Economics of Sanitation

Most of us in the development community are aware that proper water and sanitation services are crucial for life and health. Proper sanitation especially can decrease the instances and spread of disease. But in making the case to Ministers of Finance, it is often the economic and financial case that we have to make in order to garner the investments needed to make a difference.

A Water and Sanitation Program report we released last month, called Economic Impact of Sanitation in Indonesia (pdf), makes that case for that country. The report says that the economic costs of poor hygiene and sanitation in Indonesia reached an estimated US$6.3 billion, or 2.3 percent of GDP in 2006.

Poor sanitation, including poor hygiene, causes at least 120 million disease episodes and 50,000 premature deaths annually, the report says. The resulting economic impact is more than US$3.3 billion (IDR 29 trillion) per year. Poor sanitation also contributes significantly to water pollution—adding to the cost of safe water for households, and reducing the production of fish in rivers and lakes. The associated economic costs of polluted water attributed to poor sanitation exceed US$1.5 billion (IDR 13 trillion) per year.

In 2006, Indonesia lost an estimated total of US$6.3 billion (IDR 56 trillion) due to poor sanitation and hygiene, equivalent to approximately 2.3 percent of gross domestic product (GDP), the report says.

Health and water resources contribute most to the overall economic losses estimated in the study. These impacts are expected to cause financial losses to people who have to pay for health services, who pay more to access clean water supplies, or who may lose income from work absenteeism due to poor health.

The appalling fact is that according to the UNICEF and WHO Joint Monitoring Programme, 2.5 billion people, or roughly 38 percent of the world’s population, do not have access to proper sanitation services.

Millions of children are dying preventable deaths every year because of diarrheal disease caused by fecal to oral routes of transmission that can be easily obstructed. The economic impact of poor sanitation is also staggering.

Previous WSP reports also found significant losses in GDP in Cambodia (7.2%), Lao PDR (6.4%), Philippines (1.5%) and Vietnam (1.3%). (see related post)

Given that the poor already struggle more to manage the effects of global food and energy prices, conflict and natural disasters, the sanitation challenge remains great. But I find that one of the most striking points about sanitation is that simple changes in behavior, such as hand-washing with soap at critical times such as before eating, can have huge, positive impacts on health.

This perspective is shared and proven by others in the sector. Government-led efforts in collaboration with the international community indicate that economic, environmental and social returns on investment in sanitation and water are higher than in other sectors. Recognizing this, the World Bank significantly increased its lending for sanitation and wastewater projects since 2002, currently managing a portfolio of US$4.3billion. Also, a recent WaterAid report reveals that improved sanitation could bring the single greatest reduction in the deaths of children under the age of five.

Our program recognizes that the most effective solutions are home-grown, so we propose our partners do just that.

First, government ministries and the local private sector should explore possibilities to catalyze market-based solutions to the provision of sanitation services. Examples from Ethiopia, Senegal and Bangladesh indicate the potential for developing large-scale sanitation markets using advocacy and demand-driven approaches. Also, sanitation marketing methods help suppliers better understand consumer preferences and barriers to adopting and using improved sanitation.

Second, civil society, governments and news media should seek out and report on available information about new sanitation technologies and successful practices. Better awareness and understanding will enable officials to make the case for needed investment from finance ministries, while allowing civil society organizations and the news media to demand accountability, giving a louder voice to the people they represent.

Finally, we encourage governments, civil society, and the news media in developing nations to support simple and cost-effective campaigns, such as those that promote hand-washing with soap after defecation, after cleaning a child’s bottom, and before cooking, serving food and eating. This simple act can cut diarrheal disease transmission in half.

East Asia could greatly benefit from these improvements in the sanitation sector. It is good economics – but more importantly, it saves lives.