Governance and public sector management, Health, Poverty, Social development and protection, Water

How can the private sector help solve the sanitation challenge?

How can the private sector help solve the sanitation challenge?

Shuki Koga visited Ghana in 2019 as a Japan International Cooperation Agency volunteer and observed the sanitation situation in the rural villages there. During her internship at ADBI, she shared her experiences and reflections.

My time in Ghana was an awakening for me. I became interested in learning more about the challenges faced by developing countries, especially in the context of sanitation and hygiene.

I was shocked to see for the first time old women relieving themselves on the side of the road. Even though public toilets existed, the facilities did not seem to work or were not well maintained. They would often smell bad or were located far from the center of a village. Likewise, people would not hesitate to dispose of their excrement outside, choosing to avoid public toilets even if they were available. Toilet paper is expensive in the villages, so the majority of residents use paper instead. Once, when I used a private toilet, I saw a corn cob, which is apparently used as a substitute for toilet paper because of its soft texture. I decided to study further how sanitation services could be delivered and maintained sustainably for the poor with the involvement of the private sector, particularly in rural villages.

The private sector can play a vital role in solving the sanitation challenge. The following four aspects highlight the importance of private sector participation in sanitation in developing countries, including in Asia.

1. Growing demand. With economic development and population growth in developing countries, the need for sanitation has increased rapidly, leading to a shortage of sanitation facilities (high demand and low supply) in the market. Investment needs to grow to $114 billion annually to meet the demand for sanitation and to achieve Sustainable Development Goal 6 of ensuring access to water and sanitation for all (Hutton and Varughese 2016). Two billion people still do not have basic sanitation facilities, such as toilets or latrines (WHO 2019). Instinctively, the public and private sectors are required to play a role in equalizing the demand and supply of sanitation, especially in developing regions. There are sanitation companies that can help address this market failure. They can establish their businesses in developing regions using innovation, technology, and years of market experience, with the hope of meeting the sanitation challenge and reaping the benefits from the high demand but low supply in the market.

2. Impact investing. In 2020, a total of $2.6 billion in impact investments was made in India (Impact Investment Council 2021). Sanitation projects are good examples of impact investing. Companies that have a positive impact on society can expect to receive investment. In particular, it is calculated that for every $1 invested in sanitation, there is a return of $5.50 from reduced health care costs, increased productivity, and fewer premature deaths (WHO 2019). Because of the growing interest in sanitation, investors who want to contribute to the world’s social problems and are interested in sanitation issues can invest in businesses that are helping to tackle the sanitation challenge.

3. Capacity development and operations. Even though there are attractive points for private companies, such as market equalizing and impact investing, it is true that many companies hesitate to break into the sanitation business in developing countries because of the difficulties and risks involved in operating these types of businesses. These difficulties include the low skill levels of employees, the limited capacity and capability of public institutions, and low revenue generation (Bugalia et al. 2020).

4. Finding business in sanitation. For a private company, avoiding market risks is a fundamental challenge to overcome in order to participate in the sanitation business. We highlight the following examples that show how businesses are successfully being maintained in developing countries.

Improve the skills of personnel, educate local employees, and maintain quality of work

Personnel performance is crucial for delivering sanitation services and products to communities. Businesses can find ways to conduct training that can enhance the skills of their staff.

Hiyoshi Corporation is a Japanese company that measures and analyzes wastewater. It works to reduce water pollution and reuse water through the maintenance and management of wastewater treatment facilities. The company has established local subsidiaries in India and other developing countries to hire local employees and provide training for local technicians in Japan. Such training can improve the quality of the skills of employees. One training participant said, “The language barrier was a challenge, but it was a great learning experience to see the efficient work style and very well-organized laboratories in Japan. Two months of training was an experience that I will never forget.” (Hiyoshi, n.d.)

