Naomi Radke (seecon international GmbH)
Water, Sanitation and Economy
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Included in the SSWM Toolbox are materials from various organisations and sources. Those materials are open source. Following the opensource concept for capacity building and non-profit use, copying and adapting is allowed provided proper acknowledgement of the source is made (see below). The publication of these materials in the SSWM Toolbox does not alter any existing copyrights. Material published in the SSWM Toolbox for the first time follows the same open-source concept, with all rights remaining with the original authors or producing organisations.
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Disclaimer
The contents of the SSWM Toolbox reflect the opinions of the respective authors and not necessarily the official opinion of the funding or supporting partner organisations.
Depending on the initial situations and respective local circumstances, there is no guarantee that single measures described in the toolbox will make the local water and sanitation system more sustainable. The main aim of the SSWM Toolbox is to be a reference tool to provide ideas for improving the local water and sanitation situation in a sustainable manner. Results depend largely on the respective situation and the implementation and combination of the measures described. An in-depth analysis of respective advantages and disadvantages and the suitability of the measure is necessary in every single case. We do not assume any responsibility for and make no warranty with respect to the results that may be obtained from the use of the information provided.
Water, Sanitation and Economy

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Contents
1. Introduction
2. Economic Value of Water and Sanitation
3. Economic Costs of Water and Sanitation Services
4. Economic Benefits of Improved Water and Sanitation Services
5. Tools of Economic Analysis of Water and Sanitation
6. The Problem of Water and Sanitation from an
Economic Perspective
7. References
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1. Introduction
Access to improved water and sanitation services
Problem: diseases associated with poor water and sanitation still have considerable public health significance – mainly in developing countries
2,5 billion people without access to improved sanitation
= 27% of global population
780 million people without access to improved drinking water
= 11% of global population
Source: WHO/UNICEF (2012)
Source: WHO/UNICEF (2012)
Water, Sanitation and Economy
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1. Introduction
Access to improved water and sanitation services
Worldwide use of improved sanitation facilities in 2010
Fact: in many countries of Sub-Saharan
Africa and Southern Asia, sanitation coverage is below 50%.
Source: WHO/UNICEF (2012)
Worldwide use of improved drinking water sources in 2010
Fact: Sub-Saharan Africa has the lowest drinking water coverage of any region
Source: WHO/UNICEF (2012)
Water, Sanitation and Economy
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2. Economic Value of Water and Sanitation
Economic Value of Water (1/2)
Economic measure of the value of e.g. its usefulness
The price paid for it on the market
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2. Economic Value of Water and Sanitation
Economic Value of Water (2/2)
Past failure of recognizing the economical value of water has led to wasteful and environmentally damaging use of the resource.
Example: Vanishing Aral Sea, a lake between Kazakhstan and
Uzbekistan, due to excessive irrigation.
Managing water as an economic good is an important way of achieving efficient and equitable applications and encouraging conservation and protection of the resource.
Example: Implementation of water charges for freshwater and wastewater often leads to more efficient use of water
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2. Economic Value of Water and Sanitation
Economic Value of Water
• People with low income spend on average a significantly greater proportion of their income on water than wealthy  less money to spend on other basic needs!
• Basic human right: access to clean water and sanitation at an affordable price in order to sustain human and nature’s life and health also for the poor
Water, Sanitation and Economy
Water takes a large share of household spending for the poorest 20%.
Source: UNDP (2006)
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2. Economic Value of Water and Sanitation
Water Value and Charge
Value of water in its alternative uses
Applying an economical instrument
Water, Sanitation and Economy
Rational water allocation between uses
Support disadvantaged groups, affect behaviour towards conservation, etc.
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3. Economic Costs of Water and Sanitation Services
Is it economically wise to invest in water and sanitation?
• Difficult to quantify costs and benefits of such an investment
• Best estimates: for each dollar invested, 8 dollars benefits through averted costs (for healthcare, illness etc.) and increased productivity (TEARFUND, 2008)
• Total costs of the deficit in investment in water and sanitation was in 2006 170 billion dollars (2,6% of all developing countries’ GDP)
(UNDP, 2006)
Water, Sanitation and Economy
Clean water reduces typhoid deaths.
Source: UNDP (2006)
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3. Economic Costs of Water and Sanitation Services
Costs of Millennium Development Goal on water and sanitation (1/2)
Millennium Development Goal:
Halve, by 2015, the proportion of the population without sustainable access to safe drinking water and basic sanitation.
Costs: 20-30 billion additional investments, depending on the technology
(TEARFUND 2008).
