It works in the UK, so why not privatise the water sector in Africa?

In the United Kingdom our water supply is owned outright and operated by the private sector. In 1989 under the Thatcher government, the ten previously public regional water authorities in England and Wales were sold and since then the government has assumed a regulatory role via two institutions; the Water Services Regulation Authority (Ofwat) and the Environmental Agency. Water and sanitation coverage in the UK is 100%, continuity of supply is 100%, waste water treatment is 100% and the water companies are strictly regulated to ensure high standards of service, reinvestment in infrastructure and low environmental impacts. So is our model of water and sanitation service something that should be strived for in sub-Saharan Africa where the public sector has more often than not failed to provide sufficient coverage?

The debate regarding the role of the private sector in utility provision has been going for a long time but it has recently come to the forefront of water and development policy in sub-Saharan Africa. In response to widespread public sector failure, over the last 30 years there has been a shift from the state to the private sector in utility provision which has been driven by idealogical arguments of market forces, increased efficiency, reduced corruption and improved cost recovery. However, while at least 14 countries in SSA have privatised their water sector to some extent since 1960, results have been highly varied and the evidence suggests that in many cases privatisation has not led to any significant improvements in service (Bayliss 2003).

For any government looking to shift the responsibility of utility provision to the private sector, there are a broad range of options available that differ in the extent to which responsibility and risk is transferred. At its lowest level, this involves short term management contracts of 2-5years in which a private company bids for the contract and once won, operates the water supply network for profit until the contract is renewed. In these arrangements the water supply network remains under government ownership and the government is responsible for the maintenance and expansion of the infrastructure. Leases and concessions are similar arrangements but contracts may be awarded for up to 50 years. In these cases, the private company usually has to meet contractual agreements regarding investments in infrastructure but may have more power regarding the pricing structure of the service. The most extreme scenario, as is the case of the UK, is complete divestiture of the water network in which the whole system is sold and ownership is completely transferred to the private sector. This last scenario has not yet occurred in Africa.

So in the 14 countries that have partially resorted to privatisation in SSA, what have been the results? Kate Bayliss (2003) looked at just this and found that results have been mixed. Her three key findings were firstly that the impact of privatisation was highly dependant upon the precursive conditions of the water supply system that the private sector inherited. In countries that already had relatively good systems of water provision such as Senegal and Gabon, performance and coverage was slightly improved following privatisation. In countries such as Guinea on the other hand, where the private sector got involved with weak systems of water supply, improvements did not occur and in some cases prices soared and no investments were made in expanding the network infrastructure. Secondly, regulation of the private companies and their performance has proved extremely difficult even where institutional capacity is relatively advanced. And thirdly, the idealogical arguments for privatisation have been undermined by a lack of investor interest and competition for government contracts.

If we link this back to the UK. At the point of privatisation in 1989, water and sanitation provision in England and Wales was already excellent. Performance was good and bill collection was very high. Since then, performance has been slightly improved in terms of reduced leakage, infrastructure expansion, increased service reliability and increased water quality. Furthermore, a strong existing institutional structure has held private water companies to strict laws and regulations. In 2016, Thames Water was fined £1million after the Environmental Agency found that they had accidentally released sewage into a canal in Hertfordshire. In other cases, fines were ordered to be reinvested in infrastructure rather than given to the government directly, and in 1998 a law was passed to make it illegal for water companies to cut off houses following non-payment.

Poorly performing inlet screens failed to prevent sewage entering the  Grand Union Canal in Hertfordshire

However, while performance has improved, in the first nine years after 1989, water tariffs increased by 46% while operating profitability increased by 142%! This can be partly attributed to the natural 'monopolous' nature of water networks. The success of the private sector is based strongly upon the concept of competition. In the UK competition is partly induced by Ofwat but water companies can still to a large extent assume a permanent customer base due to their individual spatial monopolies and therefore get away with relatively high prices. Fortunately for them, in the UK pretty much everyone can afford to pay such prices.

Using Bayliss' findings we can conclude that privatisation has worked in the UK because the inherited system was already very good, there was a strong institutional capacity for regulation and the customer base was wealthy enough to allow the water companies to make substantial profits while meeting service requirements. Furthermore, Ofwat has enough power to induce incentives for good performance thus simulating a reasonable degree of competition.  In sub-Saharan Africa however, many of these conditions are lacking. Privatisation may not therefore be the best way forward, particularly for those countries where water and sanitation provision are the least developed. Bayliss concludes that privatisation should be considered much more carefully in context with the conditions of the prospective country and that while success is possible, it should not be pushed by international donors as the ultimate solution to all SSA's water supply problems. Others are even more sceptical, arguing that government regulation in much of Africa is simply not conducive with utility privatisation and that it will therefore lead to many of the poorest people being completely cut off from safe water supplies.