Sanitation as a Business

Compiled by:
Mohnura Mamadgazanova (seecon international gmbh)

Executive Summary

Lack of sanitation is a major risk factor, especially for people in developing countries. Problems with sanitation services have led to the increasing awareness that the private sector is needed to tackle sanitation service problems. Sanitation business is about investing in solutions for sanitation problems by offering different sanitation products and services at appropriate prices. Improved sanitation is considered to be a huge market for private businesses, since 2,6 billion people or 41% of the world population until now do not have access to services (WBCSD 2008). This factsheet offers information on how to start a sanitation business to make use of this business opportunity.

Introduction

 RAINERFELLOWS n.y.

Sanitation is good for business. Source: RAINERFELLOWS (n.y.)

Lower-income countries have traditionally supported their public water and sanitation providers through budgetary grants (from taxes) and low-cost loans (supported via transfers), not expecting or requiring full cost recovery. The result has usually been a poor quality of service, accessed mainly by higher-income households with governmental support nearly always less than anticipated leading to weaknesses in operations and maintenance (WPP 2010).

Sanitation has become a global issue and the private sector has the responsibility to be part of the solution (WBCSD 2008). Sanitation is regarded to be a very profitable business with an estimated economic return of about 10 USD for every 1 USD invested (WBCSD 2008). Therefore, improved sanitation is both a contribution to sustainability and good for business.

The Private Sector as Provider of Sanitation Products and Services

Generally, the private sector consists of:

 

  1. Individual entrepreneurs that usually engage in offering simple products and services that do not require high investments. For instance, repairing and installation of water pipes, toilets and bathrooms. They can act as masons, plumbers and traders and thus generate income.
  2. Small and Medium size Enterprises (SMEs) differ from individual entrepreneurs in the number of employees and turnover, which is much bigger than that of individual entrepreneurs.
  3. Large companies are bigger than SMEs and also differ in the number of employees and turnover. They engage in offering more sophisticated sanitation products and services.

 

Steps for Starting a Sanitation Business

Like every business, building up a business in the sanitation sector requires 3 main steps:

 

1. Generation of Business Idea

Any idea that includes provision of products and services that is associated with the collection, transport, treatment, recycling and safe disposal of human waste, wastewater, storm water and garbage is considered to be a business idea for sanitation business (WBCSD 2008).

 

2. Collecting Data

This step helps to develop a business plan, which can afterwards be implemented.

 

  • Market research:Like any other kind of business, sanitation business starts with a market analysis. Sanitation market analysis is about collecting information on potential customers' preferences regarding sanitation services and products in particular and the sanitation market in general. Such kind of analysis helps to identify customers' behaviour, location, purchasing power and also specific preferences about sanitation products or services. It does also help to identify competitors and partners, suppliers and distributors, future market trends, etc.
  • Business legislation analysis:This information helps to identify the legal form of the business, business registration, procedures of taxation and customs procedures (see also policies and legal framework).
  • Business management:In this stage you should consider different questions of business management such as “do I have the necessary business management skills to start and run a new business?”, “what form of business should I register?”, “do I have the capacity to manage human resources?”, “which kind of human resources do I need?”
  • Financial planning:Financial planning helps to determine the preliminary costs of investments and future benefits of the sanitation business. It is also important for calculating the price of your product or service. Financial planning usually prevents to offer the products and services at a price below the operating margin and helps to control the financial resources (see also microfinance and donor agencies).

 

3. Implementation Stage

(Adapted from EBDSN 2004)

After gathering information about the intended business it is time to implement your business, which includes the following activities:

 

  • Business planning: Business planning includes information about sales and marketing, production of products and services (cost calculation, infrastructure, and equipment), management of the business and financial plan.
  • Financing: This is about generating own funds, and applying for loan funds from family, friends, and banks.
  • Administrative procedures:This step includes choosing the legal form of business, hiring staff, and taxation.
  • Infrastructure: This step is about choosing a location, making contracts about renting premises or leasing equipment, arranging electricity and transport facilities.
  • Making partnerships with suppliers:Find suppliers and compare prices of their products such as equipment, raw material, transport facilities and make contracts with suppliers.
  • Product and service development: This is about developing product ranges, packaging and pricing and improving the quality of your products and services.
  • Business management: It is about implementing accounting, human resources management, capacity building of the employees and the owner, stock management and management of services.
  • Marketing: Sanitation marketing refers to social marketing efforts that affect a behavioural change at individual and household levels. It also assures the awareness of people about the benefits of sanitation products and services. Consequently, this stimulates demand and ensures that people can get what they want at a price they are willing to pay (JENKINS & SCOTT 2010). For promoting sanitation business it is also important to take the marketing mix into consideration and position the business accordingly. The marketing mix consists of the 4 P's: Product, Prize, Place and Promotion.

 

Challenges

The success of business also depends on whether the country provides an enabling environment. An enabling environment is about infrastructure, access to finance and business development services as well as provision of effective business regulations. In developing countries it is often very hard to do business because of difficult business environments.

