East Asia: Economics of Sanitation Initiative

Cambodia | Indonesia | Lao PDR | Philippines | Vietnam | Yunnan Province, China

Introduction

The Economics of Sanitation Initiative was launched in 2007 with a WSP study from Southeast Asia, which found that the economic costs of poor sanitation and hygiene amounted to over US$ 9.2 billion a year (2005 prices) in Cambodia, Indonesia, Lao PDR, the Philippines, and Vietnam. The groundbreaking study was the first of its kind to attribute dollar amounts to a country’s losses from poor sanitation. The report sparked public awareness and Government action in several countries. The ESI initiative was born as a response by WSP to address major gaps in evidence among developing countries on the economic impacts of sanitation.

The second phase of ESI in East Asia analyzes the costs and the benefits of alternative sanitation interventions in a range of typical contexts. The study results enable decisions on how to more efficiently spend funds allocated to sanitation. The study was conducted in Cambodia, Indonesia, the Philippines, Vietnam, and Yunnan Province in China. Some key findings are presented below.

The study found that sanitation interventions have very favorable socio-economic returns to households and society, contributing improved health, clean environment, dignity and quality of life, among many other benefits. In addition, while the study showed sanitation options that protect the environment are more costly to provide, the benefits are highly valued by households, tourists and businesses. When environmental benefits to downstream populations of proper wastewater management are valued, it can considerably increase the economic returns.

Methods

Phase 1: Economic impacts of sanitation

A quantitative and qualitative assessment of the impacts of poor sanitation on health, water, tourism, and other welfare impacts was conducted. The inclusion of health was based on well-established links between sanitation and disease incidence. Water impacts were deemed important because poor sanitation is one of the causes of water pollution, which affects, among other things, the sourcing and cost of accessing water for household water supply as well as the productivity of water resources (e.g. fisheries output). Other welfare impacts were included because the absence of sanitary facilities affects people in terms of the time spent accessing facilities and productivity in work and school. Finally, tourism was included in the study because poor sanitation facilities could influence the country’s attractiveness as a tourist destination.
In measuring the impacts, the study used standard peer-reviewed methodologies. An attempt was also made to distinguish between financial and economic costs. Where possible, the analysis was conducted at the provincial or regional level in countries, and aggregated to the national level.

Phase 2: Economic assessment of sanitation interventions (cost-benefit analysis)

A range of sanitation interventions – covering technology options and program designs – were compared in selected rural and urban settings in each country. Surveys were conducted using household questionnaires focusing on sanitation, water and hygiene behaviors and perceptions, supplemented with focus group discussions, physical (community) investigations, water quality analysis, market and price surveys, and health facility surveys. These primary data at community level were supplemented with data on disease rates and treatment seeking from other national and local surveys. Conventional techniques of economic analysis were utilized to generate outputs such as benefit-cost ratio, cost-effectiveness ratio, net present value, internal rate of the return, and payback period of sanitation options. Economic benefits quantified include impacts on health, drinking water, sanitation access time, and the reuse of human excreta. These monetized benefits were compared with the full investment and recurrent costs of each sanitation option. Environmental and social impacts of poor sanitation were not fully captured in the monetary estimates of benefit, but presented using perception and preference ranking. Surveys were also conducted on selected social and broader economic benefits, including a sample of businesses and foreign travelers to gauge their perceptions on the status and importance of sanitation.

Results of Economic Impacts of Sanitation

Cambodia

Phase 1: Key findings

  • Poor sanitation leads to economic losses of US$ 448 million per year, which translates into per capita loss of approximately US$32.
  • The economic losses are equivalent to 7.2% of Cambodia’s GDP in 2005.
  • This amount is roughly equivalent to the contribution of the fishery sector to the GDP, or twice the forestry’s contribution.
  • While these economic costs are not all tangible, the immediate money ‘in the hand’ losses (financial losses) amount to about US$160 million per year, which is roughly 2.5% of the GDP, being equivalent to nearly US$12per capita.

 Full Report  | Summary  | Flier

Phase 2: Key findings

  • Economic returns are potentially high—in excess of US$ 2 return per dollar invested—especially in rural areas where low-cost on-site solutions are feasible.
  • Economic efficiency of improved sanitation and sustainable behavior changes results can be optimized by improving program performance through cost-effective implementation and close monitoring of project costs and impacts.
  • Improved hygiene and sanitation conditions in institutions, public places and tourist sites are important to attract more businesses and tourists to Cambodia.

Full Report | Summary

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Indonesia

View: Infographic: What's a Toilet Worth in Indonesia?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Phase 1: Key findings

  • In 2006, Indonesia lost an estimated US$ 6.3 billion due to poor sanitation and hygiene, equivalent to approximately 2.3% of GDP.
  • Of the impacts evaluated, health and water resources contribute most to the overall economic losses estimated in the study.
  • Poor sanitation, including hygiene, causes at least 120 million disease episodes and 50,000 premature deaths annually. The resulting economic impact is more than US$ 3.3 billion per year.
  • The associated economic costs of polluted water attributed to poor sanitation exceed US$ 1.5 billion per year.
  • Poor sanitation also contributes up to US$ 1.2 billion per year in population welfare losses (due to additional time required to access unimproved sanitation), US$ 166 million per year in tourism losses, and US$ 96 million in environmental losses due to loss of productive land.

