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Study Session 13 Commercial Opportunities in Urban Sanitation and Waste Management

Introduction

Commercial opportunities in urban sanitation and waste management depend on there being demand for the products and services provided and willingness among the people to adopt new practices and change their behaviour. Demand creation and behaviour change for improved sanitation and hygiene are central elements of the government of Ethiopia’s health strategy. People must also be willing to pay for the products and services. Profitability is essential if the provision of improved sanitation technologies and waste management services is to be sustained.

In this study session you will learn about ways of developing and strengthening commercial opportunities in the sector. In particular we focus on sanitation marketing as an approach that encourages and supports improvements in sanitation provision.

Learning Outcomes for Study Session 13

When you have studied this session, you should be able to:

13.1 Define and use correctly each of the terms printed in bold. (SAQ 13.1)

13.2 Outline the key factors affecting the development and sustainability of small businesses in urban sanitation and waste management. (SAQ 13.2)

13.3 Explain what is meant by sanitation marketing. (SAQs 13.2 and 13.3)

13.4 Describe the possible advantages and disadvantages of public–private partnerships for urban sanitation and waste management. (SAQ 13.4)

13.1 Opportunities for small-scale enterprise

Commercial opportunities are simply ways in which private sector organisations that provide goods and services can supply them on a commercial basis for profit. They can generate income by developing existing relations with households through supplying sanitation and waste management services or by extending these services to new clients, thereby increasing the company’s income and profits.

  • Based on previous study sessions and your existing experience, what commercial opportunities for private sector organisations in this sector can you think of?

  • You may have thought of any of the following possibilities:

    • manufacture of latrine slabs
    • digging latrine pits and building the superstructure
    • emptying latrines
    • operating public latrines
    • setting up and operating handwashing facilities
    • collecting recyclable materials from households and taking them to merchants
    • composting organic wastes and latrine sludges and selling the compost.

These commercial opportunities range from product design and manufacture through to recovery and reuse of materials and all bring both economic and environmental benefits. In most of the urban and peri-urban areas of Ethiopia, these opportunities are increasingly being taken up by micro- and small enterprises (MSEs). MSEs were defined in Study Session 9 as organisations with fewer than 50 employees although many operating in this sector are at the smaller (micro) end of the scale.

Sanitation services provided by MSEs in urban and peri-urban areas include pit latrine emptying and the management and operation of public latrine and washing facilities. Public toilets in urban areas often need major improvements in terms of the quality of the services provided to the users. Operators frequently lack the required training, especially in hygiene requirements and in business skills needed for the operation of the facilities. Case Study 13.1 illustrates how a public latrine can be operated successfully as a commercial enterprise.

Case Study 13.1 Successful public latrine business in Mekelle

In Mekelle, the public latrine shown in Figure 13.1 provided an opportunity for commercial development and for improvement in sanitation and hygiene services available to the community.

Figure 13.1  This public latrine was developed as a commercial opportunity for women in Mekelle town, Tigray region.

Five women were selected from the organised women’s development group of the kebele where the public latrine is located. The selected women were:

  • from model households in terms of their sanitation activities and actively involved in a weekly sanitation campaign
  • volunteers who were accepted by local people
  • low in economic status.

The women operated and managed the latrine. They kept it in a hygienic condition and charged 50 cents to use the toilet and 5 ETB per person for showering. They also kept a mini-shop selling toilet paper, soaps and other sanitation-related products and services. Four years after establishing this public latrine, it remains clean, safe and comfortable to use and it has created a commercial opportunity for the women who operate the facility. It is a success story!

Other services provided by local small enterprises include the separation and composting of organic wastes. Faecal sludge and household wastes are collected by private individuals. Any inorganic material is removed and the organic wastes are composted to make an excellent soil improver. (You learned about composting in Study Session 9.) The production of high-quality organic fertiliser from waste and faecal sludge for sale to farmers is highly profitable and meets many needs in peri-urban areas.

In Study Session 8 you read about commercial opportunities in recycling and reuse of solid waste. There are simple and applicable methods for processing waste into useful products for urban markets. Recycling and reuse are providing raw materials for manufacturers as well as solving the municipal waste accumulation problems. The access to financing for these often small-scale initiatives is improving with the development of micro-finance institutions (MFIs). MFIs provide loans for people on low income and can be a source of start-up funds for new businesses. The main challenges in establishing a new commercial enterprise is achieving financial sustainability, and then further scaling-up. Not all of these businesses will prove to be financially sustainable in the long run, although they do fulfil a role in the development process.