Another challenge with big companies is the issue of privatisation. Usually, privatisation of former publicly owned sectors or utilities raises concerns. Privatisation of the water and sanitation sector of a town, community or even a whole country, causes more than only concerns – it raises fierce protests and sometimes even violent opposition (QUEHENBERGER 2008).

Lower-income countries have traditionally supported their public water and sanitation providers through budgetary grants (from taxes) and low-cost loans (supported via transfers), not expecting or requiring full cost recovery. The result has usually been a poor quality of service, accessed mainly by higher-income households with governmental support nearly always less than anticipated leading to weaknesses in operations and maintenance (WPP 2010).

Sanitation has become a global issue and the private sector has the responsibility to be part of the solution (WBCSD 2008). Sanitation is regarded to be a very profitable business with an estimated economic return of about 10 USD for every 1 USD invested (WBCSD 2008). Therefore, improved sanitation is both a contribution to sustainability and good for business.

Applicability

It is very important to consider that every country has its own business regulations, which include the legal form of the business, registration, taxation, employment of people, etc. It is recommended to analyse the legal form of the business before starting up a business.

Advantages

  • Sanitation is a profitable business.
  • The market is easier to penetrate in developing countries because of little competition.
  • Sanitation businesses contribute to decreasing the global lack of sanitation.

Disadvantages

  • Might require high investments both in terms of finance and competences.
  • Since the clients are mainly poor people, they might not afford to buy high quality products and services at the offered price.
  • Raises the issue of privatisation and exploitation of basic needs of the poor.

References Library

EBDSN (Editor) (2004): Toolkit: Start and Improve Your Business. Ethiopian Business Development Service Network (EBDSN) in collaboration with Ethio-German Micro and Small Enterprises Development Project Ethio-German TVET Programme.

QUEHENBERGER (2008): Contractual Design and Renegotiation in Water Privatisation. Wien: Universität Wien, Fakultät für Wirtschaftswissenschaften. URL [Accessed: 02.09.2010].

RAINERFELLOWS (Editor) (n.y.): The Idea: Sanergy. URL [Accessed: 12.12.2011].

JENKINS, M.; SCOTT, B.; USAID HIP (Editor) (2010): Sanitation Marketing for Managers. Guidance an Tools for Program Development. Washington DC: United States Agency for International Development Hygiene Improvement Project (USAID HIP). URL [Accessed: 15.06.2011].

WBCSD (Editor) (2008): It is Time for Business to Act. World Business Council for Sustainable Development (WBCSD). URL [Accessed: 28.08.2011].

AFRICAN DEVELOPMENT BANK (2011): Guidelines for User Fees and Cost Recovery for Rural Non Networked Water and Sanitation Delivery. Tunis : The African Development Bank. URL [Accessed: 15.06.2011].

WPP (Editor) (2010): Guidelines for User Fees and Cost Recovery for Rural, Non-Networked, Water and Sanitation Delivery. Water Partnership Programme (WPP) of African Development Bank (AfDB). URL [Accessed: 24.08.2011].

Further Readings Library

Reference icon

BAETINGS, E. (n.y.): Sanitation Marketing Dashboard. The Hague: IRC International Water and Sanitation Centre. URL [Accessed: 26.02.2013].

Consultant-led sanitation marketing surveys typically take months to produce a thick report with largely impractical recommendations. The IRC International Water and Sanitation is developing a field tool that delivers, within just one week, a one-page overview matching sanitation supply and demand. The tool, a sanitation marketing dashboard, was tested in two unions covered by the BRAC WASH II programme in Bangladesh.


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BRAMLEY, S. ; BRESLIN, E. (Editor) (2010): Sanitation as a Business: A new spin on the challenge of Sanitation Operation and Maintenance. URL [Accessed: 22.10.2011].

This paper describes Sanitation as a Business as an innovative approach to operation and maintenance challenges in household sanitation improvements.


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JENKINS, M.; SCOTT, B. (Editor) (2007): Opportunities for Sanitation Market in Uganda. The publication was prepared by the Academy for Educational Development's Hygiene for review by the United States Agency for International Development (USAID). URL [Accessed: 28.08.2011].

In October 2007, a team of consultants from the USAID–funded Hygiene Improvement Project (HIP) visited Uganda to determine if sanitation marketing (SM) would be a viable approach in Uganda, and to make specific recommendations to HIP and the donor community that would move the sanitation marketing agenda forward. This report presents the key findings and recommendations stemming from the trip.


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MINH, H.V. ; HUNG, N.V. (2011): Economic Aspects of Sanitation in Developing Countries. In: Environmental Health Insights 2011 5, 63–70. URL [Accessed: 12.12.2011].

This paper reports and discusses currently available evidence on the economic aspects of sanitation, including the economic impacts of unimproved sanitation and the costs and economic benefits of some common improved sanitation options in developing countries.


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SUSANA (Editor) (2010): Sanitation as a Business. (= SuSanA Factsheet). Sustainable Sanitation Alliance (SuSanA). URL [Accessed: 01.02.2011].

