"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 4 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.
4. Elephant in the Room – Ignoring an Obvious Solution (SMEs)
There are only a handful of large private water companies operating internationally. Many private water companies in developing countries, numbering in the several thousands in the aggregate, are small and medium sized enterprises (SMEs). (see Diagram 2).
Diagram 2 - Private Water Players in Developing Countries- Highly Fragmented Market
For example, in India, there are less than a dozen large private water treatment companies, while SME water companies number in the hundreds. Both the large companies and the SMEs are typically involved in design, engineering, procurement, and construction (EPC) services.
Significantly, services to local water utilities, whether in large metropolitan areas, or in secondary cities and towns, are almost exclusively provided by SME water companies. SMEs are also the primary providers of water/wastewater treatment solutions to industries. Supporting SMEs is critical to solving the water crisis because they have the technical knowhow and, in the aggregate, the largest and the deepest market connectivity.
Huge Potential Role of SMEs in PPPs – But Support Required
While SME water companies are best positioned to be the primary drivers of PPP projects with local water utilities and industries, SMEs do not have access long term capital. (Financial markets typically do not provide long-term capital to SMEs without real estate as collateral.) As a result, SMEs are unable to undertake BOT opportunities where they could make an important impact.
Innovative approaches involving highly structured financing, which can provide layers of credit protection to investors, can help SMEs access long-term funds. However, to jump-start the process of eventually achieving scale, some funding support from the international development agencies is essential to accelerate SME access to long-term funds.
With more long-term funds, SMEs will be able to undertake BOT projects, the profits of which will fuel further growth (see Diagram 3 below). This process will eventually lead to a competitive industry structure with increasing numbers of companies able to develop more and larger projects over time.
Diagram 3 - Possible Accelerated Growth Trajectory for SMEs
SMEs and Inclusiveness
Since SMEs are largely local companies, apart from having business relationships with local water utilities, SMEs are in a better position to establish relationships with local community groups, and get the community involved in PPPs.
Significantly, since the employees of SMEs live locally, work locally, and spend locally, a powerful multiplier effect of spending and local job creation is generated when these companies access a full and largely local supply chain of turning basic materials, products or services into final water projects. In turn, broad community support for PPPs becomes easier.