Water Engineering and Development Centre

How small water enterprises can contribute to MDGs for water

Author: Dr Cyrus Njiru, WEDC November 2005

Quality Assurance: Sandy Cairncross, LSHTM

Abstract

Water supply is among the most crucial of all the infrastructure services in the urban context. In many cities and towns of the developing world, the formal sector (public or private water utilities) has been unable to keep up with the water requirements of the growing population. Informal small water enterprises (SWEs) have moved to fill the huge supply gap left by water utilities, and are often the main suppliers of water to people, particularly those living in informal urban settlements, who are un-served or under-served by water utilities. Indeed, SWEs make a significant contribution to supplying water to people in developing countries who lack access to safe water, estimated by the United Nations to be over one billion.

Findings from recent research in Africa show that SWEs provide valued water services to up to 50% of the urban population, and even higher percentages in cities with higher proportions of the population living in informal settlements. This fact sheet attempts to shed more light on some of the key issues surrounding SWE provision of water services. It looks at the nature, role and constraints of SWEs, and why water sector managers should give attention to, and recognise, SWEs. The potential for utility-SWEs partnerships is presented, and typical interventions to improve SWEs operation are suggested. The fact sheet concludes that SWEs can contribute to increasing the proportion of people with improved water services, and hence help meet the Millennium Development Goal for water. This can be achieved through support to SWEs and development of win-win partnerships between SWEs and water utilities.

Key words

Enterprise development; improving service coverage; water services; water utilities; partnerships; small water enterprises.

Introduction to SWEs

In many cities of the developing world, small water-providing enterprises (SWEs) play an essential role in water provision for a significant proportion of the urban population who are un-served and/or under-served by water utilities. In particular, the poorest and most recently urbanised communities who have little prospect of getting connected to the utility’s distribution networks rely on SWEs to meet part or all of their water requirements. Although SWEs are said to charge prices for water that are often many multiples of the tariffs paid by customers of water utilities, SWEs are not necessarily uncompetitive or exploitative of their customers. In some cases, SWEs charge prices that reflect their real business costs, and those who work as vendors are often among the poorest members of the urban population. Instead of maligning SWEs for trying to make a living, they could be helped to provide a better service – for example, by improving their operating environment, upgrading technologies, legitimising their role and building their relationship with water utilities and authorities. Such interventions can enable SWEs to contribute to achievement of the MDG for water.

The nature and constraints of SWEs

SWEs are small-scale informal private operators engaged in the water business, who have moved to fill the supply gap left by urban water utilities. SWEs operate within a variety of different water supply chains, featuring diverse functions and actors, depending on local conditions and water sources (Albu and Njiru, 2002). These supply chains may or may not be dependent on water utilities for their water sources. SWEs fall into various categories:

  • wholesale vendors (such as tanker operators); that obtain water from a source and sell on to consumers and also to distributing vendors;
  • distributing vendors: who obtain water for direct door-to-door sale to consumers;
  • direct vendors, including household resellers: who sell water direct to consumers who come to collect and pay for water at the course;
  • auxiliary businesses: those who sell water as part of other businesses.

The prices that SWEs charge are not necessarily excessive for the service provided. Operating costs may be naturally high in a business that is highly laborious and time-consuming, but SWEs also frequently face constraints that reduce their operating efficiencies and thus raise their costs. Many constraints stem from the hostile regulatory environment in which SWEs operate, including:

  • lack of provision, restrictions or bans on SWE access to wellmanaged, good quality water sources (from the water utility or elsewhere);
  • business regulations that hinder SWE operation and investment;
  • harassment by local power brokers and / or officials;
  • unfair competition through sale of low quality water, or through vandalism of installations by competitors;
  • weak technical skills and capacity related to transportation;
  • credit constraints, stemming from lack of recognition of SWEs as legitimate businesses; and
  • social discrimination against vendors who are often among the poorest members of the community.

In many countries, government agencies have long been inclined to ignore or suppress SWEs. Little effort has been devoted to developing policies and actions that could improve the functioning of the SWEs, and hence the well-being of the households and individuals who depend upon them. This attitude is perhaps not as surprising as it seems. Even a well-functioning system of SWEs can be taken to reflect the failure of the government to supply piped water. And if SWEs go wrong, and sell contaminated or exorbitantly priced water, the Government is likely to be blamed twice over. Partly because of such attitudes, however, important opportunities for improving water service delivery through SWEs are lost.

Why should we give attention and recognition to SWEs?

In most cities of the developing world, including in Africa, the urban population is rising much faster (5 – 9% p.a.) than the rate at which infrastructure services are being extended. In part, residential population growth occurs through increases in existing settlement density. More visible, and problematic from an infrastructure perspective, is the rapid expansion of informal settlements at the peri-urban fringe, and on marginal or illegally occupied land. In many cities, such settlements – which almost inevitably lack sufficient conventional water supply infrastructure - are home to substantial proportions (as high as 40 or 50%) of the total urban population (UNCHS, 1996).

