Environment in emerging and transition economies

Water for All: A Matter of Good Governance - The OECD Perspective

 

Remarks by Angel Gurría, OECD Secretary-General, during the 13th World Water Congress


Montpellier, France, 1 September 2008


Good morning Ladies and Gentlemen,


It is a great honour to speak at this meeting of the International Water Resources Association (IWRA) during this 13th World Water Congress. I would like to extend my special thanks to our French hosts and to the Association for this opportunity.


Managing and securing access to water and sanitation for all is one of the most challenging items in the world agenda. It requires us to rethink the governance structure of water to deal with it not only at the national level, but also globally. At the OECD, water is one of our priorities, and I am pleased to share with you our main questions and findings.


There are two key water challenges that are interrelated. First, this vital resource is being mismanaged and unsustainably used. Secondly, the international community is not living up to its promise of ensuring access to adequate water and sanitation services for all. 


Water is essentially a local issue, and therefore, there are no one-size-fits-all answers. But solutions do exist and most of them have to do with governance and management. Let´s look more closely at the two challenges we mentioned.


The Water Resources Challenge

There was an assumption that there would always be sufficient and cheap water to meet human needs within an environmentally sustainable scenario. Unfortunately, it is now clear that this is simply not true.


A growing number of countries or regions are facing increasing competition for water resources by domestic, industrial and agricultural users – or between users and environmental needs. According to the latest OECD Environmental Outlook, by 2030, 3.9 billion people will live in areas under severe water stress; mostly in South Asia and China. That’s 1 billion more people than today.


Therefore, managing the balance between water supply and demand is a major challenge. By 2030, the world economy is projected to double and its population to increase by one-third, requiring crop production to increase by 50%. Water abstraction in major developed countries overall has remained stable since 1990, with variations at geographical and sector levels. But in the developing world, water abstractions ─ of which nearly 70% are for agriculture ─ are projected to increase much faster.


In these countries, it is necessary to raise agricultural production twice as fast as in developed ones, and urbanisation will also grow faster. With this, electricity and industrial production are also projected to increase faster, especially in large emerging economies (like Brazil, China, India Indonesia and South Africa). There is indeed an important pressure for and limited availability of water resources.


Water scarcity is compounded by declining freshwater quality. In OECD countries, surface water pollution has been addressed primarily by regulating discharges from large point-sources and investing in municipal wastewater treatment. But pollution from diffuse sources remains, especially from agriculture. Nearly 60 million tonnes of nitrogen are expected to reach coastal waters from inland sources by 2030 (a 15% increase over 2000). In some regions, the situation is serious (the Gulf of Mexico’s “dead zone”, for example, sometimes covers 22,000 square kilometres).


In other countries, protection of water resources is a formidable challenge and wastewater and solid waste management systems remain weak. Unclean water, largely concentrated in these countries, is the second biggest killer of children. What is more, we estimate that by 2030 over 5 billion people will still not be connected to public sewerage.


Climate change is expected to worsen these trends, making dry regions drier and wet regions wetter; increasing the frequency and intensity of extreme weather events. It will force us to live with increased uncertainty on the timing and magnitude of its impacts, requiring us to improve the resilience of water systems. Industrialized countries experienced significant flood damages over the last decade (e.g. Central and Eastern Europe, the US) and severe drought problems (e.g. Australia, the US, Southern Europe). Their destructive impacts are even higher in developing countries, where hydraulic infrastructure and response systems are less advanced.


Facing water scarcity, some blame it only on the fact that “we are running out of water”. This myth is hard to die. The reality is that water scarcity is not just a physical phenomenon. Scarcity is mainly a governance issue. Dealing with it requires managing water availability and demand, for both to be aligned. It requires the ability to adequately plan, finance, build, operate and maintain hydraulic infrastructures.


Governance systems to address these challenges are still weak. The institutions in charge of water management are at different developmental stages in different countries. Even in the most advanced countries, these entities still need to strengthen their capacity and identify stable sources of financing.
Now let’s look at the other key challenge.


Assuring universal access: no water, no life

The second challenge is ensuring access for all to water and sanitation services. The mismanagement of water resources may sometimes limit the provision of services or prohibitively increase their costs, but another myth is the idea that it is water scarcity which prevents universal access to drinking water. Once again, the problem is mostly rooted in the way water systems are handled.


In developed countries, where adequate access has largely been ensured, significant investments will be required to rehabilitate ageing infrastructure, maintain service quality and comply with more stringent environment and health regulations. Comparisons across the different sectors of infrastructure are notoriously difficult, but we did produce some estimates which suggest that investment needs for water supply and sanitation in OECD countries to 2030 are much larger than for any other infrastructure.


Access to adequate water and sanitation services is essential for human dignity and for economic development as well. As I have already mentioned, unsafe access to water and poor sanitation are the world’s biggest child killers after malnutrition. Together, they account for 1.8 million child deaths per year as well as other health impacts.


So, for many developing countries it’s literally a life and death challenge. While the international community is committed to achieving the water and sanitation targets of the Millennium Development Goals, the 2006 monitoring report by WHO/UNICEF showed that 1.1 billion people lacked adequate access to drinking water and 2.6 billion to adequate sanitation. And the 2008 World Bank monitoring report showed that a majority of sampled countries are not on-track to meet the water-related targets.


A substantial financing gap hinders their achievement. Previous studies estimated the investment costs to be 10 to 30 billion dollars per year, but more recent work suggests higher costs. A recent WHO report projects annual investment needs of 72 billion dollars per year, including the cost of maintaining provision of services to those who already have access. Available financial sources have fallen short of the levels required. Public sector budgets provide the bulk of financing for the sector, but are limited everywhere. The share of ODA to the sector has fallen since 2000.


