Enabling environment for safe water businesses

Many barriers of scaling up a safe water business are outside the direct control of the business, as barriers are related to the broader market, industry or governments’ constraints. This is what one calls the Enabling Environment (EE) or Business Enabling Environment. It is “the broader system” in which individuals, organizations and business function (UNDP, 2016) (UNICEF, 2016) defines the Enabling Environment of the WASH sector as “a set of interrelated functions that enable governments and public and private partners to engage in a sustained and effective WASH service delivery process”. This system consists of “context-specific factors that affect business activities - and that are set or shaped in many ways by governments” (OECD, 2016). The EE can facilitate or hamper the existence and performance of the businesses; it includes both ‘enabling factors’ as well as ‘barriers’ (AMJAD ET AL., 2015). In this enabling environment factsheet we therefore explore how the EE can facilitate or hamper the creation, performance and scaling up of businesses selling either household water treatment (HWTS) products or safe water to customers living at the bottom of the economic pyramid (BoP).

Little research has been done on the specific EE for safe water businesses focusing on the BoP, but there is some knowledge about EE for HWTS products (see box 1) and the EE for “inclusive businesses”. Inclusive business models try to find synergies between the sustainable development goals (SDGs) and a company’s core business operations. They aim to deliver socio-economic benefits for communities through market-based solutions. For example by offering goods, services, and income opportunities by integrating women and men at the BoP as consumers, suppliers, retailers or distributors in their core business operations, on a commercially viable basis. Inclusive businesses models can:

• Produce affordable goods and services that meet basic needs
• Engage local labour and entrepreneurs in supply chains and distribution channels
• Enable access to safe water, energy, communications and finance
• Source raw materials from small-scale producers
• Increase the income of BoP populations

(WBCSD, 2014; DONOR COMMITTEE FOR ENTERPRISE DEVELOPMENT, 2017):

Inclusive businesses require a conducive context to grow and achieve impact. The figure below visualises the EE for inclusive businesses, adapted for safe water businesses.

Box 1 – Enabling Environment for HWTS products In her research about the EE for HWTS products uptake, OJOMO ET AL. (2014) identified 22 enablers and 25 barriers. Ojomo’s research included the private sector but did not specifically focus on barriers for businesses. However, many factors she identified are relevant for safe water businesses. The barrier to HWTS uptake that was most frequently mentioned in the interviews with the SW2 businesses was the ‘product cost’. The clearest way for safe water businesses to become sustainable is for households to demand and be able to afford the product. All factors from Ojomo’s research were summarised and grouped as follows: User preferences (i.e. user demand for HWTS and user technologies preferences) Integration and collaboration (e.g. partnerships) Standards, certification and regulations (i.e. formal rules and voluntary standards) Resource availability (e.g. affordability of products) Market strategies - product supply (e.g. supply chain, competition) User guidance on HWTS products

Barriers and enablers to scaling

 

The figure above shows factors that hamper or facilitate the scaling up of safe water businesses in the EE along the four broad dimensions of information; rules and regulations; financial resources; and capacity. Where these barriers and constraints can be reduced, inclusive businesses can grow and achieve greater impact by keeping the following questions in mind (based on G20 DEVELOPMENT WORKING GROUP (EDITOR), 2016):

• Are there sufficient capacities and infrastructure in your market to meet your needs?
• Use the Enabling Environment checklist for businesses (see EESE in chapter 4)
• Is the policy and regulatory environment favourable in your market?
• Is there sufficient access to finance in your market?
• Is there sufficient market information to inform your growth strategy?

Subsequently the 4 different barriers and enablers are explored more in detail:

a. Rules and regulations

The political and regulatory landscape of a market can hinder or enable businesses to develop and scale. KOH ET AL. (2014) surveyed 37 businesses serving the poor in Asia, Africa and Latin America and found three main constraints related to the business environment:

• Inhibitory laws, regulations and procedures (experienced by 65% of the businesses);
• Absent/ ineffective standards (experienced by 63% of the businesses);
• Inhibitory taxes and subsidies (experienced by 49% of the businesses).

OECD surveyed 40 companies active in 8 regions across the world and found that “a complicated regulatory or policy environment” is one of the most common barriers to adopting inclusive business models (OECD, 2016). Government laws, standards and procedures are often designed to regulate mainstream models, rather than innovative solutions. Also, mainstream products might benefit from government subsidies and tax exemptions, while innovative products are subject to a range of tax and duties (KOH ET AL, 2014).

