Water Privatisation - A Story of Success

Ivory Coast: Successful water privatisation

Consistency in the reinforcement of the institutional and governance participation is key to achieve a successful reform, as I illustrated in my last blog post. The case study on Guinea exemplifies how African water privatisation can falsely project an image of improving performance of the water sector. The failure of the reform in Guinea can be traced back to the weak institutional framework and public policies in place at the time of the reform in 1989 (The World Bank, 2000). When analysing this in relation to Pierce’s claim arguing that existing institutional structures and the political stability of a country at the time of reform determine the success of it (Pierce, 2015), this seems to be in rather strong accordance. A contrasting example that also correlates with Pierce’s statement, is that of the Ivorian water system. The water system that existed in Abidjan, where 40% of the country’s population is situated (Ménard and Clarke, 1997), was performing well; the country’s model has been adapted and rolled out across several African countries in the light of its success and effectiveness in Ivory Coast. Performance improved, the declining coverage of water systems across the country was reversed and tariffs fell.

History of Ivory Coast water sector

Governmental and private sector relations, along with the operational performance of the water sector were strong (Ménard and Clarke, 1997), accounting for the stable revenue income that has subsidised the expansion and maintenance of the water system across urban and rural areas in Ivory Coast. The arrangement was contractual between the government and SODECI, the private operator of the water system (Ménard and Clarke, 1997). SODECI, the private operator of the water system took over maintenance, operational responsibilities and investment in the city (Bayliss, 2001). The responsibilities were extended past the municipal boundaries of Abidjan to all other Ivorian cities, Abidjan however remained the largest city with its population growing from 180,000 in 1960 to 3 million in 1996 (Ménard and Clarke, 1997). That is a population increase of approximately 1600% in 36 years.

Despite this population explosion, the number of water connections outgrew population growth for the majority of 60s and 70s (Ménard and Clarke, 1997) as a result of the ambitious investment programme by the private operator. After 40 years, throughout which performance was considered successful and well run, the lease contract was extended (Bayliss, 2001). In 1987 this contract was turned into a 20 year concession (Bayliss, 2001) where the involvement of the private sector remained high. In 2007 the contract was updated and a new 15 year lease was agreed upon (Bayliss, 2001). SODECI continues to operate the sector - the private operator manages the water services whilst the government provides the framework for the monitoring of such services.

I would like to draw attention to the political context of this time. In spite of having a unicameral system, Ivory Coast managed to gain support from most ethnic groups and eliminate oppositions (Ménard and Clarke, 1997). The legislative constitution has remained stable through cooperation between different actors and strong presidential leadership. This was crucial in providing a stable political backbone to support a sustainable reform.

Why must we reform if we already perform?

One burning question emerges: if the system was already performing well, why was there a need for a reform? The motivations for reform were rather unilateral- the economic crisis was the single motivation for the reform to take place. Ivory Coast’s heavy reliance on the export of cocoa and coffee, which made up 60% of their GDP in 1979, lead the economy to suffer a 30% decrease in export prices between 1977 and 1980 (Ménard and Clarke, 1997). The percentage of public debt continued to grow in relation to GDP, finally calling for the implementation of Structural Adjustment Programmes in an effort to end this pattern.

Credits: World Bank

The above chart outlines the institutional actors in the water sector in Ivory Coast. One aspect that stands out is the multitude of bodies in charge of regulating and monitoring activity. This strongly suggests that although SODECI has increased responsibility through the concession, governmental agency is still prevalent.

The reform affected sector performance in various ways:

1. SODECI was given larger investment responsibilities which in turn lead to greater financial risk (the opposite of which - as explained in the last post - usually draws in private stakeholders)
2. Public actor BNEDT was introduced to provide assistance to DE in monitoring SODECI
3. Debt service was taken over by new fonds FNE, as the crisis weakened the government was able to absorb these

The dissemination of responsibilities amongst the actors from the first to the second reform, lead to tensions between them (Ménard and Clarke, 1997). With it, came a reduced monitoring capacity of DE over SODECI, marking a major weakness in the contract.

Remaining Challenges

A common issue amongst water systems in sub-Saharan Africa is high distribution cost in rural areas (Estrin and Pelletier, 2015) that are carried by the private operator. In Ivory Coast, this hurdle was successfully overcome as SODECI resold licenses to water resellers that operate in informal settlements (Bayliss, 2001). Knowledge of existing systems and local environments could thus be accessed, adding to the overall growth of the system whilst simultaneously lowering costs for SODECI. Among the most critical issues was SODECI’s inability to act upon the non-paying public sector, alleviating this would account for approximately 25% of revenue losses (Ménard and Clarke, 1997). Further, the concentration of investment in the expansion of the network neglected other forms of growth and lead to unsustainable investment.

The holistic analysis does however, prove that privatisation has significantly improved the delivery and growth of the network of the water sector in the Ivory Coast. Needless to say achieving to implement ‘the perfect contract’ is somewhat impossible. A combination of internal and external factors as well as the previous stability of the governmental and political bodies all play into the effectiveness of a reform in a country. There are clear advantages carried by leases and concessions, the framework which these are implemented and operate in must be premeditated before the reform.