Water utilities, that provide water services through conventional distribution networks terminating with connections at the customers’ premises, are not keeping up with this population growth. Utility problems are typically widespread: they range from insufficient funds for operations and infrastructure, human resource constraints, unnecessary or inappropriate politicisation, inappropriate tariffs, disputed land tenure and inadequate infrastructure capacity. In the context of rapid urban growth and problems within and external to water utilities, many customers end up un-served or under-served by the water utility responsible for service delivery in the city. SWEs move in to fill the essential water supply gap. Not surprisingly utility service coverage, as percentage of population, is decreasing in many cities. In some (for instance Mombasa, Kenya and Khartoum, Sudan) the percentage relying at least partly on SWEs is as high as 75% (Albu & Njiru, 2002).

Several recent studies confirm that SWEs often provide useful services valued by their customers (Forrest, 1999; Wegelin-Schuringa, 1999; Collignon, 2000; Njiru and Smith, 2002; Njiru and Albu, 2004). In the eyes of the customer, satisfaction with water services combines characteristics such as quantity, quality, reliability, frequency, payment system, convenience and price. Apart from extending water services to settlements that have little prospect of being supplied through conventional distribution systems, SWEs may even be more convenient for poor households – for example in terms of reliability or ability to make daily cash payments - than conventional metered and billed connections.

Private sector management of water utilities does not necessarily diminish the role played by SWEs either. Factors which lead SWEs to be prominent in urban informal settlements present major obstacles to infrastructure provision by formal private operators too. In this context, SWEs can be efficient – providing water when and where people need it, in quantities they can afford, while creating local employment opportunities that keep cash within the local economy (Albu and Njiru, 2002).

It is highly unlikely that urban water utilities in African cities will make SWEs redundant any time soon. The crisis of water services, particularly in informal settlements, demands a flexible and innovative response from water utilities and regulatory authorities. An important option is therefore to recognise the existing and often well-established local small scale private sector players, and support them particularly through partnerships with utilities, in order to improve water services to all (Njiru, 2004).

Do SWEs rip off the urban poor?

Recent studies show that SWEs do not overexploit their customers. Indeed, SWEs have been found to conform far more closely to the free market ideal than do private utility operators. SWEs typically operate in highly competitive markets, and this competition keeps profits to a minimum, even in the absence of government regulation (McGranahan, et al, 2005). For instance, vendors in Khartoum (Sudan) reported finding it difficult to pass on a recent 15% increase in the utility’s water-yard charges to their customers. Although SWEs in Khartoum charge their customers up to four times the utility’s water-yard fee, most of this margin is easily accounted for by the high overhead costs of hiring carts and feeding donkeys and their drivers.  

The potential for utility-SWEs partnerships

Why should water utilities be interested in collaborating with SWE’s to overcome the sort of constraints described above? Water utilities, whether public or privately-run, are normally mandated to serve all urban customers, in a financially sustainable manner (Njiru and Sansom, 2003). Achieving this key objective is a high priority in many cities of the developing world. Water utility managers need innovative methods, including reaching out to SWEs (who are already providing water services to those not reached by the utility), with a view to forming mutually beneficial partnerships.

  • There are a number of potential direct advantages to utilities in encouraging and developing SWE partnerships, including (Njiru and Albu, 2004):
  • achievement of water service targets for customers in informal settlements, by incorporating SWE provision into the water utility's support chain. Utility-SWEs partnerships are perhaps one of few realistic options for water service delivery to customers in informal urban settlements for some time to come;
  • reduction in the massive level of investment needed for conventional water distribution infrastructure and maintenance;
  • reduction in unaccounted for water by reducing vandalism of water distribution pipes, which are often broken to create illegal sources.
  • improvement of revenue collection for the water utility - if SWEs pay for legitimate supplies.

In addition, political incentives can be mustered for partnership policies that also:

  • generate employment through entrepreneurship, particularly among the poor;
  • encourage the use of local resources, skills and appropriate technology (Sohail et al 2002);
  • promote the growth of economic opportunities for the poor, building upon their existing endowments of human and social capital (NPEP, 1999).

Typical interventions

Interventions have the potential to build upon business incentives and market opportunities available in a given location. In general, SWEs are likely to benefit from both policy and operational interventions such as (Njiru and Albu, 2004):

  • political recognition and acceptance of SWEs as viable and potentially significant contributors to service provision, especially in informal urban settlements;
  • enabling water regulation policy that recognises all stakeholders, including SWEs;
  • enabling informal settlement regulation, that would remove potential barriers that influence opportunities for water service initiatives;
  • enabling private sector participation policy, for instance that recognises the existence of SWEs, and favours their inclusion in water sector reform arrangements;
  • limited extensions of the distribution network, in collaboration and partnership with SWEs, in order to improve sources of bulk supply locally;
  • support and information for accessing micro-credit for SWEs;
  • leasing of improved (safer, less laborious) equipment for transporting water and/or vending facilities;
  • provision or rental of secure premises for storing equipment; and
  • provision of security in informal urban settlements.

