Managing our future water needs: What can be done to provide the right incentives?


Remarks by Angel Gurría, OECD Secretary-General, at the World Economic Forum Annual Meeting 2009

Davos, 29 January 2009

Colleagues, friends,

It is a great pleasure for me to speak in this session on “Managing our future water need”. I am very pleased to be part in these discussions. Thank you very much Margaret (Catley-Carlson) for this invitation.

Let us be realistic, water is under severe stress. As this session’s introductory note rightly points out so effectively, “we have over-leveraged our water for the future and have no means of paying this back.”

As Andrew (Liveris) and Graham (Mackay) have pointed out so well in their opening remarks, this meeting comes at an important time. We have before us a Water Report synthesising the work of the World Economic Forum. Its conclusions are irrefutable: governments should be more ambitious on water management reforms. The current economic crisis offers a “golden opportunity” to start addressing the water crisis seriously. Thus governments should not just do more but also aim to act more quickly.

The OECD is already working to address these challenges, focusing on areas where OECD can provide value-added. Let me briefly share with you the OECD perspective.

The OECD Water Programme: a water management tool

In a world where advanced countries -- including the United States, Japan and Korea -- will have to increase their water spending by huge proportions to maintain existing level of service, and the developing countries have huge water supply and sanitation challenges to meet, it is fundamental to have good water management practices.

At OECD we help governments providing the right incentives to good water resources management and improved water supply and sanitation.

We have developed the Horizontal Water Programme on Sustainable Financing to Ensure Affordable Access to Water Supply and Sanitation, which has resulted in important lessons. A key one is that the use of more market-based policy instruments will have to be an important element of policy reforms. Without price signals, it will be difficult to set in place the right incentives that are needed to achieve improved water management practices. It will be difficult to provide water to households, farmers, and business in a sustainably efficient way.

Yes, in developing countries, at least, public subsidies will remain essential to improve access to water and sanitation. Developed countries, however, are already showing a greater reliance on tariff revenue. In both developed and developing countries, with a view to pursuing this reliance further and designing better tariff structures, we must keep social objectives in mind. This does not mean that tariffs should be low for everyone. Instead, price structures should be designed in ways that ensure affordability for the poor.

While a properly designed tariff structure is desirable in its own right, there is a need to have an explicit link to implementation and the governance of water supply and sanitation sector reforms. This underscores the merits of effective involvement of all stackeholders, including private actors. Our Water Programme includes an OECD Checklist for public action, which gives practical guidance to help governments and other stackeholders properly assess and debate outstanding water sector needs.

The benefits of improved water management are potentially very high

A recent OECD study shows that Japan and Korea may have to increase their water spending by more than 40% to maintain existing levels of service. The United States’ Environmental Protection Agency estimates that annual investment of USD 23 billion will be needed over the next 20 years to maintain water infrastructure at current service levels given stricter standards.

However, the most critical challenges are in developing countries. The costs of failing to invest in water supply and sanitation are exceptionally high. Inadequate access and poor hygiene account for 1.8 million child deaths per year, the second larger cause of death after malnutrition.

In this context, improved water management and water supply and sanitation are the basic elements for alleviating water stress. The payoffs of incentives to proper behaviours will be long lasting, thanks in particular to:

1. Increasing returns properties. Water investment spills over to other sectors. As the World Health Organisation estimates recently pointed out, for every dollar invested, there is a return in the range of 4-12 in health benefits alone.

2. Water resources management is “green”. Good water management helps to maintain ecosystem services such as those associated with wetlands that confer many benefits on society – fish and fibre, water purification, climate regulation, flood regulation, coastal protection, and so on.

3. The contribution to “fairer” growth. The benefits of water management and sanitation are general, they accrue to society as whole. Investing in toilets and hygiene may not be as visible politically as roads, schools or hospitals. Yet, the development impact may be greater when health and environmental returns get properly accounted.

Currently, policy-makers attention is focused on the economic crisis. How will this impact on the advancement of the water and sanitation agenda? I agree with the conclusions of the World Economic forum Report that the crisis also offers new opportunities to move the agenda forward.

OECD launched in December 2008 a Strategic Response to the Financial and Economic Crisis to help governments and other international organisations address the crisis and restore greener, fairer and stronger growth. Water management makes it possible for a government to emphasise all three criteria at once. This is a good sign. It suggests that changes to improve water management should be easier to accept and implement, while also being more socially sustainable.

We must ensure that the financial crisis is not used as an excuse to back-track on commitments. In this regard, I am pleased to inform you that the members of OECD’s Development Assistance Committee have made an aid pledge. They will maintain aid flows in line with earlier commitments despite the economic downturn. The commitment to Official Development Assistance for water is good news.

This should help to ensure that the financial crisis does not translate into a deepening “water crisis.” I am encouraged by the Doha Conference on Financing for Development, which reaffirmed such commitments.

Also, many governments are launching important spending programmes to boost demand and to stimulate the economy. Investment in water and sanitation infrastructure, with the economic, social and environmental benefits it brings, is an attractive option. In many stimulus packages, including the Chinese one, a substantial allocation has been earmarked for rural water supply and sanitation. This provides an excellent example of policy action to promote the green recovery of the economy.

In concluding, let me congratulate the Forum for orchestrating these important discussions and you Margaret for the excellent direction!

I look forward to working with you in this ambitious agenda.

Thank you very much.


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