The Economic Returns of Sanitation Interventions in Lao People's
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WATER AND SANITATION PROGRAM: RESEARCH BRIEF The Economic Returns of Key Messages Sanitation Interventions • Sanitation interventions have very favorable socio-economic returns to in Lao People’s households and society, contributing to improved health, clean environment, Democratic Republic dignity and quality of life, among many other benefi ts. Economic returns are June 2013 potentially high—in excess of US$2 return per dollar invested in urban areas and at least US$4 return per dollar invested in INTRODUCTION in 1995 to 63% in 2010.iii Nonetheless, rural areas. The Economics of Sanitation Initia- almost three out of ten persons in Lao tive (ESI) is a multi-country study PDR still practiced open defecation in • Economic effi ciency of improved launched in 2007 as a response by 2010. Sanitation conditions are also sanitation can be optimized by the World Bank’s Water and Sanita- worse in rural areas, where 8% of the improving program performance, which tion Program to address major gaps in population only had access to unim- leads to sustained behavior change. evidence among developing countries proved facilities and about 41% of the Future projects should carefully plan and on the economic aspects of sanitation. population still practiced open defeca- implement activities cost-effectively, and The study covers Bangladesh, Cam- tion. Furthermore, coverage fi gures do closely monitor project costs and impacts, bodia, Chinai, India, Indonesia, Lao not refl ect the other dimensions asso- to ensure that the project resources are PDR, Nicaragua, Pakistan, the Philip- ciated with the proper management of being appropriately utilized. pines, Vietnam and over twenty coun- human excreta, like properly designed tries in Africa. Its objective is to provide septic tanks and connections to sewers • Sanitation solutions in urban areas that economic evidence to increase the with wastewater management, which involve wastewater management are volumes and effi ciency of public and also have implications for health risks potentially cost-benefi cial, despite not private spending on sanitation. This re- and the pollution to water resources. all benefi ts having been included. While search brief summarizes key fi ndings of diffi cult to quantify in economic terms, Study Phase II - cost-benefi t analysis of The lack of access to improved sani- the associated environmental benefi ts of alternative sanitation options - from Lao tation facilities imposes a heavy bur- wastewater management are highly valued People’s Democratic Republic (PDR).ii den on society. Phase I of the ESI by households, tourists and businesses. estimated the overall economic costs PROBLEM STATEMENT of poor sanitation in Lao PDR to be • Improved hygiene and sanitation Despite signifi cant progress in recent US$193 million per year, in 2006 prices. conditions in institutions, public places years, access to improved sanita- Translating to about US$34 per person and tourist sites are important to attract tion is a major concern for Lao PDR. per year, these costs are equivalent to more businesses and tourists to Lao Access to improved sanitation facili- about 5.6% of gross domestic product PDR. ties rose from 17% of the population (GDP).iv Economic analysis measures the broader welfare benefi ts of products and services on popula- tions, such as value of life, time use, environmental and social benefi ts, as opposed to fi nancial analysis, which measures the fi nancial gains only (e.g. changes in income or cash situation). 2 The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic Economics of Sanitation Initiative STUDY AIMS & METHODS order to get a sense of the impacts of sanitation on business- The purpose of Phase II of the ESI is to provide sanitation related activities and tourism. Primary data were supplement- decision makers with improved evidence on the costs and ed with information from other national and local surveys, and benefi ts of alternative sanitation options in different contexts published documents. in Lao PDR. The study focuses on human excreta manage- ment, covering six selected fi eld sites as well as national sur- Sanitation interventions evaluated varied by rural and ur- veys. ban location, comparing open defecation with the range of sanitation facilities currently used by the Lao population. Surveys were conducted in four rural and two urban sites These facilities are dry pit latrines, wet pit latrines (private and that have recently been the focus of intensifi ed sanitation shared), and toilets with septic tanks (private and shared). programs and projects and/or have a relatively wide range While these are currently not in use, the study also explored of sanitation interventions that can be evaluated (see Figure the economic effi ciency of toilets that have access to treated 1). Primary data collection involved household surveys (1,200 sewers in Vientiane Capital. observations), focus group