WATER AND SANITATION PROGRAM: RESEARCH BRIEF 64776 The Economic Returns Key messages of Sanitation Interventions • Sanitation interventions have very favorable socio-economic returns to in Yunnan Province, households and society, contributing improved health, clean environment, People’s Republic of China dignity and quality of life, among many other benefits. Pit latrines in rural areas August 2011 have an economic return of at least six times the cost, and off-site treatment options in urban areas have an economic INTRODUCTION return of at least two times the cost. The Economics of Sanitation Initia- tive (ESI) is a multi-country study • Economic efficiency of the improved launched in 2007 as a response by sanitation can be optimized by making the World Bank’s Water and Sanita- programs more demand-sensitive, tion Program to address major gaps in which leads to sustained behavior evidence among developing countries change. More efforts are needed to on the economic aspects of sanitation. stimulate demand from populations and Its objective is to provide economic deliver sanitation solutions that they wish evidence to increase the volumes and for. Users should be involved in all the efficiency of public and private spend- stages of sanitation projects. ing on sanitation. This research brief summarizes the key findings of Study • Sanitation options that protect the Phase II—cost-benefit analysis of alter- environment generate significant native sanitation options—from Yunnan environmental benefits not fully captured Province.i in this study. A cleaner environment and in 2009; this rate is lower than the na- safer water resources are highly valued PROBLEM STATEMENT tional rate of 63 percent recorded by by households, tourists and businesses. China has made consistent progress national statistics and using the same The higher investments needed for towards the Millennium Development definition of improved sanitation. How- the appropriate transport, treatment Goal target. Access to basic household ever, these coverage figures do not re- and disposal of human excreta and sanitation increased from 41 percent flect the proper management of human wastewater can be justified by the higher (in 1990) to 55 percent of households excreta. When safe excreta disposal is income levels and willingness to pay for (in 2008).ii However, this implies more taken into account, the coverage sta- improved quality of life, especially in urban than half a billion people still do not tistics drop to 27 percent coverage for centers. Monitoring is needed to ensure have access to improved sanitation fa- Yunnan Province, compared to 40 per- the environmental benefits are being cilities in China. According to provincial cent for the entire China.iii This situation captured. statistics, coverage of sanitary latrine in causes health risks and widespread Yunnan Province stood at 54 percent pollution to water resources. Economic analysis measures the broader welfare benefits of products and services on popula- tions, such as value of life, time use, environmental and social benefits, as opposed to financial analysis, which measures the financial gains only (e.g., changes in income or cash situation). 2 The Economic Returns of Sanitation Interventions in Yunnan Province Economics of Sanitation Initiative Figure 1. ESI Field Sites in Yunnan Province STUDY AIMS AND METHODS The purpose of the Phase II of the ESI study is to provide ince: dry pit latrine, urine-diverting dry toilet, wet pit latrine sanitation decision makers with improved evidence on the (pour-flush), toilet with biogas digester, toilet with septic tank costs and benefits of alternative sanitation options in different including septage management, and toilet with sewerage contexts in Yunnan Province. The study focuses on human connection and treatment. excreta management, covering eight selected field sites. Conventional techniques of economic analysis were uti- Surveys were conducted in four rural and four urbaniv sites lized to generate outputs such as benefit-cost ratio, cost-ef- that have recently been the focus of intensified sanitation fectiveness ratio, net present value, internal rate of the return, programs and projects (see Figure 1), involving overall 909 and payback period of sanitation options. household questionnaires, focus group discussions, physical investigations, water quality assessments, market surveys, Economic benefits quantified include impacts on health, and health facility surveys conducted in each site. Primary drinking water, sanitation access time, and the reuse of hu- data were supplemented with data from other surveys. man excreta. Environmental and social impacts of poor sani- tation were not fully captured in the monetary estimates of Sanitation interventions evaluated varied by rural and ur- benefit. Qualitative analyses were conducted on selected ban location, comparing open defecation with the range of social and broader economic benefits. Full investment and sanitation facilities currently used by people in Yunnan Prov- recurrent costs were measured for each sanitation option. www.wsp.org Economics of Sanitation Initiative The Economic Returns of Sanitation Interventions in Yunnan Province 3 STUDY RESULTS Figure 2. Benefit-Cost Ratios in Rural Sites (economic Rural Areas: return per unit of currency spent) Substantial Economic Returns on Pit Latrines Benefit-cost ratios (economic return per currency unit invest- ed) and annualized costs per household are compiled for the four rural sites in Figure 2 and Figure 3. Among the various sanitation options, the most favorable economic performance Bene�t - Cost Ratios was found for urine diverting dry toilets (UDDT), followed by biogas digesters. These interventions have the highest bene- fit-cost ratios of 9.0 and 7.6, respectively. The next ranked in- terventions are private pit latrines and community toilets with benefit—cost