Water, Sanitation and Economy
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3. Economic Costs of Water and Sanitation Services
Costs of Millennium Development Goal on water and sanitation (2/2)
Source: http://www.un.org/millenniumgoals/e nviron.shtml
Water, Sanitation and Economy
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3. Economic Costs of Water and Sanitation Services
The economic costs of water and sanitation provision for a household
Sum of seven components (for modern technology):
‐ Opportunity costs of diverting raw water from alternative uses to the household
- Storage and transmission of untreated water to the urban area
- Treatment of raw water to drinking water standards
- Distribution of treated water within the urban area to the household
- Collection of wastewater from the households
- Treatment of wastewater
- Any remaining costs or damages imposed on others by the discharge of treated wastewater
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3. Economic Costs of Water and Sanitation Services
Economic values for estimating costs and benefits of intervention
Examples:
• Unproductive hours (off work) due to e.g. fetching water, queuing at public toilets
• Disability-Adjusted Life Years (DALY): number of years lost due to illhealth, disability or early death
• Workdays lost/gained due to (averted) sick leaves
• School days attended
• Patient’s expenses (avoided)
Calculating
Disability-Adjusted
Life Years.
Source: http://en.wikipedia.org/wiki/Dis ability-adjusted_life_year
Water, Sanitation and Economy
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4. Economic Benefits of Water and Sanitation Services
Investing in water and sanitation improvements ... (1/2)
... Leads to direct and indirect economic benefits:
• By reducing direct and indirect health costs (especially reducing diarrhoea infection)
• By saving time (e.g. reduce queuing up in public toilets, collecting water)
• By increasing the return on investments in education (e.g. by providing toilets for students and teachers)
• By gaining productivity (especially reducing diarrhoea, which causes about 3,2 billion missed working days for people aged 15-59
(TEARFUND 2008))
Water, Sanitation and Economy
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4. Economic Benefits of Water and Sanitation Services
Investing in water and sanitation improvements ... (1/2)
... Leads to direct and indirect economic benefits:
• By reducing direct and indirect health costs (especially reducing diarrhoea infection)
• By saving time (e.g. reduce queuing up in public toilets, collecting water)
• By increasing the return on investments in education (e.g. by providing toilets for students and teachers)
• By gaining productivity (especially reducing diarrhoea, which causes about 3,2 billion missed working days for people aged 15-59
(TEARFUND 2008))
Water, Sanitation and Economy
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4. Economic Benefits of Water and Sanitation Services
Investing in water and sanitation improvements ... (2/2)
• By protecting investments in improved water supply (lack of sanitation can contaminate drinking water, harm human health and consequently education and economic development)
• By safe-guarding water resources (because water contamination environmentally and economically harms fish production, agriculture, recreation as it requires higher treatment and other costs)
• By boosting tourism revenues (as health, safety, and aesthetic considerations heavily influence people ’ s choice of a holiday destination)
Water, Sanitation and Economy
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5. Tools of Economic Analysis of Water and Sanitation
Inputs (1/2)
Input data:
• Financial cash-flows (costs that are financed with cash)
◦ Sanitation technology parts that get installed
◦ Wage of workers that install the sanitation technologies
◦ Operation and maintenance costs of sanitation system
• Non-financial costs: In-kind (contribution of labour or material) or external costs and benefits
◦ Unpaid working hours to install/maintain sanitation technologies
◦ Local material that is collected (not bought)
◦ A growing economy due to less sick leaves
◦ Reduction in school drop-outs
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5. Tools of Economic Analysis of Water and Sanitation
Inputs (2/2)
Health and environmental costs measured in variables (e.g. cost per kg of biochemical oxygen demand (BOD) removal for a certain type of a wastewater treatment technology)
Attaching an economical value to health and environment can be difficult. If an economical estimation is possible:
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5. Tools of Economic Analysis of Water and Sanitation
Possible outputs cost-benefit analysis
• Costs and benefits as a share of household income
• Economic analysis on household-level (in-cash (financial flows) and in-kind (e.g. Labour of operation and maintenance))
• Cost-benefit ratio o
Discounted benefits/discounted costs of the W+S intervention: comparison to “doing nothing”
• Internal rate of return o
Return on investments in percentage o
Monetary cash-flows as well as non-monetary costs and benefits over the lifetime of the sanitation improvement
• Cost-effectiveness ratio o
Compares costs with a single outcome expressed in physical
(non-monetary) units of W+S improvement (e.g. inhabitants better served, health gain,...)
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Water, Sanitation and Economy

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6. Economic Problems of Water and Sanitation
Demand and Supply
• Generic problem of W+S: matching supply with demand in terms of o
Adequate quality o
Location o
Time o
Affordability
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TEARFUND (Editor) (2008): Water and sanitation: the economic case for global action. Teddington: Tear Fund. URL: not available
UNDP (2006): Beyond Scarcity. Power, Poverty and the Global Water Crisis. New York: United Nations Development
Program (UNDP). URL: http://hdr.undp.org/en/reports/global/hdr2006/chapters/ [Accessed: 21.08.2013]
Water, Sanitation and Economy
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SSWM is an initiative supported by:
Linking up Sustainable Sanitation,
Water Management & Agriculture
Created by:
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Water, Sanitation and Economy