Consumer tariffs could play a crucial role, but tariff reforms are challenging for policy makers. And operators sometimes fail to properly bill and collect tariffs. Private sector investors have been pulling out of the sector in developing countries, while access to credit with sufficient maturities has been limited, particularly for local providers. And finally, innovative financing solutions have not been as extensively used as expected, although some successful examples exist (like the USAID-supported programmes in Mexico).


Again, money is not the only answer. Better governance and management are also crucial in determining the affordability of investment plans, the sustainability and quality of service provision and the appropriate participation of all stakeholders –including the private sector and local communities. Improved service provision and better governance are also essential in reducing the financing gap.


Rising to the challenge: Understanding the political economy of reform

Governance is indeed a key instrument to address the challenges of water resources that I have mentioned. There is a need to understand such challenges when designing and implementing effective water policies, including the complex political economy of water policy reforms.


The foremost challenge faced by policy makers is to strike a balance between often conflicting objectives: financial, economic, social, environmental. This calls for a mix of well-integrated policy measures, which is difficult to achieve in a context of fragmented responsibilities for the sector  among various ministries, and the need to link decision-making at different geographical levels (national, regional, state, municipal, basin, etc.).


There is therefore a need for greater policy coherence, both horizontally and vertically among different institutions. This includes better co-ordination between governance systems for water services at the local level, and entities managing water resources, which are typically national or are increasingly organised around river basins.


The secret to success is “getting the incentives right”. The use of economic instruments, including pricing, is still limited, so users do not react to the right price signals. And excessive demand may then lead to unnecessary infrastructure investment, wasting limited financial resources.


The design of water pricing policies is often complicated by the need to balance financial and social objectives. Historically, water has been significantly under-priced so price hikes can pose a political challenge. Conversely, if tariff structures are not properly designed with social considerations, price increases may disproportionally affect poorer households.


Even if pricing policies are well designed, weak governance systems may hinder their implementation. Better policy coherence across sectors is also needed, as regional development, land management, agriculture and even energy policies also affect water demand. For example, irrigation water users respond to water prices, but also to energy and output prices and to the support they receive from governments.
Private sector participation in the sector has also encountered opposition, sometimes based on ideological reasons, but also caused by policy failures or the poor performance of the providers themselves.


OECD work shows that resistance to reforms can be addressed by, among others, sequencing reforms properly; identifying “losers” and designing compensation mechanisms for them; involving different interest groups in decision making; and building coalitions around reform packages.


The OECD response

I would like to conclude with a few words on the ongoing OECD work to help countries meet these water challenges. There is a pressing need to take stock of recent experiences, identify good practices and develop practical approaches to assist different levels of governments and other stakeholders. We are studying both recent advances in the literature and reform experiences in many countries to understand what works (and what doesn’t) in different contexts. My OECD colleagues will discuss this in more detail this afternoon, in a special session in Room Pasteur.


Our work focuses primarily on the economic and financial aspects of water resource management and sustainable service provision. But we also acknowledge that there is a need for better coordination and focus when dealing with water issues in the international sphere. There is no single institution in charge of this item, but a plethora that deal with different aspects of the same problem. This is why the OECD, besides contributing with analysis to improve water management, is working with other international institutions to introduce coherence among our actions and develop an integrated agenda. We hope to arrive at a good port during the next World Water Forum in Istanbul.


We are working with the World Water Council, the Global Water Partnership, UNSGAB, FAO and other UN agencies, AquaFed and other representatives of a diverse private sector, as well as NGOs and other civil society groups. Personally, I have been involved in many initiatives related to this, particularly when chairing the Gurría Task Force for Financing Water and Sanitation, a follow-up of the World Panel on Financing Water Infrastructure, known as the Camdessus Panel.


On the analytical side, OECD is examining trends and practical challenges with water pricing, both for municipal water services and for agriculture. We are also developing tools to help governments build investment plans for water infrastructure and create effective policy dialogues on strategic financial planning.


We are identifying governance aspects that can facilitate private sector engagement in the provision and financing of water services, as well as their efficient and effective delivery to all. For this, we are considering the diversity of private actors involved in the water sector, as well as the need to develop better partnerships between policymakers, the private sector and local communities.


The findings of a major initiative that we launched two years ago, based on the workings of many decades, were presented at the recent World Water Week in Stockholm. Its key messages will be further discussed at an OECD Global Forum on Sustainable Development in Paris on December 1-2. Feedback of participants will be incorporated in our final report, which I will present at the 5th World Water Forum in Istanbul in March 2009.


Thus, we are advancing on parallel tracks, putting together one of the most plural responses to this global challenge.


Ladies and gentlemen,


It is a common place to say that water is the essence of life. This may be an exaggeration. But it is certainly essential for life. Business as usual policies and social behaviour are sketching a daunting panorama. The connections between our mistakes as policy-makers and administrators, our daily behaviour as producers and consumers and the desperate situation of many countries are becoming more and more evident.


It is time for a major cultural change regarding our relation to this precious liquid. We urgently need new policies, reforms, international commitments and innovation. As environmentalist David Brower once said, we have to start thinking like a river if we are to leave a legacy of beauty and life to future generations.


OECD work concludes that the needed solutions to the water crisis do exist and that we already know most of them. The real challenge is implementing these solutions, tailoring them to local contexts and overcoming obstacles to reform. We also need to bring together main actors from different sectors to join forces and share the risks and responsibilities to ensure access to the global public good which is water for all. In this way, the promise shall not go unfulfilled.


At the OECD, we look forward to working with all of you on this formidable task. This Congress promises to make a valuable contribution to the debate on water, and I wish you every success during your discussions.


Thank you very much.

 

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