13.2 Factors affecting commercial opportunities

The success of any commercial enterprise is dependent on a number of factors. Three key questions for any new business are: to find out if there is a demand for the product or service to be provided; whether it will be affordable; and why people might want to spend their money on it. We will look at these three factors with latrines and improved sanitation in mind.

13.2.1 Creating demand for improved sanitation

Demand is created when consumers’ have knowledge, motivation, opportunity and ability to purchase sanitation technology that suits their needs. People require motivation to pay for products and services. Creating demand for latrines can be helped by raising awareness of the health benefits but it needs to do more than this. Latrine adoption is rarely motivated by messages about preventing disease. Householders are more motivated by factors such as increased convenience, comfort, cleanliness, privacy, safety and prestige offered by home sanitation. But even if they want to install sanitation facilities, households also need the opportunity and be able to afford products or services that suit their needs.

13.2.2 Affordability of improved sanitation

Affordability in the context of sanitation refers to the ability to pay for a sanitation product or service. If you were involved in a sanitation improvement project in your woreda it would be very important to identify the number of households who cannot afford to buy sanitation facilities in a single payment. In most cases these will be people living in slum areas or the urban poor. Discussions with these households should be held to determine how much they can afford to pay every month and then help should be given to them to arrange a loan from their local micro-finance organisation.

  • If the total cost (including any credit charges) for a circular latrine slab is 260 birr, how much will a household have to repay every month if the payment agreement with local micro-finance is to pay this off within 12 months?

  • The repayment for this household is 260 divided by 12 = 21.67 birr per month

Affordability and payment schedules would be included in project planning and considered with other financial matters in negotiation with the Woreda WASH Steering Committee, private sector organisations and other stakeholders.

13.2.3 Willingness to pay for sanitation services

While affordability affects a household’s ability to pay for sanitation, willingness to pay is a motivational issue, i.e. whether individuals or households are motivated to pay for a product or service – or not. Willingness to pay for sanitation services can be influenced by numerous factors, including the following:

  • Expectations of subsidies: if a community has heard of subsidies being offered or planned, households may not be as willing to pay to acquire a latrine.
  • Perceived value for money: if a household has an unimproved latrine, it may not upgrade the facility if family members do not perceive much of a benefit, compared to the additional costs. Another example is where a household that does not perceive any value in hiring a mason to improve their latrine if they believe they can do it themselves.
  • Explain the difference between affordability and willingness to pay.

  • Something is affordable if a household has sufficient money to buy it (with cash or through a loan). If the household is willing to pay, it means that they think the price is reasonable for the product or service they will receive and there is nothing else they would rather do with the money such as spending it on something else or saving it.

13.3 Sanitation marketing

As noted above, creating demand for latrines and sanitation services is not a simple task. Sanitation marketing (sometimes referred to as SanMark) is an approach to household sanitation promotion that aims to improve standards by encouraging people’s demand for sanitation products and services. This helps companies supplying these products and services to develop and prosper because they have a growing market of customers. In this way sanitation marketing addresses both supply and demand for products and services, resulting in the development of a sustainable local sanitation industry.

A key principle of sanitation marketing is that it is demand-driven, which means that individuals and households must want to install sanitation for their own use. They choose what type of facility they want to build and pay for it themselves. In the past, sanitation development was often funded by charities or subsidies, but this created dependency and if households had a low sense of ownership they did not always use their sanitation facilities properly or maintain them.

The National Sanitation Marketing Guideline (NSMG) explains the principles and gives guidance on the process (MoH, 2013). Sanitation marketing starts with research to understand consumers’ motivations and preferences and to find out about any constraints to improved latrine adoption. If communities and individuals are practising open defecation and have limited knowledge of good hygiene behaviour then these problems will need to be addressed before the demand for new products can exist. One way to tackle this is the community-led total sanitation (CLTS) approach, also known in Ethiopia as community-led total sanitation and hygiene (CLTSH). CLTSH is an approach to changing community behaviour that aims to achieve open-defecation free (ODF) status and ensure everyone has access to and uses a latrine. CLTSH involves specially trained people, known as facilitators, working with the community to analyse the extent of open defecation in the area. The facilitators help the community to understand the implications for faecal-oral contamination, and trigger a feeling of disgust and shame in community members that motivates them to take action. The community is empowered and encouraged to build its own latrines and aim for ODF status.

