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Financing Water in Asia: Driving Development¹

Keynote Address by
Wouter Lincklaen Arriens
Lead Water Resources Specialist
Asian Development Bank

At the 3rd Southeast Asia Water Forum

22 October 2007
Kuala Lumpur, Malaysia

Greetings

Excellencies, distinguished guests, ladies and gentlemen, distinguished guests, I am pleased to be here today to discuss with you the important role of water management in economic growth and the financing challenges it faces.

I would first like to express ADB’s appreciation to the Malaysian Water Partnership and the Ministry of Natural Resources and Environment for hosting this third Southeast Asia Water Forum. The earlier Forums have been useful events for sharing of knowledge and experience, and I am sure that tradition will continue here. I am particularly pleased that this year’s forum is focusing intently on progress and results on the ground. It has been ten years now that the concept of Integrated Water Resource Management or IWRM has been promoted in this region, and a review of its implementation is timely.

What are the Challenges?

Coming into sharper focus at this year’s forum are the challenges of water financing. And there are, indeed, financing challenges, but increased investments in this area are not without strong economic justification. The proper management of water is fundamental to social development and economic growth. In this sense, it is a socially vital economic good.

ADB advocates that IWRM be implemented in a river basin context because river basins—or in some cases, groundwater basins—form the natural unit for managing water resources. As many of you have come to know, IWRM is a necessary process in each country for improving the planning, conservation, development, and management of the various resources in river basins. IWRM aims to maximize economic benefits and social welfare in an equitable manner without compromising the sustainability of vital environmental systems. It looks, therefore, for a triple bottom line of investments, to satisfy economic, social and environmental objectives. If you still have difficulty to grasp what IWRM is practically about, and many people do, please remember that is about achieving this triple bottom line.

Water, however, is not only a resource, it is also a service. And the governance of water service provision is different from managing water as a resource. As a service, people must have access to safe and reliable supplies for the sake of their health, livelihood and productivity. ADB’s Water for All policy promotes that water services require accountable and autonomous service providers, credible regulation, and consumers sharing in the service costs of the services, at the very least to cover operations and maintenance.

Water services and IWRM for healthy river basins are therefore both vital for sustained economic growth.

Driving Development

Water is an “opportunity sector” for driving down poverty and driving up economic development in a sustained manner. When the poor—which make up a sizeable portion of the population in this region—have access to safe drinking water and sanitation, they are in economic terms a more productive work force. Safe water supplies immediately improve people’s health and save them time, which they can use to study, or improve their livelihoods, so they can earn more, eat more nutritiously, and enjoy healthier lives. On the other hand, improved sanitation protects the poor from socially and physically degrading surroundings, health risks and exposure to dangerous environmental conditions.

You can begin to imagine then, the economic loss that results from poor water service delivery at the household level, and at the macro-economic level, where agriculture and industries are underperforming or experiencing lagging growth because of insufficient water management. Let us look at just how serious the coverage levels are in Southeast Asia.

One of the most widely quoted references on the subject is a joint agency report led by ADB, “Asia Water Watch 2015,” which reports that more than 113 million people in this region alone—nearly a quarter of the population—do not have access to safe, reliable drinking water supply. And 83 percent of these live in rural areas. Ten percent of Southeast Asia’s city dwellers are without access to safe drinking water, compared to 30 percent of its rural population. Sanitation coverage presents a far greater challenge.

The good news, the report finds, is that most countries are in a position to invest in water at a level that will start to bring about significant social and economic change. The economic benefits of improved water supply and sanitation far outweigh the investment costs. The report states—and subsequent studies by other agencies agree—that for every $1 invested in improving the poor’s access to water supply and sanitation, up to $6 can be gained in health, education and income benefits. The World Health Organization estimates that for every $1 invested in water services, between $3 to $34 is gained in the health, agricultural and industrial sectors.

The cost of not investing in water supply and sanitation is much higher in economic terms. Reacting to disease, rather than averting it with investments, has proven costly. The most documented case being that of Peru’s, which paid $238 million in managing a cholera outbreak from contaminated drinking water. This year, Nepal has also faced high costs of dealing with a cholera outbreak. Losses—large ones—have also begun being studied in the tourism sector. For example, India loses an estimated $238 million annually in lost tourism revenue due to perceptions of poor sanitation by potential tourists.¹ Tourism is important to economic growth, as are private sector investments to spur the economies in the region. They are a primary engine of economic growth and are an important part of development strategies by governments in Southeast Asia. Yet, they depend on efficient services for water supply and wastewater management.

An increasing amount of new research is pointing to a significant relationship between income, measured as gross domestic product (GDP) per capita, and the proportion of people with access to water and sanitation.² One such study, by the World Institute for Development Economics Research, found that poor countries with access to improved water and sanitation services have enjoyed annual average growth of 3.7% of GDP, while those without adequate investment in water services saw their GDP grow at just 0.1% annually.

