Conclusions and Recommendations There are differences between water and sanitation markets, but in both cases, there is room for the private sector to participate more and respond to consumers in lower income market segments that currently do not have access to W&S services. Some key recommendations for actions that could be taken, ideally by the public sector but also by anyone looking to facilitate private sector involvement in W&S service provision in LAC, include: •
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Understand and Segment the Market: Treating all households that currently do not have access to W&S services as the same, and all of them as too poor to invest in W&S infrastructure without assistance, has caused subsidies to be applied and offered too liberally. In economic terms, a lack of market segmentation among the poorest wealth quintiles and those lacking W&S services has often caused the inclusion of households in subsidy benefits when they don’t necessarily need it, while excluding those (i.e. the poorest of the poor) who do. Sub-segmenting the overall market segment currently without access will help to better target subsidies to those that really need them, and allow for the support of other financial mechanisms for those that still have resources to invest in sanitation. In addition to economic segmentation, the market can also be segmented demographically, between rural, peri-urban and urban, as different W&S technical options may be more appropriate to particular demographic contexts. Targeting different approaches and options based on the heterogeneity of the overall BoP market segment will help minimize market distortion given that subsidies will be better targeted. Galvanize Household Demand: Primarily due to the expectation for subsidies but also for financial reasons, demand for improved W&S services is hindered in LAC among the segment that currently doesn’t have access. The public sector and local government could take some of the following steps to help generate increased demand and facilitate W&S market growth: o Manage the Expectations for Subsidies: Government should take steps to improve and then clarify subsidy policies, and make them more transparent and objective. The sub-segment of the market that is capable of investing in (or taking out a loan for) improved W&S services, but currently isn’t due to a subsidy expectation, should be encouraged to invest their own resources. This should encourage demand as households begin to invest on their own in improved W&S services instead of waiting for an expected subsidy. Furthermore, although potentially difficult to enforce, as with DINEPA in Haiti, governments should consider instilling aid policies (such as part of initial agreements allowing International W&S support NGOs to operate legally within their countries), which restrict the practice of NGOs providing subsidized W&S infrastructure outside of country-level subsidy frameworks, specifying who should receive support and under what conditions. o Help Coordinate Linkages Between Private Sector, Financial Institutions, and Potential Consumers: The government can play a role to help financial institutions develop loan products that will assist households improve W&S services. In the case of water markets, government can foster a relationship between water committees and financial institutions so that committees have access to credit for water system construction, expansion, and/or rehabilitation. In sanitation markets, government can help link households to credit providers that specialize in sanitation loans. The private sector for sanitation goods and services can also take leadership in this role; with an understanding of different credit options available on the market, sanitation providers can begin marketing those products to potential consumers to encourage them to invest in sanitation.
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