Below the water line

On 8 September 1854, London health authorities removed the handle of a water pump located at the juncture of Cambridge and Broad Streets. The well was famous in the city for the sweetness of its water, apparently used as an ingredient in a “celebrated nectar”.

This fact was all the more astonishing because the well was also responsible for the deaths, in less than a fortnight, of nearly 700 people. The cause of death was cholera. Dr John Snow, a British physician credited as one of the founders of epidemiology, identified the source of the fatal outbreak as the Broad Street pump. Further investigation revealed that faulty brickwork around a cesspool, which lay within a metre of the pump, had allowed infected water to seep into the surrounding soil and thence into the well. The water level in the cesspool was two and a half metres higher than that of the well. On Dr Snow’s recommendations, authorities removed the pump handle.

The solution was simple, and in many cases, better drinking water and sanitation requires only the close scrutiny of authorities. But today, investment is rarely simple. Modern water use and sanitation systems are administratively and politically complex. Water is considered a human right, unlike electricity or telecommunications. Nor do people see water as an “infrastructure” like the mesh of power lines overhead. It is taken for granted, partly because the bulk of water infrastructure lies out of sight underground, which also makes it difficult and costly to maintain. Further complications arise from the fact that sanitation is often administered by a slew of ministries and departments rather than by a single agency, giving rise to potential conflicts of authority which can affect management and quality. Lastly, in the present economic climate, a dim view is taken of any proposal to make households or governments pay more.

Sufficient funding is necessary to maintain or improve existing infrastructures and to ensure access to healthy drinking water. This holds true not only for developing countries but OECD and emerging market (chiefly BRIC) countries as well. Together, OECD and BRIC countries will have to spend between 0.35% and 1.2% of their GDP to maintain existing infrastructures. This currently amounts to US$576 billion per year, an outlay projected to rise to nearly $780 billion by 2015 and $1,035 billion by 2025.

Developing countries face different problems, the main one being access to clean water. The World Health Organization estimates that clean water and hygiene would reduce the global burden of disease by 10%, and generate revenue of up to $84 billion per year. Diarrheal diseases such as cholera kill 1.8 million people a year, 88% of whom are infected as a direct result of impure water, poor sanitation and hygiene. Improving the water supply and sanitation reduces morbidity by 58.5% and the simple act of washing hands reduces it by another 35%. Yet there is a caveat. “Having a water tap does not necessarily mean having sustainable access to safe drinking water,” a recent OECD report warns. Cross-contamination, as the Broad Street pump example shows, can have grave consequences. Access must remain a priority, but without corresponding investments in sanitation, its provision may be a poisoned chalice.

Investors are already shy of the heavy initial outlay needed for water infrastructure. Economic uncertainty in developed countries and political instability in developing countries do nothing to embolden them. So where is the money to come from? A lot can be saved through efficiency. Leakage is a notorious problem, not only in developing countries, where up to 70% of water is lost through leaks, but in developed countries as well. Decrepit infrastructure built during the Victorian era was responsible for the 40% leakage rate in the London water network, prompting the economic regulator, Ofwat, to impose reduction targets. In other developed countries, leakage may be at similarly high levels.

Even with gains in efficiency, poorer countries will not reach the Millennium Development Goal of halving the proportion of people without access to clean drinking water by 2015. The United Nations estimates that hitting that target will require anything between $6.7 and $75 billion per year, increasing to between $33.5 and $375 billion by 2015. At current levels of financing, this target is out of range. Closing the financing gap means softening some long-held assumptions.

In 2009, the OECD recommended a combination of tariffs, taxes and transfers of development aid and philanthropic donations as the surest way to close the funding gap. The steady stream of revenue from these sources would open the way for repayable finance in the form of loans, bonds and equity. This approach, known as “sustainable cost recovery”, departs from the earlier concept of “full cost recovery”, which held that tariffs alone were sufficient to recover costs. While largely true in OECD countries such as France, where tariffs account for 90% of financing, it is clearly not the case in developing countries. In Mozambique, for example, tariffs cover only 30% of financing; in Egypt, a mere 10%. This is not surprising. Proponents of full cost recovery overlook the fact that water infrastructure in developed countries evolved over a period of 50 to 100 years and until recently was largely financed from public budgets. Until sound infrastructure is in place, and household affordability has improved, developing countries will have to rely on their public budget resources, on assistance and donations in addition to tariffs.

Setting tariffs offers a good example of the complexity of water issues, especially in countries where the provision of water is heavily subsidised. Subsidies are rightly meant to protect poor consumers. However, there is little incentive to save water if those subsidies are overly generous and reduce the water price. Politicians may be loath to raise tariffs on a “public good” and “human right”, but sustainable cost recovery cannot be realised unless a balance is struck between affordability and financial sustainability. The question is whether the criterion of affordability should apply to the population as a whole or only to the most vulnerable?

An example of a flawed approach to ensuring affordability is when water tariffs are subsidised across the board, as is the case in Egypt for example, where 90% of water utility revenue comes from tax payers’ money. As a result, the rich, who are the largest per capita water consumers, receive a larger subsidy than the poor and pay a relatively small percentage of their income, while the poorest sections pay a larger share of theirs.

Governments could cushion this by compensating poorer households directly and by making it easier for those consumers, whose incomes are often irregular, to pay their bills: week by week, for instance, rather than quarterly.

