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.

1. The Economics of Sanitation Initiative
Phase 2: Economic Evaluation
Guy Hutton
Senior Economist, Consultant
Water and Sanitation Program

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. 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. How Can Efficiency Measures Enable Better
Decision Making?
Economic = full, social impacts Options versus OD:
Efficiency of raising households
Financial = 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. SELECTED FINDINGS FROM 40 SITES in ASIA
… Relative Performance Varies Among Options
Indonesia - rural
8
7
6
Benefit-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. 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. 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. SELECTED FINDINGS
Impact 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. 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. To
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os
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1.5
2.5
3.5
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2
3
4
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at
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SELECTED FINDINGS
n v c e id a
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ie
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l
Ni e fo dre
gh r n
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s e er
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t
Av oile
oi t
Da d
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Don’t Forget Non-Quantified Benefits!
ou e
s a r in
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al
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China: Average satisfaction with current toilet option
Improved
Unimproved

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. 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. www.wsp.org
Acknowledgements
With 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