discussions, physical investiga- tions, and water quality assessments. Interviews of business Conventional techniques of economic analysis were uti- owners/managers and foreign visitors were also conducted in lized to generate outputs such as benefi t-cost ratio, cost-ef- fectiveness ratio, net present value, internal rate of return, and Figure 1. ESI Field Sites in Lao PDR payback period of sanitation options. IBRD 39288 LAO P.D.R. CHINA WATER AND SANITATION PROJECT Economic benefi ts quantifi ed include impacts on health, PROJECT DISTRICTS drinking water, and sanitation access time. Environmental and NATIONAL CAPITAL INTERNATIONAL BOUNDARIES social impacts of poor sanitation were not fully captured in PROVINCE BOUNDARIES Phongsali DISTRICT BOUNDARIES the monetary estimates of benefi t. Qualitative analysis was PHONGSALY Rural, Nambak District Louang Phrabang Province LOUANG conducted on selected social and broader economic benefi ts. Louang NAMTHA Namtha Muang BOKEO Xai VIETNAM Full investment and recurrent costs were measured for LOUANG Sam-Neva Ban Huaisai OUDOMSAI PHRABANG HOUAPHAN each sanitation option. Louang Prabang XIANG KHOANG Sainyabouli Xiang STUDY RESULTS Khoang Urban, Nan District Gulf of Louang Phrabang Province SAINYABULI VIENTIANE Xaysomboun Tonkin BOLIKHAMSAI Pone Hong Rural Areas: Highly Favorable Economic Returns Paksane Rural, Meun District Vientiane Province on Pit Latrines - When Used VIENTIANE Benefi t-cost ratios (economic return per currency unit invest- VIENTIANE Peri-Urban, Xaythani District Vientiane Capital KHAMMOUANE CAPITAL Thakhek Urban, Chantabouly District ed) are compiled for the four rural sites in Figure 2. Among the Vientiane Capital various sanitation options, the most favorable economic per- SAVANNAKHET Savannakhet formance was found for shared wet pits, followed by private THAILAND Rural, Champone District Savannakhet Province dry pits. These interventions had benefi t-cost ratios of at least Saravane SARAVANE SEKONG 9 and annual economic rates of return in excess of 100%. Sekong CHAMPASSAK It also requires less than one year to recover the economic Champassak LAO P.D.R. Attapeu value of the initial investment costs for these facilities. ATTAPEU Shared and private toilets that fl ush to septic tanks did not perform as well as pit latrines. However, with benefi t-cost ra- This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information CAMBODIA shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any tios greater than one, the study fi nds that these options are endorsement or acceptance of such boundaries. MAY 2012 still economically viable in rural areas. www.wsp.org Economics of Sanitation Initiative The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic 3 Figure 2. Benefi t-Cost Ratio in Rural Sites Access time savings, which represent the monetized value of (economic return per unit of currency spent) time that was spent searching for a private place to defecate or waiting in a line in the case of shared toilets, was the largest source of gains. For the options presented in Figure 2, these represent at least 53% of the net benefi ts from improved sani- tation. Avoided health care costs were estimated to have the second largest contribution to net benefi ts. Private toilets with access to septic tanks were the most ex- pensive option examined for rural areas. Average investment costs for these facilities were estimated to be more than 10 times larger than the least expensive option (shared wet pit %HQHðWFRVWUDWLRV latrines) evaluated in the study (see Figure 3). The fi ndings suggest that low-cost technologies, particularly wet and dry pit latrines, are worth pursuing especially for low-income groups. Although wet pit latrines have a higher Access time Water access Health productivity initial investment cost, a longer expected life leads to com- Water treatment Health mortality Health care parable annualized costs as dry pits. The most important benefi ts for all options are access time savings and avoided health care costs. In the cases of wet pits (shared or private) Figure 3. Annualized Costs in Rural Sites and private dry pits, the annual values from either health or (2010 prices, using average exchange rate with US$) access time exceed the annual costs of the facilities them- selves. Urban Areas: Favorable Economic Returns on Full Excreta Management Options Benefi t-cost ratios are compiled for the two urban sites in Fig- ure 4. As with rural areas, the most favorable economic per- formance was found for wet pit latrines (shared and private) — with benefi t-cost ratios of about 6 and annual rates of return of more than 100%. For these facilities, it also requires less than one year to recover the economic value of the initial investment cost. With returns of at least US$2 for every dollar invested, toilets with access to septic tanks or sewers had lower returns US$ relative to wet pits, but were still economically viable. As in rural areas, the largest sources of benefi ts are access time savings and avoided health care costs.