Tips for businesses to better operate within the EE:

• Check the government’s regulations concerning quality standards, brand protection, fiscal rules and import/export tariffs when starting or scaling in new markets (MIT D-LAB, 2016).
• The Waterlex legal database provides an overview of the legal and regulatory environment related to water in countries around the world.
• The World Bank’s “doing business website” ranks all economies around the world on their “ease of doing business” i.e. how conducive the regulatory environment is for starting and operating a local firm. Indicators include: taxes, registration, electricity, etc.
• Try to form coalitions with other like-minded businesses to lobby at the government for the development and enforcement of quality standards and favourable fiscal regimes (e.g., value added tax (VAT) exemptions, low import and tariffs) (MIT D-LAB, 2016). For more information please see also factsheet on laws, policies and regulations.

 

b. Financial Resources

The World Bank Group Enterprise Survey shows that for small and medium enterprises in general, ‘access to finance’ tops the list of constraints faced across the world (IFC, 2013). Especially businesses in developing countries often lack access to impact financing, and conventional financiers perceive these new businesses as risky (MIT D-LAB, 2016). They are often not well equipped or willing to finance safe water businesses serving the population at the BoP. Equity finance is also difficult to access. The process of scaling makes the need for capital to finance growth operations and supply chains even larger.

Lack of financing options for BoP customers to buy safe water products can also form a barrier for businesses (for more information see factsheet on microfinance discussing different options of instalment-based purchases or factsheet on blended finance for businesses to explore different mechanisms for accessing capital).

Box 2 – Corruption risks Corruption has negative impacts on sustainable development and particularly affects poor communities. For companies, corruption impedes business growth, escalates costs and poses legal and reputational risks. It also raises transaction costs and undermines fair competition. Although there are no reliable estimates of total losses, the Water Integrity Network estimates that annual losses in the water sector due to corruption could be about US$ 75 billion (WBCSDC, 2017). For more information and tools to assess corruption risks for your business: UN Global compact The Water Integrity Network Integrity Management Toolbox (includes a specific section for the private sector)

 

c. Information and awareness

There is often little information available about BoP consumers’ needs, preferences, and consumption patterns, which is vital for a starting or scaling business. Information services and market research in BoP populations are scarce, especially at the local level (G20, 2016). Companies often encounter difficulties finding enough data to build their business model. This lack of market data and consumer insights in BoP markets can lead to costly strategic errors (MIT D-LAB, 2016). For safe water businesses, it is also vital that citizens get reliable information about the health risks of drinking contaminated water and the benefits of drinking safe water. This helps to create the demand for safe water products. For more information refer also to factsheet on social marketing.

 

d. Capacity and infrastructure

Infrastructure in BoP markets, including roads, energy, and communication networks, is often lacking, and increases transaction costs on the ‘last mile’. Companies face high costs when buying from producers and selling to consumers in remote, rural locations where functional logistics and distribution systems may be absent. Companies often face high costs to raise customer awareness and train producers, distributors, and retailers at the BoP. Also human capacity is essential for successful performance and scaling up. Managing operations effectively at large scale requires professional staff. Yet talent pools with experience in growing businesses are scarce in BoP markets. Talent development takes time and investment, so it is important to plan for human capital growth early on (MIT D-LAB, 2016).

Box 3 – TARA capacity building programmes TARA is training women who have been made literate through another TARA programme, the TARA Akshar literacy programme, to become TARAlife micro-franchisees. Twenty-eight year old Rekha Maurya is one of these women. She has been enrolled in the literacy programme since 2013. “My family used to tell me that I was wasting my time learning how to read and write. They often argued with me about what a woman like me would do after becoming literate. I now have an answer to this question”, she said. Since April 2015 she has been a TARAlife micro-franchisee and has sold close to 1500 bottles of chlorine, amounting to USD 138 of additional income. This is a considerable sum for a side job to supplement the family income, as the the annual per capita income is about USD 800 per family in the region. In an area where women are normally not expected to work away from home, this self-generated income is important for Rekha. (ERISMANN, 2017).

Analysing the EE helps to identify which conditions hinder and which conditions stimulate the creation and scaling of viable safe water businesses. For businesses, exploring the EE is essential to assess their chances to flourish and to identify potential partners. It will give them an idea of the scaling barriers they can encounter, but also identify arrangements/policies that can help them to achieve their goals. It is also useful for governments, NGOs and social impact investors to explore the EE, as it helps them to understand how they can support safe water businesses.

Governments play a key role to enabling companies for instance by creating well-functioning (financial) infrastructure, setting a benefiting regulatory framework and providing information about the benefits of drinking safe water.