ratios of 6.2 and 5.5, respectively. The lowest ranked intervention but still with highly favorable economic returns—is the septic tank option, with a benefit-cost ratio of 3.5. All interventions have an annual economic rate of return of more than 100 percent, thus requiring less than one year to recover the economic value of the initial investment costs. Reuse Access Time Water Access Health Productivity The lowest cost option is the pit latrine, at US$132 per house- Water Treatment Health Mortality Health Care hold. Taking into account the expected 10-year lifespan of a Figure 3. Annual Costs per Household in Rural Sites pit latrine, the annual equivalent cost per household, includ- (2009 prices, using average exchange rate with US$) ing O&M is around US$30 per household. Almost half of this value is O&M costs. The annual equivalent cost for UDDT is higher at US$50. However, this option is assumed to have greater health benefits due to less environmental pollution; and the value of reusing human excreta in home gardening or cropland, thus reducing the need to purchase chemical fertilizers. Septic tanks have a higher initial investment cost at US$408, but are expected to last for 20 years. US$ The findings suggest that low-cost technologies, particularly improved pit latrines, are worth pursuing especially for low-in- come groups. The most important benefits for all options are time savings and health improvements, except community toilets which have less time savings. For UDDT and commu- nity toilets, the annual equivalent cost is repaid by the saved health care costs alone. Under actual program conditions, there is an important de- Investment Maintenance Operations cline in performance for all sanitation options. This is due to non-use of the facilities by some households or household members, as they prefer to continue traditional practices latrines declines from an economic return per currency unit such as open defecation or use of old unimproved latrines spent of 6.2 to 4.4, for UDDT from 9.0 to 5.8, for biogas from instead of UDDT. For example, the benefit-cost ratio of pit 7.6 to 4.9, and for septic tanks from 3.4 to 2.4. www.wsp.org 4 The Economic Returns of Sanitation Interventions in Yunnan Province Economics of Sanitation Initiative Urban Areas: Off-Site Treatment Options Deliver Figure 4. Benefit-Cost Ratios in Urban Sites (economic High Economic Returns return per unit of currency spent) Benefit-cost ratios and annualized costs per household are compiled for the four urban sites in Figure 4 and Figure 5. The most favorable economic performance was found for pit latrines—with a benefit-cost ratio of 5.2 and an annual return Bene�t - Cost Ratios of more than 100 percent—thus requiring less than one year to recover the economic value of the initial investment cost. Community toilets also have a high economic return with a benefit-cost ratio of 4.4, followed by shared latrines (3.1), septic tank with septage management (2.7) and sewerage (1.9). Private pit latrines have an initial investment cost of US$187 per household, translating to an equivalent annual cost of US$43 (taking into account both investment and O&M costs). Due to their higher investment costs of US$202 per house- Access Time Water Access Health Productivity hold, community toilets did not perform as well as private pit Water Treatment Health Mortality Health Care latrines. While shared latrines had a lower initial investment Figure 5. Annual Costs per Household in Urban Sites cost per household than pit latrines of US$152 per house- (2009 prices, using average exchange rate with US$) hold (or US$36 per year), the lower time savings meant that the overall economic performance was lower than private pit latrines. Sanitation options with improved excreta management had the lowest economic performance, shown in Figure 5. While septic tanks with septage management had an initial invest- ment cost of US$566 per household (or US$52 per year), and sewerage US$721 per household (or US$132 per year), their US$ longer lifespans (20 years) and their higher health benefits still make these interventions highly socially profitable. In addition, the environmental pollution averted due to proper septage management has not been fully valued in this study, hence it is possible that the economic returns, and benefit-cost ratio, are approaching those of lower cost options. The findings suggest that low-cost technologies, particularly improved pit latrines, are worth pursuing, especially for low- Investment Maintenance Operations income groups where these options are feasible. However, in densely populated urban centers, with limited options for decline in economic performance. Septic tank with septage building UDDT structures and reuse options, the septic tank management reduces from 2.7 to 2.0, sewerage from 1.9 to with septage treatment and sewerage with treatment are 1.5, and pit latrines from 5.2 to 3.7. This is due not only to both economically attractive options. non-use by some households or household members of the facilities, but also to off-site treatment facilities being utilized Under actual program conditions, there is also a significant at well below their engineered capacity. www.wsp.org Economics of Sanitation Initiative The Economic Returns of Sanitation Interventions in Yunnan Province 5 KEY FINDINGS AND RECOMMENDATIONS Recommendations: This study finds that all sanitation interventions have bene- fits that exceed costs, when compared with “no sanitation 1. Intensify efforts to cover the entire Yunnan population with facility.