Address the issue of low capacity and capability in the public sector

Conventional sanitation systems require huge amounts of capital since they require using 4 times more pipes than for water. This fact is responsible for the low penetration of sewerage systems and the difficulties in solving sanitation problems in developing countries. However, private companies are utilizing various ideas and technologies to solve this problem by providing sanitation services in areas where centralized sewerage is not possible. Small and medium types of johkasou (decentralized wastewater treatment systems) are often used. Kubota Johkasou is known in Japan as a manufacturer of agricultural machinery, but since 1970, the company has also been involved in the sanitation business, selling various sizes of johkasou around the world. Kubota’s products use advanced technology to allow them to adapt to the environment where they are installed. Based on this superior technology, Kubota is contributing to the improvement of the world’s water infrastructure in order to deliver safe water to people around the world in a sustainable way.

Portable toilet products are also useful. Lixil-SATO started as a social business under the LIXIL Corporation to contribute to the world’s sanitation problem in 2012. Their cheap and durable products, such as portable toilets, help a large number of people in developing countries. According to its corporate website, Lixil-SATO has sold more than 5.1 million products in 38 countries in Africa and Asia, impacting more than 25 million people (SATO, n.d.).

Gain revenue from products and by-products

While there is a low barrier to market entry, the sanitation business in developing countries faces the difficulty of raising financial profits, both from sanitation-related products and by-products. This may be due to people’s low willingness to pay for sanitation facilities and cultural beliefs that hinder the use of sanitation infrastructure (Revilla et al. 2021). Sanergy is a social impact company that was established in Nairobi, Kenya, in 2010. It is a business model for providing toilets in the urban slums of Nairobi and collecting human waste to be turned into fertilizer. Based on the unique supply and value chains, the company raised financial profits through collecting and converting human waste into fertilizer, effectively contributing to the cultivation of crops and the provision of jobs among the local communities (Sanergy, n.d.).

The sanitation business is not a panacea for solving the world’s sanitation problems. In particular, the issue that many people are culturally reluctant to use toilets is difficult for the private sector to solve. Such problems are expected to be addressed with the help of governments and organizations by educating people through consultations, seminars, social media, and other innovative means. However, the role of the private sector is still important in solving the problem of sanitation in developing countries. This is because there is a difference between what the public sector can do and what the private sector can do.

To support the education-related initiatives of the public sector, the private sector utilizes advanced technology and sustainable business models to impact the development of sanitation markets and the lives of the target users in developing countries. Likewise, the public sector should encourage the private sector to safely participate in sanitation markets by providing incentives and good environmental regulatory frameworks. Therefore, in developing countries, the public and private sectors have to work hand-in-hand, ensuring that both stakeholders thrive in pursuing the ultimate target of delivering sanitation to all.
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References:

Bugalia, N., S. Yamamoto, C. Kim, and KE Seetha Ram. 2020. Revisiting the Public-Private Partnership for Rapid Progress on the Sanitation-Related Sustainable Development Goals. ADBI Policy Brief No. 2020-2 (May). Tokyo: ADBI.
Hiyoshi. https://www.hiyoshi-es.co.jp/sdgs/ (accessed 19 July 2021).
Hutton, G., and M. Varughese. 2016. The Costs of Meeting the 2030 Sustainable Development Goal Targets on Drinking Water, Sanitation, and Hygiene. Washington, DC: World Bank.
Impact Investment Council (IIC). 2021. 2020 in Retrospect: India Impact Investment Trends. IIC. (accessed 15 July 2021).
Revilla, M.L.D., F. Qu, KE Seetha Ram, and B. Rao. 2021. “Sanitation” in the Top Development Journals: A Review. ADBI Working Paper No. 1253. Tokyo: ADBI.
Sanergy. http://www.sanergy.com (accessed 15 July 2021).
SATO. https://www.sato.lixil.com (accessed 15 July 2021).
World Health Organization (WHO). 2019. Sanitation. 14 June (accessed 14 July 2021).

Shuki Koga

About the Author

Shuki Koga is an MBA student at the International University of Japan and an intern at ADBI.
Ma. Laarni Revilla

About the Author

Ma. Laarni Revilla is a research associate at ADBI.
KE Seetha Ram

About the Author

KE Seetha Ram is a senior consulting specialist for capacity building and training projects at ADBI.

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