Finance institutions (international, regional, national and local) are important drivers to improve access to finance for businesses. Fair and transparent financial services, such as loans, equity, money transfers, microfinance, and insurance schemes, adapted to the needs of BoP/ safe water businesses are needed for these businesses to start and scale. Private investors, asset managers, and angel investors, as well as innovative crowd-investing methods, are also key, especially in the early stage of a safe water business. (OECD, 2016)

Companies and NGOs obviously affect the market dynamics in the EE. Safe water BoP businesses can for instance be hampered if other actors provide water products and services for free. This not only distorts the market but can undermine sustainability. In Tanzania, an international NGO found that when biosand filters were given for free, they were not used. It was reported that use increased after they began selling the filters (OJOMO ET AL., 2015).

In order to strengthen the business EE, Governments can follow the checklist adapted from G20 (2016):  

• Establishing conducive rules and regulations (government task) (see factsheet on laws, policies and regulations for more information)
  • Review existing regulations that limit the establishment and scaling up of safe water businesses (see WaterLex database)
  • Introduce appropriate regulations for safe water businesses (e.g. quality standards, public-private partnerships arrangements, etc.) (see factsheet on public-private partnerships for more information)
• Enhancing access to financial resources and provide financial incentives (for more information see also factsheet on blended finance)
  • Provide financial services to the BoP (finance institutions)
  • Improve access to finance for safe water businesses (finance institutions)

• Providing information and raising awareness (for more information see factsheet on social marketing)
  • Compile and share market data about BoP population, geographical data etc. (governments and companies)
  • Provide information about safe water benefits to BoP populations (governments)
  • Raise awareness on safe water business to help attract investors (governments and companies)
• Strengthening the capacities of safe water businesses
  • Align vocational training for the BoP with private sector needs (governments)
  • Develop capacity of the BoP through training and education (companies)
  • Provide business support services (companies)

There is not one tool specifically designed to analyse the whole EE for safe water enterprises. The EE is vast and complex, so one single tool may encompass everything but have little depth and so little applicability. However, there are several tools available that could be helpful in analysing the EE and these tools tackle different aspects of the EE (see overview in Figure 2, and each tool is explained in detail below). Safe water business may decide to focus on a part of the EE they feel is most relevant to their business in terms of impact and so focus on specific tools.

a) Technology Applicability Framework (TAF) - WASHTech (2013)

Scope: Assess Enabling Environment of WASH technologies

The Technology Applicability Framework (TAF) is a participatory decision support tool to explore the applicability, scalability and sustainability of a specific WASH technology.  It has been developed within the WASHTech project (2011 – 2013). The TAF tool helps to identify blockages to sustainability and scalability of technologies in a specific context. The tool can be applied when a technology is being piloted or scaled up in a specific context. It can also be used to establish a feedback loop between users and implementers of the technology. The TAF provides a framework to explore:

• How the technology performs
• Whether people are interested in the technology (i.e. the market)
• Whether the technology can be applied widely
• What support is required from government and private sector institutions, and
• How sustainable the technology is over time

The TAF focuses on various aspects of a water service, using the technology as an entry point for discussion.

The focus areas are (as shown on the vertical axis in the figure below):

• Social
• Economic
• Environmental
• Organizational, legal, institutional
• Skills and Knowhow
• Technology

Application: The TAF is designed as a participatory tool. It is applied through a step-wise workshop-based process that involves all relevant stakeholders. It uses specific questionnaires for screening and field questionnaires for the assessment. The required information can be collected through desk studies and field visits. All relevant actors (i.e. government, users, and communities) are involved in the collection of data and in the generation and discussion of results.

Applicability: The TAF is designed to assess a single WASH technology (e.g. a pump or a toilet design) and can also be used to assess complex systems such as a piped supply with tanks, pipes and taps. The TAF is designed as an assessment tool for a single WASH technology in a specific context, not as a selection tool which selects between various technologies. The TAF is not yet fully adapted for businesses. It was tested for TARA, a HWTS business of the Safe Water Program Phase 2 (see box 4 below for more information).

More information about the application and conceptual background of the TAF can be found here. The website also includes a set of guidelines for the introduction of a technology, called the Technology Introduction Process (TIP).

b) Enabling Environment for Sustainable Enterprises (EESE) – International Labour Organization (2016)

Scope: Assess and reform the Enabling Environment

The EESE is a methodology developed by the International Labour Organisation (ILO) to assess, advocate and reform the environment in which enterprises start up and grow. It aims to:

• Allow stakeholders to identify the major constraints hampering business development.
• Foster dialogue between employees, employers and the government to reach shared policy recommendations.
• Support the adoption of effective reforms.
• Unlock entrepreneurial potential, boost investments and generate overall economic growth, create better jobs and reduce poverty.

