"By not addressing the global water crises, none of the UN Sustainable Development Goals will be achievable. Clean Water & Sanitation [SDG 6] is interconnected to all SDGs"
The water crisis is a tragedy of epic proportions. A large part of humanity - more than 2 billion people - do not have access to safe drinking water. An equal number of people do not have access to safe sanitation as well.
This post is part 1 of a series of 8 posts by TIGRIS co-founder, Saud Siddique, detailing thoughts on the current global water crisis, and recommendations on how it can be effectively addressed.
1. The Global Water Crisis
Background
The water crisis is a tragedy of epic proportions. A large part of humanity — more than two billion people in developing countries — do not have access to safe drinking water. An equal number of people do not have access to safe sanitation as well. There is a high level of inequality in the provision of basic services of water and sanitation, resulting in a clear divide between the “haves” and the “have-nots”. Water strategy must be structured towards inclusiveness since inequality traps affect both the distribution and the dynamics of global growth and development.
Funding Gap
The funding gap to achieve universal access to safe drinking water and safe sanitation (as envisaged by the United Nations’ SDG 6) is estimated to be $2 trillion. This astounding figure seems insurmountable especially in view the water sector’s poor commercial and financial performance. In essence, the tools and techniques that have been used to date have not been effective. We need a new toolbox in the form of highly innovative PPP business models and financing structures to close this funding gap. Indeed, if the suggested approaches in this note are implemented, they can revolutionize the industry by providing practical financing structures for water PPPs and more broadly, infrastructure projects in developing countries in general.
Sustainable Investments
Global institutional investors today manage an estimated $150 trillion of assets, and yet the green bond market is only about $1 trillion, despite a growing interest in sustainable investments by these entities. While investors are actively seeking attractive investment opportunities in the sustainable space, developing countries – where the need and opportunities for investment are the greatest – have managed to attract just a very small percentage of green investors. The best way to make a dent in solving the global water crisis is to direct more capital in the form of PPPs toward these underserved populations. To do this, there needs to be a portfolio of good quality investment opportunities in the developing world to bring in global investors.
Attracting such capital requires a two-pronged approach:
"draw the investor" (create demand) by developing innovative financial instruments (involving debt and equity), such as convertibles, mezzanine finance, project finance structures that provide predictability of future cash flows, through sophisticated credit enhancement mechanisms;
"project origination" (ensure supply) by making available bankable projects and investible assets for investors, who are eager to invest and are looking for viable projects;
The water sector is well suited to meet the above criteria, with some modification in existing approaches. Closing the funding gap will require a drastic shift in the current economic model and the use of highly innovative financing strategies. To be successful, these strategies should include insights into ground level and local issues, as well as forward-thinking financial structuring.
Policy makers are a key component in this mix. Their current approach to addressing problems must be turned on its head and changed from the commonly used "top-down" approach to one that is "bottom-up” – and vastly more effective.
This requires policy framework and funding support to adhere to two fundamental principles:
accountability
integration
The two principles are mutually reinforcing. Accountability helps ensure that work is well understood and measured. Integration leads to developing effective solutions through the sharing of ideas and communication across groups.