Summary

Small water-providing enterprises (SWEs) are already playing a vital role in informal urban settlements in African cities, particularly for customers who receive inadequate or no water services at all from conventional water utilities. Their role is unlikely to diminish in the foreseeable future. Many SWEs operate outside the law. However, instead of assuming they are criminal exploiters of the un-served and/or under-served customers, they may be helped to provide a better service – for example, by improving their operating environment, upgrading technologies, legitimising their role and building their relationship with water utilities and authorities.

Findings from research in Dar es Salaam, Khartoum, Nairobi and Accra, for example, suggest that vendors make a critical and valuable contribution to water services, and do not operate exploitatively, but that there is plenty of scope to improve the efficiency of their businesses (McGranahan, et al 2005).

SWEs however face considerable constraints in their operation, many of which can be overcome by acceptance of SWEs as legitimate contributors to provision of water services. Acceptance of SWEs is the first step towards development of mutually beneficial partnerships between utilities and SWEs, recognising their shared incentives for improving access to water. This can enable SWEs to contribute to achievement of MDGs for water.

References

  • Albu, M. and Njiru, C. (2002): “The role of small-scale independent water providers in urban areas.” Waterlines International Journal of Appropriate Technologies for Water Supply and Sanitation; Vol. 20 No.3, Jan 2002.
  • Collignon, B. and Vezina, M. (2000): “Independent water and sanitation providers in African Cities, Full report of a Ten-Country Study”. (Water and Sanitation Program, Hydroconseil and IRC, also separate case-studies by IRC; Latin America).
  • Forrest, C. (1999): “Water vending in urban areas of developing countries.”Unpublished MSc report, Water, Engineering and Development Centre (WEDC), Loughborough University, UK
  • McGranahan, G., Njiru, C., Albu, M., Smith, M.D.S, and Mitlin, D. (2005): How small water enterprises (SWEs) can contribute to the Millennium Development Goals: Evidence from Accra, Dar es Salaam, Khartoum and Nairobi. Published by the Water, Engineering and development centre (WEDC), Loughborough University, 2005).
  • Njiru C (2004): “Privatising urban water services in developing countries”.Proceedings of the Institution of Civil Engineers (ICE) Water Management Journal, Volume 157, Issue WM3, September 2004, pages 123-130, Thomas Telford Ltd, London, ISSN1741 7589.
  • Njiru, C. and Albu, M. (2004): “Improving access to water through support to small water-providing enterprises.” Small Enterprise Development Journal, an international journal of micro-finance and business development (ITDG publishing) London, UK, Volume 15 Number 2, June 2004, pp30-36.
  • Njiru, C and Sansom K (2003): “Strategic marketing approach to urban water services in developing countries”. Published in the proceedings of the Institution of Civil Engineers (ICE) Municipal Engineer Journal, Volume 156, Issue ME2, Thomas Telford Ltd, June 2003, pp143-148.
  • Njiru, C. and Smith, M. (2002): “Better access to water in informal urban settlements through support to water providing enterprises.” Inception Report produced by the Water, Engineering and Development Centre (WEDC), Loughborough University, UK, December 2002.
  • Republic of Kenya NPEP (1999): “National Poverty Eradication Plan, 1999-2015”. Produced by the Department of Development Coordination, Office of the President, Republic of Kenya, 1999.
  • Sohail, M., Miles, D.W.J., and Cotton, A.P. (2002): “Developing monitoring indicators for urban micro contracts in South Asia.” International Journal of Project Management, Elsevier Science Ltd and IPMA, Vol. 20 (2002), pp583-591.
  • UNCHS (1996): “An Urbanising World; Global Report on Human Settlements”. Oxford University Press, London, 1996.
  • Wegelin-Schuringa (1999): “The SSIP model and community-based providers of water and sanitation services.” UNDP conference on Public-Private Partnerships for the urban environment; Bonn, 1999.

Acknowledgements

This fact sheet is an interim output from a project funded by the UK Department for International Development (DFID) for the benefit of developing countries. The views expressed are not necessarily those of DFID. The author wishes to thank DFID for providing financial support for the research.

This fact sheet draws from a research project entitled “Better access to water in informal urban settlements through support to water providing enterprises”. The author gratefully acknowledges the contribution of all members of the research team, particularly Mike Smith at WEDC, Mike Albu of ITDG, Diana Mitlin of IDPM and IIED, and Gordon McGranahan of IIED for their important roles in the project. The contribution of all the project partners who contributed to the field research is greatly appreciated.