� The high net benefits from low-cost sanitation op- basic improved sanitation access. Sanitation investments tions, such as community and private pit latrines in urban are not a sunk cost: major economic benefits can be en- areas and all types of private pit latrine in rural areas, suggests joyed at an affordable cost. With significant reductions in these technologies should be considered first for sanitation actual economic returns due to non-use of sanitation facili- improvement plans, especially in situations where funds are ties by the target populations, more efforts are needed to scarce. However, in densely populated areas, pit latrines have stimulate demand from populations and deliver sanitation limited feasibility. Also, to improve quality of life in increas- solutions that they wish for. It is therefore necessary to in- ingly populous cities, decision makers should be aware of the volve the users, especially women, in the full project life economic benefits from improved conveyance and treatment cycle, from planning, option design selection, construction, options. If they can afford them, populations prefer options education, maintenance, monitoring and evaluation. that transport waste off-site. However, the recent concerns about water scarcity suggest low water-use options should 2. Go beyond basic sanitation provision. In many municipali- be increasingly considered, and where gaps in technology ties and counties of Yunnan Province, funds are adequate exist, to develop pilot programs on low water use options. to deliver more sustained and quality services, which better Based on these findings, four recommendations for decision capture the full environmental and health benefits of bet- makers are proposed here: ter sanitation, and respond to the population’s wish for a www.wsp.org 6 The Economic Returns of Sanitation Interventions in Yunnan Province Economics of Sanitation Initiative technologies, strengthened mutual learning and resource saving. With Acknowledgments continued rapid urbanization and ru- The Research Brief was prepared by Guy ral development in Yunnan Province, Hutton, Liang Chuan, Yang Liqiong and Almud the line between rural and urban Weitz based on the full report titled “Economic solutions will become less clear; Assessment of Sanitation Interventions in Yunnan therefore, stronger cooperation be- Province, People’s Republic of China“ prepared tween the existing separate coordi- by Liang Chuan, Yang Liqiong, Fang Jinming, nation systems for urban and rural Zhang Tiwei, Dong Lin, Zhang Pu, Luo Ronghuai areas is needed, or even an overall and Guy Hutton. Editing support was provided coordinating mechanism covering by Yosa Yuliarsa, Kara Watkins and Christopher both rural and urban areas. Walsh. 4. Promote evidence-based sanitation decision making. Variations in eco- About us nomic performance of options sug- The Water and Sanitation Program (WSP) is a gests a careful consideration of site multi-donor partnership created in 1978 and conditions is needed to select the administered by the World Bank to support clean, livable environment. Integrat- most appropriate sanitation option poor people in obtaining affordable, safe, and ing hygiene awareness and improv- and delivery approach. Decisions sustainable access to water and sanitation ing hygiene practices in sanitation should take into account not only services. WSP provides technical assistance, programs is crucial to capturing the the measurable economic costs and facilitates knowledge exchange, and promotes important health benefits. benefits, but also other key factors evidence-based advancements in sector dialogue. for a decision, including intangible WSP has offices in 24 countries across Africa, 3. The many agencies involved in sani- impacts and socio-cultural issues East Asia and the Pacific, Latin America and tation provision suggests that ef- that influence demand and behavior the Caribbean, South Asia, and in Washington, ficiency gains could be made from change, availability of suppliers and DC. WSP’s donors include Australia, Austria, improved cross-sectoral coordina- private financing, and actual house- Canada, Denmark, Finland, France, the Bill and tion and cooperation, which will lead hold willingness and ability to pay for Melinda Gates Foundation, Ireland, Luxembourg, to improved planning and choice of services. Netherlands, Norway, Sweden, Switzerland, United Kingdom, United States, and the World i Economic assessment of sanitation interventions in Yunnan Province, People’s Republic of China. Chuan, L., Liqiong, Y., Jinming, F., Bank. Tiwei, Z., Lin, D., Pu, Z., Ronghuai, L., Hutton, G. World Bank, Water and Sanitation Program. 2011. ii The sanitation part of the combined water and sanitation MDG target was to halve by 2015 the proportion of the global population without access to basic sanitation in 1990. The figures cited are those reported by the WHO/UNICEF Joint Monitoring Programme. iii Data source: Health Yearbook of China 2003-2010. According to the National Patriotic Health Campaign Committee’s “Technical Guideline for Rural Latrine Improvement�: (1) ‘sanitary latrines’ are latrines with walls, roof, a door, storage tank with no leakage, closed, with slab, no worms, no mal-odor, timely emptying of excreta, and safe disposal of excreta separately; and (2) ‘sanitary latrines with safe Contact us excreta disposal’ are sanitary latrines that enable reduction or removal of pathogens in human excreta, therefore avoiding transmission of For more information please visit www.wsp.org or infectious diseases. iv email Guy Hutton at wsp@worldbank.org. For the purposes of the presentation, one peri-urban site (Dali) was reclassified as a rural area, while the other peri-urban site was reclas- sified as an urban area (Kunming). Water and Sanitation Program (WSP) reports are published to communicate the results of WSP’s work to the development community. Some sources cited may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed herein are entirely those of the author and should not be attributed to the World Bank or its affiliated organizations, or to members of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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