The fact sheet describes sanitation as a good business opportunity. The challenge is to find and identify effective, scalable, and sustainable sanitation solutions with economic attractiveness and allocate investments and funds to be able to implement the projects. This process needs to be guided by experts of marketers and designers and can effectively supported by the central and local governmental agencies and NGOs.


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TREMOLET, S. (2012): Sanitation Markets. Using economics to improve the delivery of services along the sanitation value chain. London: Sanitation and Hygiene Applied Research for Equity (SHARE). URL [Accessed: 29.01.2013].

The "sanitation economics" approach used throughout the paper consists of applying economic principles, approaches and tools to evaluate a number of "sanitation markets" alongside the sanitation value chain. Each segment of the sanitation value chain can be conceived as a separate "sanitation market", with different actors demanding and providing sanitation services.


Reference icon

WSP (Editor) (2004): Sanitation is a Business. Approaches for demand-oriented policies. Swiss Agency for Development and Cooperation (SDC). URL [Accessed: 22.10.2011].

Until now, sanitation has been seen as an unpopular “obligation”, a headache and an unwelcome burden for more successful water programmes. But the case for meeting the Millennium Development Goals (MDG) in sanitation is overpowering and can only be achieved if the private sector becomes more involved in sanitation. Under the new paradigm, sanitation has to be seen as an opportunity – actually, as a business.


Reference icon

THE WORLD BANK (Editor); WSP (Editor); IFC (Editor) (2013): Tapping the Market - Opportunities for Domestic Investments in Water for the Poor. (= Conference Edition). Washington: The World Bank, Water and Sanitation Program (wsp), International Finance Corporation (IFC). URL [Accessed: 05.09.2013].

To improve access to safe water, particularly by the poor, developing country governments and the international development community are looking to the domestic private sector to play an expanded role. This report examines piped water schemes in rural areas of Bangladesh, Benin, and Cambodia and concludes that in the three study countries, un-served people could increasingly rely on service provision through the domestic private sector as the potential market the domestic private sector could be serving is very large.


Reference icon

THE WORLD BANK (Editor); WSP (Editor); IFC (Editor) (2013): Tapping the Market - Opportunities for Domestic Investments in Sanitation for the Poor. (= Conference Edition). Washington: The World Bank, Water and Sanitation Program (wsp), International Finance Corporation (IFC). URL [Accessed: 05.09.2013].

To improve access to sanitation, particularly by the poor, developing country governments and the international development community are looking to the domestic private sector to play an expanded role. This report examines private sector provision of on-site sanitation services in Bangladesh, Indonesia, Peru, and Tanzania and concludes that in the study countries, un-served people could increasingly rely on service provision through the domestic private sector as the potential market the domestic private sector could be serving is very large.


Reference icon

COWLING, R. (2013): Achieving Sustainability. Guiding Entrepreneurs to Independence. (= Practice Note, 12). London: Water and Sanitation for the Urban Poor (WSUP). URL [Accessed: 01.10.2013].

Supporting entrepreneurs to start up viable sanitation businesses can be relatively straightforward. However, challenges typically arise in the transition from donor-supported start-up to true independence. This note looks at the obstacles that need to be overcome in growing start-up businesses to become fully self-sustaining, and discusses how progress can be made.


Case Studies Library

Reference icon

MUELLEGGER, E. (Editor); LANGEGRABER, G. (Editor); LECHNER, M. (Editor) (2010): Sanitation as a Business (Issue 5). (= Sustainable Sanitation Practice, 5). Vienna: Ecosan Club. URL [Accessed: 01.07.2013].

This Sustainable Sanitation Practice (SSP) issue contains the following contributions: 1. Mushroom Production in Bolivia, 2. Community Human Waste Management, 3. Austria vs. East Africa - Analysis of Solid Waste and Wastewater Sector, 4. Financing the Invisible Entrepreneur, 5. Establishing a World Trade Hub for the Urban Poor.


Reference icon

ESPER, H.; LONDON, T.; KANCHWALA, Y. (2013): Improved Sanitation and its Impact on Children. An Exploration of Sanergy. (= Child Impact Case Study, 2). Ann Arbor: William Davidson Institute at the University of Michigan. URL [Accessed: 11.01.2014].

The introduction of adequate sanitation can provide a range of health advantages and other positive benefits to households and communities. This case examines the impacts a for-profit enterprise, providing sanitation services to the Base of the Pyramid, has on children and pregnant women and how these impacts can be enhanced.


Important Weblinks

http://www.doingbusiness.org [Accessed: 20.12.2011]

This website provides objective measures of business regulations and their enforcement across 183 economies and selected cities at the subnational and regional level. It also offers detailed subnational reports, which cover business regulation and reform in different cities and regions within a nation. These reports provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas.

http://www.bpdws.org/ [Accessed: 20.12.2011]

Building Partnerships for Development is a worldwide network of partners involving government, business, civil society and donors.

http://www.smetoolkit.org/ [Accessed: 20.12.2011]

The SME Toolkit website provides information about different steps of making business and helps you start your own business.

http://www.thetimes100.co.uk/ [Accessed: 20.12.2011]

This website provides different case studies about different aspects of business.