Market-Driven Sanitation Services – An Academic Look (Part 3)
In October 2014, Mark O’Keefe and a team from The Swiss Federal Institute of Aquatic Science and Technology (Eawag) conducted a study of sanitation conditions in informal settlements in Nairobi and Kampala, comparing user practices, sanitation providers, and the challenges they face. They then looked at Sanergy as a case study of market-based sanitation provision, and the role it can play in informal settlements. Their study was published this month by SAGE Publishing. This series of blog posts distills their academic findings for a broader audience. All statistics cited in this blog post are taken from the study itself, unless otherwise noted. Find the previous posts in the series here and here.
Sanergy aims to create a sustainable sanitation system through the development of dense clusters of toilets and provide the requisite support services to ensure hygienic facilities, a high level of use and the safe collection and treatment of waste. Sanergy has installed over 660 Fresh Life Toilets in six informal settlements in Nairobi. The high density of toilets allows for lower costs of waste transportation. The company is responsible for the sale of their Fresh Life Toilet, which is a dry toilet housed within a brightly colored and distinctly branded superstructure, to local entrepreneurs. Sanergy is also responsible for marketing the toilets within communities, construction of toilets, regular collection of waste, treatment and conversion of waste, and the sale of byproducts made from waste.
The Sanergy system improves environmental quality through the daily average collection of 4.5 metric tonnes of feces and 2.5 tonnes of urine. The waste is converted into organic fertilizer and other salable byproducts. The fertilizer is made through the co-digestion of feces with other sources of organic waste. Sales have started to generate an income stream for the company, which is looking to increase sales at markets around the periphery of Nairobi. It is envisioned that the revenue from the fertilizer sales can cover the cost of physical infrastructure and management of waste collection.
Through the sale and marketing of toilets, Sanergy has been able to attract a significant proportion of households to pay to use their facilities on a regular basis. Despite the competition with other systems of provision and consumption they have been able to capture most users of public facilities and a third of all users in their areas of operation, in part because their facilities are considerably cleaner and nicer to use than other toilets in the area.
The major reason users gave for using a Sanergy facility was the cleanliness of the facility and the location. In contrast, the reason given by those using another public facility was the convenient location, followed by the cleanliness of the latrine, lower cost, the lack of alternative facilities or information about alternatives. These reasons for using different facilities underscore the importance of understanding consumer demand within the marketplace. Cleanliness is a major factor. But many users both of Sanergy and, especially, of other facilities make their choice primarily on the basis of proximity, thus highlighting the importance of this non-service related aspect.
The majority of Fresh Life Toilets are pay-per-use facilities owned by a local entrepreneur who runs them as a business. Sanergy has recently launched two other distribution channels: a plot toilet model, whereby landlords purchase toilets for use by their renters often in exchange for slightly higher rent; and partnering with community institutions, such as schools, to provide Fresh Life Toilets for their students and patrons. The value proposition in these models is different from the pay-per-use models, and Sanergy’s expansion into different markets will require further development of sales and marketing techniques and navigating through difficult real estate markets in urban informal settlements.
The main obstacle to the development of sustainable infrastructure is the issue of land ownership in informal settlements. In most cases, an aspiring entrepreneur must secure permission from a large number of people throughout the local political structure before building a Fresh Life Toilet – a process that can be lengthy and convoluted. Sanergy does not involve itself in land negotiations but helps facilitate interactions between entrepreneurs and the relevant local authorities through a government relations officer.
Sanergy can operate because the policy environment in Nairobi allows the provision of waste collection and treatment by private companies. The company is not contracted by the government or purely reliant on international aid donors to finance the system. This affords them freedom to develop internal standards of accountability that interact with standards and regulations set by municipal political authority and national regulatory bodies. Therefore, they can provide sanitation services within a constrained political space and an imperfect market, but they are not directly developing the overall strategy for city-wide sanitation provision or the regulatory environment that develops quality standards.
Developing a sustainable sanitation solution requires close collaboration between the public and private sectors. National ministries, utilities, local government, and private companies must work together to ensure total sanitation provision in urban settlements, and this isn’t something that any one of these actors can do on their own.
The opportunities for private companies to develop a market-based approach are clear. There is an already existing sanitation market where people pay private providers for the construction of latrines and the collection, transport, and disposal of wastes. However, many of the providers do not have to factor in externalities such as the environmental effect of improper waste disposal. Generating value from the re-use or sale of end products could subsidize at least part of the sanitation chain. Utilizing the concepts and best management practices from business can certainly reduce the operating costs of a service, but it is difficult to envision a completely private company providing safe sanitation for all. Recognizing the limits of a singular focus on market-based approaches is not admitting defeating but highlighting areas that require different types of intervention.
In general, private providers can help to deliver sanitation services but they cannot dictate the overall strategy of universal provision, which needs government direction, regulation, and financial support. Without serious consideration of the institutional setting, the new wave of projects aimed to develop products and services around the sanitation value chain will underestimate the transactional costs of working in informal settlements and overestimate the profit to be made at the bottom of the pyramid.