The Economics of Sanitation Initiative Phase 2: Economic Evaluation


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This PowerPoint was presented by WSP Senior Economist, Guy Hutton, during AfricaSan 3 (Kigali, Rwanda - 2011) under the "Economics of Sanitation for Advocacy and Decision Making" session.

This session introduced the Economics of Sanitation Initiative (ESI) aims, rationale, and methods. A panel of experts from government, donors and other sector specialists in Africa commented on the use of ESI results for sanitation financing; the use of media to influence stakeholders; the mechanisms for adopting ESI results into government decision making; and critical assessment and proposed improvement to ESI methods.

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The Economics of Sanitation Initiative Phase 2: Economic Evaluation

  1. 1. The Economics of Sanitation Initiative Phase 2: Economic Evaluation Guy Hutton Senior Economist, Consultant Water and Sanitation Program
  2. 2. Why Economic Evaluation? Compares both the costs and benefits of at least two alternative  Decision makers: policy options, in this case • Line Ministries sanitation interventions • Decentralized Enables decision makers to make government an informed choice based on • Communities objective and explicit comparison • Households • Advocacy: Is the investment worthwhile? • Commercial operators • Selection: Which option performs ‘better’? • Budgeting: What are initial & running costs?  Types of analysis: • Financing: Who pays, who could pay? • Cost-benefit • Programming: How to improve performance? • Cost-effectiveness Ideally, economic evaluation • Cost-utility feeds into a formal decision • Cost-minimization making process such as multi- criteria analysis
  3. 3. What Variables Make Up the Cost-Benefit Analysis?Cost breakdowns Community Benefits • Investment/recurrent Benefit $ Non- • Hardware/software $ • On-site/program costs Health ✔ ✔ • Household/external agent Water ✔ ✔ • Ingredients (house) • Cash payment/in-kind Access time ✔ ✔ contribution Reuse ✔ ✔Other benefits Intangibles ✔ • School performance National Benefits Environment ✔ • Broader water impacts • Tourism • Property value • Businesses • Public toilet fee • Water quality
  4. 4. How Can Efficiency Measures Enable BetterDecision Making?Economic = full, social impacts Options versus OD: Efficiency of raising householdsFinancial = monetary impact out of OD, or of preventing those with sanitation from falling back to • Benefit-cost ratios (BCR) OD Benefit per currency unit invested • Internal rate of return (IRR) Options versus each other: Annual rate of return on investment Efficiency of moving from one option to another before the end • Payback period of life of existing option (e.g. Years to recover costs (break even) upgrade) • Net present value (NPV) Discounted future benefits – costs • Cost-effectiveness ratios Cost to avoid 1 death or disease case or Cost of reducing 1 polluting unit • Benefit-cost incidence Population groups the Cs and Bs fall on
  5. 5. SELECTED FINDINGS FROM 40 SITES in ASIA … Relative Performance Varies Among Options Indonesia - rural 8 7 6Benefit-Cost Ratio 5 Access time 4 Water treatment 3 Water access 2 Health mortality Health productivity 1 Health care 0 Public Shared Dry pit Wet pit Septic / WWM Dry pit outperforms wet pit
  6. 6. SELECTED FINDINGS Higher Ladder Options – Higher Benefits… China - rural 300 250 Annual economic benefit 200 per household 150 Reuse Access time 100 Water access Health mortality 50 Health productivity Health care 0 Pit latrine UDDT Septic tank
  7. 7. SELECTED FINDINGS…but at What Cost? Annualized Cost per Household 70 60 50 40 China - 30 rural 20 10 0 Shared Pit UDDT Biogas Septic tank US$ (2009) Program Maintenance Operation Investment 140 120 100 Philippines - 80 rural 60 40 20 0 Dry pit EcoSan Septic tank Septic tank with STF
  8. 8. SELECTED FINDINGSImpact on Resources/Environment Undervalued With and without wastewater management 6 5 4 3 2 1 Access time Water treatment 0 Water access Wet pit Septic Septic Septic Septic Septic Wet pit Septic Health mortality WWM WWM WWM WWM Health productivity Health care Indonesia Philippines Vietnam China (Yunnan) If environmental benefits are not monetized, the cost- benefit performance of WWM is lower than other options
  9. 9. SELECTED FINDINGS Use What is There More Efficiently Percentage loss in efficiency under actual program conditions 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
  10. 10. To i le tp os 0.5 1.5 2.5 3.5 0 1 2 3 4 Cl it ea ion nl in es s St at Vi us M sit ai or nt s aiCo Co ni n v n fl ng en ict He Co ien a vo alth SELECTED FINDINGS n v c e id a en for nc ie nc c h i e l Ni e fo dre gh r n t u e ld s e er of ly t Av oile oi t Da d ng Sh rain e r ow Don’t Forget Non-Quantified Benefits! ou e s a r in ni g m al s China: Average satisfaction with current toilet option Improved Unimproved
  11. 11. Key Messages• Sanitation is a socially profitable investment• Economic performance varies substantially between technology options• You can’t copy and paste – significant inter-country differences of costs and benefits• Choices must be made on level of benefits required - higher benefits usually cost more: what is the willingness to pay?• Use what is there better - optimal versus actual economic performance• Non-quantified and environmental benefits of sanitation require better understanding as they are crucial to consider in decision making
  12. 12. What Next for Africa?• What overall evidence gaps remain – which once filled – would make you more comfortable in selecting sanitation interventions?• Which costs and benefits would you specifically like to know more about in your decision making context?• What is the need to conduct economic research in all African countries? How do you feel about using research results from a neighboring country?• What rural and urban sanitation options need the greatest focus for the next five years of policy making?• How can messaging of the results be better refined to have the desired impacts?• What links need to be made to financing evidence and the private sector communities, and how?
  13. 13. www.wsp.orgAcknowledgementsWith special thanks to funding agencies, staff of WSP,consultant teams and their institutes:- Cambodia: Sok Heng Sam, EIC- Indonesia: Asep Winara, MLD- Philippines: U-Primo Rodriguez, UP- Vietnam: Viet Anh Nguyen, IESE- Yunnan: Liang Chuan, YASS