The liquidity crisis
Published: 07 July, 2009
Private sector development in water financing in water infrastructure has proved inconsistent at best, but as urban populations grow, bridging the financing gap is critical.
The United Nations Population Fund estimates that 60 percent of the world’s population will live in urban centres by 2030. Unprecedented urban growth in developing countries will see the urban populations of Africa and Asia double within the next 30 years.
This will put unprecedented pressure on already strained urban infrastructure in sub-Saharan Africa. It is estimated that only 58 percent of the region’s population currently has access to piped water supply, with 37 percent having access to improved sanitation.
As the only natural resource with specific Millennium Development Goal targets attached to it, managing water is vital for the continued economic and social development of sub-Saharan Africa. How best to achieve these goals presents the region with difficult questions.
One of the biggest challenge is the problem of a vast funding gap. Preliminary findings from the Africa Infrastructure Country Diagnostic, a study being conducted by the Infrastructure Consortium for Africa, suggest that $15bn is required per year in the water sector alone just to achieve the MDGs on water in sub-Saharan Africa, easily outstripping available financing capacity. This is compounded by the fact that private investment in the water sector continues to be low, with privatisation efforts having proven to be largely unsuccessful. This leaves the sector strongly reliant on international donor support. With the global economic downturn taking its toll on donor and recipient country alike, is there a risk that urban water infrastructure financing will lose out to competing priorities?
Echoing the objectives of the Paris Declaration on aid effectiveness of 2005, Monica Scatasta, a senior economist in the Water & Environment Project Division of the European Investment Bank, argues that donor coordination is critical to avoid duplication of effort. This is to ensure the most effective deployment of available resources in light of the disparity between available resources and the funding requirements for the water sector in sub-SaharanAfrica. “It is very important for us whenever we go into a country to understand whether these types of activities are already ongoing, and whether we can actually rely on the work that has been done and is being done.”
The EIB has been financing infrastructure projects in sub-Saharan Africa since 1963, much of which is conducted through the European Development fund under the Cotonou agreement between the European Union and the African, Caribbean and Pacific region countries. Signed in 2000, the Cotonou agreement aims to facilitate the integration of ACP countries into the world economy, as well as poverty reduction and sustainable development in the region. In 2004, the Union also set up the ACP-EU Water Facility, which has so far spent €500 ($709m) million on projects in the water sector throughout the ACPregion, including a €20m investment in the African Water Facility. EIB also uses some of its own funds to finance infrastructure projects in the region.
One of the bank’s water supply projects is in Maputo, Mozambique’s capital city. Through a €67m loan it targets the greater Maputo area of 1.7m inhabitants, many of whom are currently supplied by private, small scale providers. The project aims to increase production capacity to ensure 24-hour supply to 730,000 people presently connected to the water supply system. It also aims to extend water services to 467,000 additional people by 2010. The cost of water provided through the extended network is estimated to be one fourth the cost of private, small scale providers.