The NSMG recommends that the process should also be supported with behaviour change communication (BCC). This has a focus on changing behaviour of individuals through education and raising awareness of good hygiene practice as a means to improve health. Both CLTSH and BCC help people to recognise the value of having their own latrine which creates the demand for sanitation products.

  • What do you consider to be the main drivers for creating a demand towards improving sanitation facilities?

  • The main drivers towards creating a demand are:

    • Improving health – using improved sanitation facilities can reduce the incidence and prevalence of diarrhoeal diseases.
    • Dignity and status – having and using improved sanitation facilities at home gives pride and is a sign of high status in the community and with visitors.

13.4  Strategies for sanitation marketing

To be successful, sanitation marketing must give attention to supply as well as demand. There is no point in creating demand if the right products are not available to meet that demand. On the supply side, strategies should be structured around the traditional ‘4 Ps’ of marketing, which are product, place, promotion and price. Knowing how these four factors interact in sanitation marketing will help build and promote sustainable commercial opportunities for sanitation services in your area.

13.4.1 Sanitation products

Slabs for latrines will be the core component of most sanitation packages. These may be made of concrete, plastic, ceramic or other appropriate materials (Figure 13.2). The product strategy will be to supply households with a slab that is durable, affordable, convenient and easy to clean and maintain. Sanitation marketing in your area could also involve products related to handwashing facilities, such as sinks, water pipes and taps. Sanitation-related services can also be thought of as products, for example solid waste collection, or construction of biogas digesters (Figure 13.3).

Figure 13.2  Circular slabs produced by a private sector company.
Figure 13.3  Biogas digester under construction.

13.4.2 Sanitation ‘place’

In this context, place means the site where sanitation facilities are produced and also where they are sold. They may be the same place or in different locations, but the important point is that must be easily accessible to customers (especially for heavy items such as a concrete slab). A major problem in peri-urban areas is that the place of production and sale of the slabs can be a long way from people’s homes.

  • If the place where slabs or other products are sold is a long way from people’s homes, how could this affect motivation to improve sanitation at the household level?

  • People are less likely to be motivated to buy the products if they have to travel long distances to view them.

This question illustrates how ‘place’can affect demand and so reduce the sale of ‘products’. If you were faced with this problem, you should work in coordination with the Woreda WASH Team and private sector organisations to try to offer production and sales in more accessible places, ideally in the kebele rather than only at woreda level. The outlets that are most convenient for sales include:

  • local selling centres established by MSEs
  • personal selling by local artisans (e.g. masons, carpenters, plumbers)
  • kebele administrators’ offices
  • health centres.

Other possible outlets are:

  • Farmers Training Centres in peri-urban areas
  • local retailing shops or sanitation sales centres
  • cooperatives (e.g. women’s associations, farmers’ associations in peri-urban areas).

13.4.3 Promotion of sanitation facilities

Promotion is the process of designing messages about sanitation products and services and communicating them to potential customers so as to create a demand for sanitation facilities. Communication strategies include printed materials like posters (Figure 13.4) leaflets and advertising messages on television and radio.

The promotion that you may be involved with is likely to have the general aim of encouraging householders to adopt better sanitation practices. Promotion by commercial firms will be more specific and aimed at selling a particular product or service. For example, the message they want to convey may be ‘buy our Sanplat’ or ‘use our latrine-emptying service’.

Figure 13.4  Typical poster used to raise awareness of sanitation products.

13.4.4 Pricing of sanitation products and services

The price is the amount of money that a consumer has to pay for a particular product or service. In the case of sanitation products, the price may also include the cost of installation and maintenance. Price is a key factor in making a product financially sustainable, meaning it can be manufactured and sold over a long period and cover its costs without the need for subsidies or grants. The consumer wants prices to be as low as possible while the manufacturer wants prices (and their profits) to be as high as possible. If these two demands can be balanced (a low enough price for the buyer that still generates enough profit for the seller), financial stability and sustainability can be achieved.

