where the poverty trap adds to service deliver challenges, have been financed without much long-term consideration of sustainability aspects. The political use of water as a vote-winning vehicle has exacerbated the challenge of delivering water services sustainably. Political promises of delivering water are common, but often forgotten after the elections. These sector issues have meant that many water sector projects remain unattractive to private sector financing and participation. Although historically water has largely been taken as a free social good, it has in recent years been receiving its due attention as an economic good as well that could be provided commercially. Hence, many developing countries are now acknowledging the relevance of providing water commercially in order to ensure financially sustainable services. This development is seen to be slowly easing the challenges of cost-recovery in many water projects. It is becoming clear that additional funding is not the panacea to sustainability of water services. This paper presents a review of recent knowledge and practices in water sector financing, with particular focus on Africa. The paper aims to give an overview of the challenges and opportunities in financing water sector projects and describe the way forward for Africa’s efforts towards delivering sustainable water services