While tariffs may cover cost for provision and maintenance, the hefty capital required to develop and to repair infrastructure generally comes from taxes in the form of government subsidised loans, grants and guarantees. With governments today scrambling for cash, these sources of revenue are being siphoned off, although some countries, such as China, Korea and the United States, specifically targeted the water sector in their economic stimulus packages. The crisis also makes it hard for both developed and developing countries to borrow at acceptable rates. The result may be “temporary” cuts in funding.

For developing countries, the situation is brightening. In 2001, aid for water and sanitation began to rise sharply. Between 2002 and 2009, bilateral aid increased on average by 18% per year, with multilateral aid increasing by 10%. Official development assistance (ODA) is most effective when used to support public goods, such as wastewater treatment, improved access for the poor, and as leverage to attract private investment. Allocation for water and sanitation is a problem, however, with some countries receiving more ODA than they need, and spending it disproportionately on urban areas rather than water-stressed rural ones. Unfortunately, as donor countries shore up their finances, ODA is unlikely to see further increases any time soon.

The OECD has a range of tools to help policymakers achieve more sustainable financing of water and sanitation. The strategic financial planning approach helps decision-makers to find the right mix of funding. This is supported by FEASIBLE, a computer-modelling programme that evaluates the discrepancy between the cost and the financial reality of proposed water and sanitation projects. Another tool is the OECD Checklist for Public Action, a set of 24 principles that guides policymakers in assessing their policy framework against the objective of attracting private sector investment and expertise in the water sector, which has now been used by Egypt, Russia, Lebanon and Mexico.

Water and sanitation have often suffered from the poor judgement of policymakers, who fail to look closely at the financial realities of the sector, whether because of idealism, political temerity or economic necessity. Beckoning investors requires the presentation of a realistic and balanced approach to financing. Like the water from the Broad Street pump, certain policies may sweeten the reality but only hands-on action will change it. Lyndon Thompson

For more on water management, contact or

Global Forum on Environment: Making Water Reform Happen Paris, 25-26 October 2011


Borkey, Peter, and Brendan Gillespie (2006), “Safe water: A quality conundrum”, in OECD Observer No 254, March.

OECD (2011), Meeting the Challenge of Financing Water and Sanitation: Tools and Approaches, Paris.

WHO Water Sanitation: Hygiene Facts and Figures.

See also and

©OECD Observer No 286 Q3 2011

Economic data


Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Editor's choice

  • Success story. Discover the story of this young Ethiopian woman who launched a successful business in the footwear industry and became a UN Goodwill Ambassador for Entrepreneurship.
  • Transports in Asia. The Asian Development Bank advocates sustainable transport in a continent where vehicle ownership is perceived as a sign of social success.
  • Vote for your favourite photograph! This World Bank #EachDayISee photo contest aims to display visual stories from all over the world through which people express what they would like to see changed and improved.
  • Why is investment so low in the euro area? This short IMF blog post gives you an insight into the causes of the euro-zone's drastic decline in investment.
  • Have your say! The UN wants to know what matters most to you: pick six global issues in the list and send it to the United Nations.
  • Clear air and healthy lungs: how to better tackle air pollution. From New Delhi to Accra, millions of people breathe polluted air. A new report examines the World Bank’s experience working to improve air quality.
  • The boring secret of great cities. Plenty of things make a city great but what really makes a difference originates in the structure of municipal government according to the OECD's report "The Metropolitan Century".
  • Guinea gets $37.7 million in extra IMF financing to help combat Ebola
  • Towards an international carbon pricing framework? Designing a unified international carbon pricing system could help to move towards a fully functional low-carbon global economy.
  • Putting the global economy on a more virtuous path. Current potential growth rates are well below pre-crisis levels. To avoid stagnation, governments have to put in place robust structural reforms.
  • World Water Day: 22 March 2015 For World Water Day, UN-Water identifies upcoming challenges and sets the theme for the years to come. In 2015, the theme for World Water Day is Water and Sustainable Development.
  • What drives street-based child labour?The ILO, UNICEF, Save the Children and the Lebanese Ministry of Labour launch a first-ever study assessing the scope and characteristics of the increasingly visible phenomenon of one of the worst forms of child labour.
  • No “Grexit”. Speaking to CNBC, OECD Secretary-General Angel Gurría says he would do everything to make sure Greece does not leave the euro. "Everybody wants Greece to stay in, everybody wants Greece to prosper and to get out of its short-term morass," he told CNBC. Watch the video.
  • engaging citizens
  • Interested in citizen engagement? The World Bank Group offers a four-week online course which aims to teach how citizens can engage in both policymaking and public service delivery.
  • 2.1 million jobs could be created in Europe by 2018 under the three-year investment plan put forward by European Commission President Jean-Claude Juncker, according to the ILO.
  • Become involved in urban flood risk management. This World Bank two-week online forum gives you the opportunity to discuss how to preserve cities from these natural disasters with experts and development leaders.
  • Promoting decent work for migrant workers.This ILO report highlights the need to ensure decent work for migrants, which is part of the global agenda on sustainable development.
  • Composite leading indicators

Most Popular Articles

Subscribe Now

<b>Subscribe now!</b>

To receive your exclusive print editions delivered to you directly

Online edition
Previous editions


What issue are you most concerned about in 2015?

Euro crisis
Global warming
International conflict

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2015