13.4.5 Business model for sanitation marketing

Giving due consideration to the 4 Ps can lead to the development of a successful business model, like the one shown in Figure 13.5. This model shows the steps in the supply process from manufacture to installation. Three main stakeholders are involved: the producer; the sales agent; and the customer.

Figure 13.5  A summary of a basic business model for sanitation products. (Sani Mark ‘Zena’, 2014)

The producer is responsible for manufacturing the item (for example, a latrine slab) and giving information to customers on its installation. Some sales at woreda level are made directly from the manufacturer or by orders placed at a market.

At kebele level, sales agents are recruited from the local community. People who are respected are selected from each kebele and trained on the importance of sanitation products and how to communicate this to potential customers. The sales agents engage in sales activities at the community and household level with prior introduction by the local kebele head or Health Extension Worker. When they make a sale, the agents receive the initial deposit from customers and retain their commission from the deposit. They then deliver the order and give the balance of payment to the producers.

This model was used in a pilot study in two woredas in the Tigray Region and it was found that leaflets and posters (such as the one shown earlier in Figure 13.4) distributed to every block of kebeles and the main gates of condominiums were effective in promoting the scheme.

13.5 Public–private partnerships in the sanitation sector

Good sanitation benefits the government, individual people and businesses so all three groups have an interest in promoting improved sanitation. The government can facilitate development of the sanitation market through a number of activities:

  • developing promotional materials to help create a demand for the products and services
  • providing subsidies to customers, where appropriate
  • working with the private sector to provide better financing to the customer – both by directly providing access to lower-cost funds and through policy changes that enable the private financial sector to offer more and lower-cost funds.

The government can also enter into direct public–private partnerships (PPPs). PPPs were introduced in Study Session 9 in the context of solid waste management. They can be defined as public services which are funded and operated through a partnership between national, regional or local government and one or more private sector companies. The private sector businesses are motivated to provide a good service by the potential profits they can make and the public sector offices are relieved of the responsibility to provide the service.

The Ethiopian government has highlighted the potential of PPPs as well as the willingness of entrepreneurs to develop sanitation businesses and fill the existing gaps in service delivery (for instance in schools). By working with the private sector, local government investment in sanitation marketing supports businesses to sell affordable, desirable products and services to low-income households which enable them to expand their businesses. Local government efforts also support scaling-up of sanitation services by encouraging greater household investment in improved sanitation and by working with local businesses to respond to increased demand (Pedi et al., n.d.).

Many economists say that the main advantage of involving the private sector is that it will be more efficient than the public sector in providing services at lower cost and with higher standards. This is because private sector organisations:

  • can access capital (from loans or reserves) in order to purchase the most suitable equipment to manufacture sanitation products and they can buy raw materials in bulk, minimising their business expenditure
  • often specialise in a small number of services and so have considerable expertise in these fields
  • are motivated by profit and have greater freedom to use their finances in ways that promote competition with other providers.

However, it is very important to be familiar with the drawbacks if the interactions with private companies are not managed well. Potential drawbacks include:

  • seeking higher profits can lead to lower standards
  • private companies can ‘walk away’ from a contract if it proves less profitable than they expected, leaving householders without the service
  • the risk of a monopoly situation developing, so that there is no alternative to one particular service provider – who can then increase prices and/or reduce standards without fear of losing the contract
  • corruption (bribes paid to inspectors and officials to award contracts to a particular firm or to overlook shortcomings and associated penalties) can happen.

As you have seen in this study session, sanitation as a business goes beyond selling latrine slabs. It is crucial that private sector sanitation entrepreneurs develop business plans that will lead to viable businesses. Public–private partnerships must be very carefully designed, the roles of each partner clearly determined and spelled out, and the needs and expectations of each stakeholder addressed. This needs time and effort. Building partnerships is time-consuming and requires champions within participating organisations, but can result in improvements to people’s health and the environment while stimulating the local economy.

Summary of Study Session 13

In Study Session 13, you have learned that:

  1. There are commercialopportunities in providing a range of WASH services and in product design and manufacture, management, and recovery and reuse of materials. In all of these areas, economic and environmental benefits go together.
  2. There has to be a demand for a product or service for there to be an opportunity for a successful business. Other key factors are affordability and willingness to pay.
  3. Sanitation marketing is an approach to household sanitation promotion that aims to create sustained and effective sanitation by stimulating household demand for products and services. This supports the development of supply-side businesses to meet that demand.
  4. Strategies for the supply of products and services should consider the 4 Ps of marketing: product, place, promotion and price.
  5. One business model for sanitation products centres on a network of sales agents that act as the link between customers and producers and conduct sales activities at community and household levels.
  6. Public–private partnerships are an alternative to the traditional service delivery system that is fully controlled by the public sector.

