Research Report February 2008 Economic Impacts of Sanitation in the Philippines A five-country study conducted in Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam under the Economics of Sanitation Initiative (ESI) USAID FROM THE AMERICAN PEOPLE THE WORLD BANK Jakarta Stock Exchange Building Tower II/12th Fl. Jl. Jend. Sudirman Kav. 52-53 Jakarta 12910, Indonesia Tel: (6221) 5299-3000 Fax: (6221) 5299-3111 Printed in 2008. The volume is a product of World Bank staff and consultants. The fi ndings, interpretations, and conclusions expressed herein do not necessarily refl ect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement of acceptance of such boundaries. WSP-EAP Research Report February 2008 Economic Impacts of Sanitation in the Philippines A fi ve-country study conducted in Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam under the Economics of Sanitation Initiative (ESI) USAID FROM THE AMERICAN PEOPLE Table S1. Background Information Item Value Population (million, est. 2005) 84.2 Rural population (million, est. 2005) 55.1 Urban population (million, est. 2005) 29.1 Under 5 population (% of total population, 2005) 12.6 Female population (% of total population, 2000) 49.6 Currency Peso (PhP) Exchange rate (domestic currency per US$, 2005) 55.1 Year of cost data presented 2005 GDP per capita (US$, 2005) 1,281.9 Access to improved sanitation (2004) Rural (%) 59 Urban (%) 80 Urban households connected to treated sewers (%) 3.3 Economic Impacts of Sanitation in the Philippines 4 A five-country study conducted in Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam under the Economics of Sanitation Initiative (ESI) EXECUTIVE SUMMARY Executive Summary Introduction About 72% of the Philippine population had access to improved sanitation in 2004. Although this fi gure is a considerable improvement on the 57% in 1990, it still corresponds to about 20 million people who do not have access to improved sanitation. While it is clear that the lack of access to clean water and sanitation facilities has a wide variety of impacts, there are limited data and research to verify the signifi cant burden imposed by poor sanitation on society. This, in turn, hampers the implementation of much needed investments in the sector. The urgency for such research, and not to mention investments, is only likely to grow over time. One of the reasons is that, with an average population growth of more than 2% per annum, an additional 2 million Filipinos will require adequate and clean sanitation facilities each year. Thus, the ‘sanitation impact’ study was initiated by the World Bank to generate evidence on the impacts of current sanitation conditions and the benefi ts of alternative sanitation and hygiene improvement options in the Philippines. Methodology The study conducted a quantitative and qualitative assessment of the impacts of poor sanitation on health, water, tourism, and other welfare impacts. The inclusion of health was based on well-established links between sanitation and disease incidence. Water impacts were deemed important because poor sanitation is one of the causes of water pollution. This, in turn, leads to costly avertive behavior in response to less usable water resources. Moreover, pollution also aff ects the productivity of water resources by way of lower fi sheries output. Other welfare impacts were included because the absence of sanitary facilities aff ects people in terms of the time spent accessing facilities and productivity in work and school. Finally, tourism was included in the study because poor sanitation facilities could infl uence the country’s attractiveness as a tourist destination. The analysis interpreted sanitation as activities that are related to human waste — particularly excreta. However, there were instances in which sanitation as it relates to gray water and solid waste were also included. In measuring the impacts, the study used standard peer-reviewed methodologies. An attempt was also made to distinguish between fi nancial and economic costs. Where possible, the analysis was conducted at the regional level and aggregated to the national level. Results Overall, the study estimated that poor sanitation led to economic costs in the order of US$1.4 billion or PhP 77.8 billion per year. This was equivalent to about 1.5% of GDP in 2005 and translated to per capita losses of US$16.8 or PhP 923.69 per year. The health impacts represented the largest source of quantifi ed economic costs. Estimated to be about US$1 billion, this item explained about 72% of total economic costs. The second most important economic impact was on water resources, which accounted for about 23% of the total costs. The remainder was divided between impacts on other welfare impacts and tourism. Economic Impacts of Sanitation in the Philippines A five-country study conducted in Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam under the Economics of Sanitation Initiative (ESI) 1 EXECUTIVE SUMMARY Figure S1. Cost of poor sanitation (million US$) 1,412 1,600 1,200 800 359 400 0 Financial costs Economic costs Figure S2. Distribution of economic costs (%)1 Other Welfare Tourism 3% 3% Water 23% Health 72% Note: 1 Values do not sum to 100 due to rounding. Impacts on health The cost of premature death was the biggest contributor to the health impacts. Estimated to be about US$923 billion per year, it accounted for about 91% of the health economic impact. It was explained mostly by the deaths of children, particularly from acute watery diarrhea and malnutrition-related diseases. While affi xing a value on a person’s life is a contentious issue from a methodological standpoint, the technique used in this study (human capital approach) may actually be viewed as generating conservative estimates. This is based on the fi nding that the values presented here are actually lower than those estimated using another technique (value of statistical life). The other dimensions of health impacts are health care and productivity costs. Capturing the value of time lost as a result of sanitation-related illness, productivity costs accounted for slightly more than 5% of the total health impacts. The remainder was explained by health care costs. Impacts on water The water impacts of poor sanitation amounted to about US$323 million per year. Nearly six-tenths of this total was attributed to costs associated with domestic water uses (excluding water used for drinking). On the other hand, costs related to drinking water explained about 36% of total cost. The remainder, or about 3%, was explained by losses to fi sheries. Economic Impacts of Sanitation in the Philippines 2 A five-country study conducted in Cambodia, Indonesia, Lao PDR, the Philippines and Vietnam under the Economics of Sanitation Initiative (ESI) FOREWORD Other welfare impacts The total economic costs associated with other welfare impacts were estimated to be about US$38 million per year. About two-thirds of these costs were accounted for by productivity losses caused by time spent accessing toilets. The remainder was explained by productivity losses caused by the absences of women from work and school. While the eff ects were not quantifi ed, the study also evaluated the impacts of poor sanitation on the intangible user preferences and on the surrounding environment. With respect to the fi rst impact, it found indications that Filipinos prefer clean facilities and are forced to make adjustments in response to unsanitary conditions. Perhaps refl ecting a weaker appreciation of the health impacts, it also found that Filipinos put a premium on the “lack of smell,” privacy, and status that usually accompanies the presence/ownership of clean toilets. Given the lack of information, the impacts on the surrounding environment were evaluated in the context of solid waste management. In this regard, the study echoed the fi ndings in the literature that a signifi cant proportion of the country’s garbage is not being disposed properly. Impacts on tourism Tourism impacts were computed on the assumption that visitors to the country are sensitive to sanitation conditions. Specifi cally, it assumed that improved sanitation, among other things, would allow the country to achieve the government target of 5 million tourists by 2010. The study estimated the costs to be about US$40 million. Sanitation improvement options Having estimated the impacts, the study also evaluated the benefi ts associated with improved sanitation and hygiene practices. Better hygiene practices and improvements in toilet systems were linked to a reduction in health costs, while improved physical access and treatment/disposal can reduce the other cost components. The results showed that improved hygiene practices — e.g., hand washing — can reduce health costs by approximately US$455 million. Improved physical access to sanitary toilets can reduce economic costs associated with time loss by about US$38 million, while improved toilet systems can reduce health costs by US$324 million. Improvements in the treatment or disposal of waste have a large impact on water resources and can reduce costs by US$363 million. While the benefi ts from pursuing all the improvements will not necessarily lead to gains which are