Application not specifically on safe water businesses yet:

The tool has been applied in several countries, including Cambodia, Malawi and Mexico.

c) National Level/Government Assessment - Edema Ojomo, UNC (2014)

Scope: Government’s readiness to scale-up HWTS

The ‘government’s readiness to scale-up HWTS’-tool can be used to shed some light into the readiness of the country for HWTS scale-up (OJOMO ET AL., 2015). It consists of a questionnaire (with 10 questions, see Figure 5 below) to assess governments’ efforts and policies on HWTS. The questions can be answered with ‘yes’ or ‘no’ responses. Each ‘yes’ response adds 1 point to the countries readiness scale and each ‘no’ response adds 0 points. The final tally at the end of the assessment will provide a general idea about the readiness to scale up HWTS in a country based on policy structures and political climate towards HWTS. Each of the questions has a footnote that explains the relevance of the question to scaling up HWTS in countries.

Application: Edema Ojomo has piloted this tool in a workshop with several government officials during a workshop at University of North Carolina, Chapel Hill (OJOMO ET AL., 2014).

Footnotes for each of the questions in the sheet

1. If “No” - There will be little to no opportunity to develop partnerships with the national government because it does not recognise HWTS as a legitimate response in the absence of piped water supplies.
2. If “No” - There is no chance to build on existing awareness activities because there are no attempts to carry out HWTS interventions. Building on existing activities can aid implementation efforts.
3.  If “No” - There is no chance to build on or learn from past national government efforts because there have been no past attempts to carry out HWTS interventions. Building on and learning from past national government efforts can aid implementation efforts
4. If “No” - Lack of an agency or ministry that serves as the home for HWTS can lead to a lack of ownership or responsibility for HWTS within a national government as well as poor coordination efforts.
5. If “No” - Lack of clearly defined roles for the institutions which house HWTS activities can lead to challenges in coordination with other government agencies and conflicting goals between the different instances of HWTS interventions.
6. If “No” - Lack of formal rules in place with regards to HWTS makes sustainability of projects difficult because the national government is not obligated to perform any activities related to HWTS.
7. If “No” - Having a policy that is not being implemented is similar to not having a policy. Policies need to be implemented to realise the benefits and achieve objectives of the policies.
8. Countries should have standards and certification procedures to ensure that effective HWTS products and technologies are being introduced into the country. Each country does not need to come up with its own standard, but as the WHO drinking water guidelines are used by many countries as a guide for water quality, an international standard can be used here.
9. The presence of national goals for access to safe water provides opportunities for HWTS to be used as an interim solution for providing safe water until more permanent measures are taken.
10.  Governments can make implementing HWTS programs more favourable by developing partnerships like public-private partnerships that make organisations more willing to invest in HWTS.

d) Water, sanitation and hygiene bottleneck analysis tool (WASH-BAT) - UNICEF (2013)

Scope: tracking barriers in WASH Enabling Environment

WASH-BAT is a sector analysis and monitoring tool developed in 2013 by UNICEF as part of the Marginal Budgeting for Bottlenecks approach. The tool stimulates users to apply a root-cause analysis of the major constraints on sector progress at various levels and determines the requirements for and consequences of removing them. It is mostly used by government agencies.

The WASH-BAT draws on a variety of other tools and approaches and defines a comprehensive set of enabling factors operating at different levels of the service delivery system. The performance of enabling factors is scored and activities for the removal of each bottleneck are identified and prioritised. The tool can be tailored to match the required scope (water/sanitation and hygiene, urban/rural), level of detail and the time period covered.

The tool covers the following areas: environment and equity, supply, demand and quality. The indicators include enabling factors across different levels: national; sub-national; service provider; community; each enabling factor assessed by a set of criteria. The tool was pilot tested in 2012, implemented in 10 countries in 2013, and has been rolled out since then.

Application: Each criterion is scored between 0 and 1 by increments determined by the user. Scores totalled and categorised by a traffic light system: 0 to 3.0 (red), 3.1 to 5.3 (orange) and 5.4 to 6.0 (green). A low score equates to the presence of a bottleneck. The tool consists of Excel spread sheets. They are available in English, French, Spanish and Vietnamese.

Applicability: The tool is mainly designed for line ministries responsible for water, sanitation and hygiene. It is not designed to advise on a technology choice. The initial workshop takes about five days and reports can be generated in a couple of weeks. The quality of the process is dependent on being able to bring the sector leaders and key stakeholders together to complete the WASH-BAT.

More information can be found on UNITED NATIONS CHILDREN’S FUND (UNICEF) (2013) and in SCHWEITZER ET AL. (2014).