Self-Assessment Questions (SAQs) for Study Session 13

Now that you have completed this study session, you can assess how well you have achieved its Learning Outcomes by answering these questions.

SAQ 13.1a (tests Learning Outcome 13.1)

  • a.Match the following words to their correct definitions.

Using the following two lists, match each numbered item with the correct letter.

  1. willingness to pay

  2. affordability

  3. CLTSH

  4. commercial opportunities

  • a.the ability of the local people to pay for a sanitation product or service

  • b.how motivated people are to pay for improved sanitation and waste management

  • c.ways in which private sector organisations could provide products or services on a commercial basis for profit

  • d.a strategy where communities take the lead in the process of eliminating open defecation

The correct answers are:
  • 1 = b
  • 2 = a
  • 3 = d
  • 4 = c

SAQ 13.1b (tests Learning Outcome 13.1)

  • b.What are the 4 Ps of marketing?

Answer

b.

The 4Ps are: product, place, promotion and price.

SAQ 13.2 (tests Learning Outcomes 13.2 and 13.3)

Two examples of commercial opportunities in urban sanitation are:

  • a.a pit-emptying service
  • b.a slab-manufacturing business.

For each of these possible businesses, suggest at least one way to create demand for the product or service and at least one possible constraint to a successful and sustainable business.

Answer

  • a.To create demand for a pit-emptying service you would have to raise awareness among the people who owned or were responsible for the pits of the need for regular emptying and the potential dangers of the pit overflowing if it was not emptied. Constraints include:
    • the start-up costs of buying the pit-emptying machinery (e.g. Sludge Gulper, Vacutug)
    • employing and training responsible staff
    • operational difficulties such as access to the pits
    • costs of effective advertising and promotion of the service to potential customers
    • price of the service - if the price was too high people would not be willing to pay or it may not be affordable.
  • b.Demand for latrine slabs could be created by the CLTSH strategy or promoting the advantages of latrines by behaviour change communication – or both. Promotional leaflets and advertisements could help to convince people of the benefits or having their own improved latrine (health benefits, impressing their neighbours etc.). Constraints are similar to those above in some respects and include:
    • the costs of buying raw materials and equipment for slab manufacture
    • employing and training staff to make and sell the slabs
    • transporting the slabs from the place of manufacture to the customers
    • costs of effective advertising and promotion of the slabs to potential customers
    • price of the slabs – if the price was too high people would not be willing to pay or it may not be affordable.

This is not a complete list and you may have thought of other ways of creating demand and possible constraints.

SAQ 13.3 (tests Learning Outcome13.3)

Which of the following statements is false? In each case explain why it is incorrect.

  • A.Sanitation marketing is aimed at encouraging individuals and households to want to install their own latrine.
  • B.Making good quality slabs that are durable, easy to clean and reasonably priced is all that is needed for a successful business.
  • C.Sanitation marketing aims to improve public and environmental health by encouraging demand for sanitation products and services.
  • D.Sanitation marketing can support communities in achieving the goal of open-defecation free (ODF) status.
  • E.The only way to convince people to buy a latrine is to tell them about the health risks from open defecation.

Answer

B is false. Even the best quality slabs will not sell unless there is demand for them.

E is false. Telling people about health risks is important but they may be more convinced by arguments that emphasise the increased status and sense of pride they may gain from having a latrine.

SAQ 13.4 (tests Learning Outcome 13.4)

Give two examples of potential benefits and two examples of possible drawbacks from public–private partnerships in urban sanitation and waste management.

Answer

Benefits from public–private partnerships include:

  • they can be more efficient and provide a better service because private companies are motivated by the potential profits
  • private companies can be specialists in the service area and have access to expert knowledge and special equipment
  • they may be able to access funds that are not available to government offices.

Drawbacks include:

  • private companies may be greedy and more interested in profit than in providing a good service
  • they may not be committed to providing the service over a long period of time and may leave or close down unexpectedly
  • if a single company provides a service with no competition they may take advantage of their monopoly by raising prices.