Significant investments are also needed in irrigation services, river basin management, flood management and mitigation, and wastewater management. There is also a need to drastically reduce the vulnerability of human populations to water-related disasters. In the last century, the Asia and Pacific region accounted for 91% of the world’s total deaths due to natural disasters and 49% of the world’s total damage due to natural disasters. The People’s Republic of China attributes a 1% loss of its GDP every year to floods.³

Climate change and its resulting variability in floods and droughts will make water investments more complex to design, and more urgent to get started with. The number of typhoons and cyclones as well as drought-affected areas has been increasing. Governments will need to develop more capacity in their countries to manage water under these increasingly uncertain conditions. Their investment will pay back economically. For example, studies have found that in countries where water storage capacity is improved, national economies are more resilient to variability in rainfall, and economic growth is boosted.⁴

Where Water Investments are Working Hard at Development

Southeast Asia has emerged as a region to look to for examples of the power of water investments and better management. Let me name a few.

• Malaysia’s success in providing improved water supply and sanitation services has been supported in large part to the government’s leadership. At the center of this is a national policy that considers the private sector as a key partner in national development. This Southeast Asia Water Forum provides an excellent opportunity to learn about Malaysia's experience with private sector participation, as well as its experience with recentralizing water assets through the new Water Management Corporation under the Ministry of Finance. It will be beneficial to learn the lessons from these initiatives.
• Thailand and Indonesia, among others, have made notable progress in introducing IWRM in river basins. From the formation of new river basin organizations and the involvement of civil society like in the Bang Pakong river basin in Thailand, examples are shown how a national water policy and an inclusive approach with stakeholders are helping to support the country’s growth. In Indonesia, long-term management and investment plans are underway for strategic river basins, such as the Citarum basin in West Java, with ADB’s assistance.
• Singapore continues to demonstrate excellence in innovation of urban water management to fuel the city’s economy and sustainable natural resource management. Singapore’s internationally acclaimed Public Utilities Board—Singapore’s water authority—has combined frontline technology with demand management, supported by good awareness among the water using public. PUB and ADB are partnering to create a regional knowledge hub on urban water management to promote similar excellence in other countries.

These countries, to name just a few examples, have put principle factors in place that create sustained growth. These include political commitment, an involved society, and private sector participation. Leadership in these areas of governance are critical to the water sector, and remains a challenge in Southeast Asia as well as in the other parts of the Asia-Pacific region. Malaysia and ADB are jointly discussing how a knowledge hub on water governance could assist the region.

At this forum, ADB is co-convening a stream of six sessions with UN-Habitat for the Urban Water Management theme, where we hope to gain more insights into how secondary cities and smaller towns are taking on reforms to increase their capacity and ability to self-finance infrastructure and water services.

Confronting the Challenges

Ladies and gentlemen, as the region’s development bank, ADB is working to help its member countries address these issues in investment projects, and in sectoral reforms. It is doing so through increased financing, technical assistance and regional partnerships for knowledge sharing and capacity development.

In response to international calls for increased financing, ADB has launched its Water Financing Program 2006-2010, which aims to double our water investments over the 5-year period. We have adopted specific outcome targets for these investments in the areas of rural and urban water services, and basin water management. We are the first multilateral development bank to have done this, and we hope that our clients and partners will work together with us to deliver the targets together and demonstrate good practices.

To support partnerships, we have established the Water Financing Partnership Facility to provide grants for investment projects, technical assistance operations, knowledge management, and regional cooperation. Initial contributions to the facility are targeted at $100 million by 2008. The interest we have received from partners to date is very encouraging and will help us do a bigger and better job for our clients.

ADB has also offered to serve as lead organization of the Asia Pacific Water Forum in two areas: (i) the priority Theme of water financing and capacity development, and (ii) the Key Result Area of increasing public awareness and understanding of key water trends, issues, and solutions. Several regional networks we have helped to establish are now contributing to the Asia Pacific Water Forum.

Closing

Ladies and gentlemen, I would like to close with an observation from ADB’s long experience of supporting development in this region. My message is that there is a significant amount of knowledge, experience and technology within Asia to solve its water problems. Many good practices are found in Southeast Asia. Malaysia often ranks first in international research of water management achievements. Water service providers from Singapore, Manila, and Phnom Penh are now traveling the region and the world to share good practices and are helping to build the capacity of other utilities that wish to commit themselves to progress and achievement.

The solutions may differ between countries and even within countries, because of various their diversity in physical, economic, environmental, and social conditions, and their cultural and legal heritage. However, the knowledge base to structure proper solutions exists right here in Southeast Asia. What is needed, now, is to show political will to double investments, to improve water governance through reforms, and to develop capacity at all levels to formulate and implement those solutions.

Thank you.