 Full Report  | Flier

Phase 2: Key findings

  • In rural areas the economic benefits of pit latrines exceed costs by at least seven times, and in urban areas the economic benefits of improved wastewater management exceed the costs by almost two times.
  • Better “packaging” of and access to information on costs and benefits of sanitation options is key to rapidly increasing uptake in Indonesia. Decision makers—both households and government—need to be further sensitized to the health, economic and social benefits associated with improved sanitation, and the available choice of latrine designs, models, and sanitary options.

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Lao PDR 

Phase1: Key findings

  • In 2006, Lao PDR lost an estimated US$ 193 million due to poor sanitation and hygiene, equivalent to approximately 5.6% of GDP.
  • Of the impacts evaluated, health contributes 60% to the overall economic costs estimated in the study, followed by 18% for accessing clean drinking water, 13% for additional time to access unimproved sanitation, and 9% due to tourism losses.
  • Poor sanitation, including hygiene, causes at least 3 million disease episodes and 6,000 premature deaths annually. The resulting economic impact is more than US$ 115 million per year.
  • The associated economic costs of polluted water attributed to poor sanitation exceed US$ 35 million per year. This excludes accessing clean water for non-drinking purposes, as well as loss of productive value for fisheries and agriculture due to polluted water.
  • Poor sanitation also contributes US$ 25 million losses per year due to additional time required to access unimproved sanitation, and possibly over US$ 17 million per year in tourism losses.

Full Report: English | Lao  | Flier

Phase 2: Key findings  

  • Economic returns are potentially high—in excess of US$2 return per dollar invested in urban areas and at least US$4 return per dollar invested in rural areas.
  • Economic efficiency of improved sanitation can be optimized by improving program performance, which leads to sustained behavior change. Future projects should carefully plan and implement activities cost-effectively, and closely monitor project costs and impacts, to ensure that the project resources are being appropriately utilized.
  • Sanitation solutions in urban areas that involve wastewater management are potentially cost-beneficial, despite not all benefits having been included. While difficult to quantify in economic terms, the associated environmental benefits of wastewater management are highly valued by households, tourists and businesses.
  • Improved hygiene and sanitation conditions in institutions, public places and tourist sites are important to attract more businesses and tourists to Lao PDR.

Full Report | Summary (English)

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Philippines 

Phase 1: Key findings

  • Overall, the study estimated that poor sanitation led to economic costs in the order of US$ 1.4 billion, equivalent to about 1.5% of GDP in 2005 and translated to per capita losses of US$ 16.8 per year.
  • The health impacts represented the largest source of quantified economic costs at about US$ 1 billion, this item explained about 72% of total economic costs.
  • The second most important economic impact was on water resources, which accounted for about 23% of the total costs.
  • The remainder was divided between impacts on other welfare impacts and tourism.

 Full Report  | Summary  | Flier

Phase 2: Key findings

  • Pit latrines in rural areas have an economic return of at least five times the cost, and off-site treatment options in urban areas have an economic return of at least four times the cost.
  • Net benefits from low-cost sanitation options are high, offering an affordable option to poor households.
  • While investment costs account for a major share of annualized costs (i.e., costs converted to annual equivalent), the appropriate estimation of operational and maintenance costs is crucial to the correct functioning of sanitation facilities. Municipalities and service providers should ensure these expenses are fully accounted for in the budget.

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Vietnam 

Phase 1: Key findings

  • Economic losses… overall population welfare losses are equal to 1.3% of GDP.
  • Financial losses – reflecting expenditure or income losses resulting from poor sanitation are equal to roughly 0.5% of annual Gross Domestic Product (GDP).
  • The majority of economic losses are shared between health (34%), water resources (37%), and the environment (15%).
  • The annual losses per capita equal US$ 9.4 per year.

 Full Report  | Summary

Phase 2: Key findings

  • Pit latrines in rural areas have an economic return of at least six times the cost, and off-site treatment options in urban areas have an economic return of at least three times the cost. Net benefits from low-cost sanitation options are especially high, offering an affordable option to poor households.
  • Economic efficiency of the improved sanitation can be optimized by making programs more demand-sensitive, which leads to sustained behavior change. Users should be involved in all the stages of sanitation projects.

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Yunnan Province, People's Republic of China 

Phase 2: Key findings:

  • Pit latrines in rural areas have an economic return of at least six times the cost, and off-site treatment options in urban areas have an economic return of at least two times the cost.
  • Economic efficiency of the improved sanitation can be optimized by making programs more demand-sensitive, which leads to sustained behavior change. More efforts are needed to stimulate demand from populations and deliver sanitation solutions that they wish for. Users should be involved in all the stages of sanitation projects.
  • The higher investments needed for the appropriate transport, treatment, and disposal of human excreta and wastewater can be justified by the higher income levels and willingness to pay for improved quality of life, especially in urban centers. Monitoring is needed to ensure the environmental benefits are being captured.

 Full Report (English | Mandarin) | Summary

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