One of the pillars of the new Dutch development policy is to promote private sector involvement, as a motor for economic growth. This pillar equally applies to water, one of the sectors supported by Dutch development cooperation. However, since the fiasco of privatization of (urban) drinking water supply in the 1990s and early 2000s, the term “private sector” has become a foul word for some in the WASH sector, and nowadays few would argue in favour of full-scale privatization. But, that doesn’t preclude other roles for the private sector in water supply. Let’s have a look at how this is understood in the Dutch water policies, and what broader lessons it may provide.
The various policy documents are clear in their ambition to strengthen the local private sector in the Dutch partner countries, by promoting entrepreneurship. In the context of water and sanitation, this could refer to local private operators – who run water and sanitation systems, or suppliers, of materials and equipment necessary to run water and sanitation systems. Work by for example WSP and others show how for example public-private partnerships between local governments and local private operators may enter into delegated management arrangements for service provision, this may lead to improved financial sustainability and service levels. Still many challenges remain, for example around regulation and lack of access to initial funding. All in all, this is an area, where further research and development is needed, and where Dutch development cooperation could contribute a lot. Unfortunately, the various policy documents have been silent on the details of what this may entail.
A second element of private sector involvement is the engagement of the Dutch companies and organisations as what can be called “suppliers” of both technology and expertise. It is claimed that there is lots of expertise in water management and drinking water supply and sanitation among Dutch companies, but also among universities, local government bodies and civil society organisations. That expertise could well be used in the various programmes supported by Dutch development cooperation, for example in supporting utilities. And indeed the Dutch policy calls for partnerships between these parties.
Where it risks getting messy is in the way these partnerships get formed. First of all, some of the documents mix the terms “Dutch private sector” and “Dutch water sector” quite freely – it seems that the Dutch water sector is reduced sometimes to the private companies operating within the Dutch water sector, forgetting about the expertise in public organisations and NGOs. More worryingly is the perception among the Dutch private sector organisations that part of the supplier functions should be awarded to them. A recent study reports a call by some Dutch private sector companies to return to some form of tied aid. Dutch policy makers clearly state that that is a no-go. If the private sector wants to play a role as supplier of knowledge or technology, it should do so on the basis of fair competition. If development agencies or international donors see that Dutch organisations provide value for money, they will hire them.
However, what countries need more than Dutch suppliers, are Dutch investors. At a meeting on partnerships between Dutch and Peruvian water sector organisations, it was made clear by one of the participants I spoke with: “above all we need investors, and then later we can see whether we need suppliers of expertise and technology”. And it is actually around the investments, where the private sector is still lagging behind. Apparently, the returns on investment and the risks are still too high for private investors to invest in water and sanitation. Even in urban areas, water supply remains a risky business. An interesting online debate on public-public partnerships also shows this. Such partnerships do allow for transfer of knowledge and skills between utilities, but they often do not come with the money needed for investments. The other day I was talking to someone working for a Dutch development bank, who invest in (small) private sector development in the South. On my question whether they do invest also in water, he burst out laughing, because water is too complex and risky even for development banks to invest in and expect a return. Apparently the Dutch do not like going Dutch, at least not in the water sector!
The two forms of private sector involvement in water for which there is highest demand are thus PPP arrangements with local private sector and private investments in water. Yet, they seem to be difficult to achieve well. The Dutch development cooperation policy would benefit from a clearer articulation of how it would see supporting private sector involvement in the water sector, and how it can overcome gaps identified around those two areas. Doing so may not only help in better targeting Dutch development cooperation, but also yield broader lessons on private sector involvement in water supply.