Performance-based Financing for Municipal Sanitation Service Provision in Mozambique

Sanitation departments are the weak link of some municipal governments in Mozambique. A unit in need of better professional performance and positive change. And sometimes a place where old machinery and equipment are being retired after their historical contribution to municipal development.

Despite having the mandate to institute a comprehensive approach to managing all elements of the sanitation service chain, municipalities often have limited technical capacity and fiscal space. They lack the necessary resources, tools, and assets to perform their functions effectively and efficiently.  They are fiscally constrained and unable to provide a quality service that citizens consider worth paying for. Tackling these challenges and transforming sanitation departments to deliver on their mandate can seem daunting. But it comes down to one thing - Incentives. 

The Mozambique Urban Sanitation Project, approved by the World Bank in May 2019, uses financial incentives to stimulate the much-needed institutional reforms at the municipal level and revenue collection for sanitation services. About ten percent of the project funding is through a performance-based grant scheme. The scheme links financing to achieving a minimum set of indicators (institutional, operational, and financial) on a performance scorecard agreed between each participating municipality (Maputo, Beira, Nampula, Quelimane, and Tete) and the National Directorate of Water Supply and Sanitation.

The grant consists of two parts: a fixed part linked to the achievement of specific institutional pre-requisites (such as the establishment of a ring-fenced municipal sanitation department, approval of the sanitation service improvement plan, and introduction of a sanitation fee) during the first two years of the project, and a variable part linked to actual sanitation revenues collected by the municipality throughout the project period. Municipalities are expected to utilize the grants to finance equipment, logistical support, and other assets and tools needed for sanitation service. The grant also contributes to funding the gap between sanitation service costs and the sanitation revenues collected.

By the end of August 2021, all the municipal councils had completed the minimum institutional pre-requisites for accessing the fixed grants. Councils gazetted new urban sanitation by-laws , introduced a sanitation tariff and set up ring-fenced sanitation management units, with the necessary financial and managerial autonomy. Beira municipality was the pioneer and received the first disbursement of the grants in October 2021, followed by Nampula, Quelimane, and Tete in November 2021. All the participating municipalities are in the process of acquiring new equipment to service households with improved fecal sludge management, sewerage, and drainage services.  Others are upgrading workstations and providing technical and safety training for their staff.

The grants will enable municipalities to provide service improvements early in the project, thus increasing willingness to pay for service among citizens and allowing municipalities to gradually recover a significant proportion of the cost of delivering services through sanitation revenues. Beira, Nampula, and Quelimane have commenced revenue collection for sanitation services. Tete will start in December 2021 and Maputo early next year.

These early lessons from Mozambique show that well-designed financial incentives can overcome bureaucratic inertia, leading to action on long-standing institutional issues that affect sanitation service delivery in cities and municipalities.