TCS Daily

Liquid Asset

By Fredrik Segerfeldt - January 23, 2004 12:00 AM

A global water crisis is looming. More than a billion people worldwide lack access to clean and safe water -- with devastating effects: 12 million deaths annually and millions of others struck by disease and poverty. In 2003, more people most likely died from lack of water than from armed conflicts. The situation is precarious, as recognized by the UN, making halving the number of people without water one of its Millennium Goals.

Despite the huge dimensions of the problem, there is a solution. Up until now, a small number of developing country governments have turned to the private sector for help and have introduced market-oriented reforms in the water sector. Overall, the results have been very positive. Even though the reforms have had limited scope -- 97 percent of all water distribution is still in government hands -- millions of new households in such diverse locations as Argentina, Cambodia, Guinea, Morocco and the Philippines have been connected to water networks. In developing countries with private investment in water infrastructure, 80 percent of the population has access to an improved water source, compared to only 73 percent in developing countries without such investments.

But the privatizations have been met with vociferous resistance. A coalition of NGOs, trade unions for public employees and some media, primarily through demonstrations and high-profile campaigning, have done all they can to limit the role of the market and the business community. And they have been successful. The privatization pace has slowed down and the World Bank, one of the major privatization catalysts, has gone on the defensive. Global water companies are less and less inclined to invest in developing countries. At the World Social Forum, in Mumbai, India, the campaigning has continued.

This is a tragic development, and all the more so since the anti-privatization lobby is wrong on almost every account. What they call privatization is not at all about complete deregulation and liberalization of services. Rather, what we have seen are different forms of tightly regulated cooperation between cash-strapped developing country governments and skilled and experienced water companies.

The most common argument against privatization is that it will lead to rate hikes, making it impossible for the poor to pay for their water. This is a gross simplification. True, there are cases where prices have gone up after privatization, but there are also cases where rates have been lowered.

Actually, artificially low prices are one of the main causes behind the crisis. When operators know that they are going to lose money on each new household that they connect, they have no incentives to extend the networks. Furthermore, they do not get enough capital to lay down new pipes or to maintain the infrastructure. Millions of women and children therefore spend many hours a day (10 million man-years per annum) fetching bad water from remote sources. They cannot work or go to school and are thus trapped in poverty. Too low prices also lead to waste and misallocations in agriculture where most water is used, and generally used inefficiently.

But most importantly, the billion people who are not connected to any water network buy water -- usually of bad quality -- that costs on average 12 times more than network water. These people will gain, not lose, from higher prices, when operators get capital and incentives to reach them. Since the poor are not connected to the networks, they do not gain from subsidized water. Rather the contrary, they pay for it with their taxes, financing cheap water for the better off.

The anti-privatization movement claims that water is a human right that only governments can provide. The problem is that they cannot. It is clear that the public sector has failed. And it is not surprising that water companies with skills, incentives, capital and technology are far better equipped to provide people with water. No matter how many documents there are stating that access to water is a fundamental right, people drink neither paper nor rights, but water. There is a solution to the crisis. Companies and markets can save millions of lives -- if they are allowed.

Fredrik Segerfeldt is the author of Vatten till salu - hur företag och marknad kan lösa världens vattenkris (Stockholm, Timbro 2003) (Swedish for "Water for sale - how companies and the market can solve the global water crisis).


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