37545 noTE no. 9 ­ junE 2006GRIDLINES Sharing knowledge, experiences, and innovations in public-private partnerships in infrastructure Reaching unserved communities in Africa with basic services Can small-scale private service providers save the day? Mukami Kariuki, Jordan Schwartz, and Michael Schur I n many African countries public utilities Table 1 have failed to provide adequate service Countries with documented activity to small towns and periurban and rural by small-scale private service providers, areas. Sometimes small-scale private by region and sector service providers have stepped in, bring- Water & ing basic services to unserved, often poor Region energy Water energy communities. With urban and especially East Asia & Pacific 4 3 1 periurban populations set to grow at unprec- Eastern Europe edented rates in Africa, and service coverage & Central Asia 0 3 0 continuing to lag, governments and donors Latin America & Caribbean 6 5 1 have begun to recognize that small-scale providers have an increasingly critical role Middle East & North Africa 2 1 0 to play. They have also begun to focus on South Asia 5 0 0 the importance of creating an environment Sub-Saharan that enables these providers to supply good- Africa 11 11 1 quality service. Source: Kariuki and Schwartz 2005. Traditional public utilities have not always been able to reach periurban or rural communities, for a range of reasons. Even when they have, their exist in service coverage, and entry and invest- services have not always been adequate. Small- ment costs are low or negligible. But a growing scale private providers have often stepped in to number are small and medium-size enterprises fill the gap. These providers might sell water investing moderate amounts in developing through a public kiosk or from a tanker truck. distribution networks in periurban areas and Or they might develop a small network through small towns. This note focuses on small-scale which to distribute water or energy to house- private service providers serving communities of holds and businesses. less than 50,000. Small-scale private providers supply basic infra- Small-scale providers: structure services to many communities across the evidence the globe. But they may be especially important How pervasive are small-scale private service in Sub-Saharan Africa, where trends point to providers around the world, and what are their growth in both their number and their role. typical characteristics? Interesting insights Many are micro and informal enterprises serving emerge from a literature review of more than low-income households and dispersed popula- PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY Mukami Kariuki is a senior water and sanitation specialist, tions in predominantly periurban and rural and Jordan Schwartz a senior infrastructure specialist, with areas. Where these providers operate, systems the World Bank. Michael Schur is deputy program manager for supplying services are generally local, gaps of PPIAF. Helping to eliminate poverty and achieve sustainable development through public-private partnerships in infrastructure PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY FiguRe 1 in some countries many households rely on small-scale private service providers for water supply Source: Kariuki and Schwartz 2005. 400 documents on water supply and electricity ity is low), pioneer (running systems where no sectors--reports, case studies, project reports, public service exists), and subconcessionaire (retail- and journal articles--with data covering a span ing water or electricity purchased from a utility). Small-scale of about 15 years (Kariuki and Schwartz 2005). But more recently they are being called on to The review identified at least 100 locations in 49 assume the role of operator of existing small providers developing countries, in which small-scale water public systems that need to be expanded or run are active supply and electricity service providers were more efficiently. around the assumed to serve communities of up to 50,000 people (urban, periurban, or rural). Typically established solely to supply water or world--but electricity, small-scale providers take a variety The review estimated that around 7,000 small- of organizational forms, both for profit and particularly scale private providers of electricity services nonprofit. They use a wide variety of technolo- so in africa operate in 32 countries (suppliers of networked gies, and their capital investments accordingly services and dealers of solar panels and other range from a few hundred to several hundred household generating equipment, but exclud- thousand dollars. Financing is often a constraint, ing battery recharging businesses). And 10,000 with the main sources being retained earnings, small-scale private providers of water supply loans from family and friends, and loans from areactive in 49 countries. These estimates are formal and informal lenders. The vast majority based only on the countries for which literature have fewer than 50 employees, and most fewer wasavailable. Given the scarcity of documented than 10. evidence, they probably represent only a frac- tion of the total population of small-scale private How big a role? service providers, though it is difficult to extrapo- A global overview of the documented activity late reliably across countries or regions from the suggests that small-scale private service providers information. are active around the world--but particularly so in Africa, where 23 countries have documented Small-scale private service providers have cases (table 1). In Africa small-scale providers traditionally played three basic roles--gap filler are active in water supply in at least 11 coun- (providing alternative supply where service qual- tries, in both water and energy supply in another Reaching unserved communities in Africa with basic services 11 countries, and in energy alone only in Zimba- Among the 32 developing countries in which there bwe (as noted, the documented evidence probably is documented activity in electricity by small-scale represents only a very small share of the total popu- private providers, 15 have a high level of activ- lation). There are also strong indications that the ity, primarily in rural areas and small settlements. scope and scale of activity by small-scale providers The 7,000 small-scale service providers operat- have increased over the past decade in Africa.1 ing in the electricity sector serve an estimated 10­50 million clients.2 Asia accounts for about 85 The relative importance of small-scale providers percent of these providers, however, while Africa, in water supply appears to vary across the region the Middle East, and Latin America each have (figure 1). The evidence suggests that many coun- documented evidence of fewer than 500. tries in East and West Africa rely relatively heavily on such providers for water supply. Less docu- In Africa activity by small-scale providers of elec- mented evidence tends to be available for Central tricity services has been constrained, primarily and southern Africa, though there is anecdotal by poor access to financial markets, high transac- evidence of small-scale activity in both. tion costs, and the monopolistic rights granted to national utilities. That said, a few postconflictThe record Reliance on small-scale providers for water supply countries, such as Mozambique, show a notable of activity by appears to vary across locations even within incidence of activity by such providers (figure 2). small-scale African countries. Small-scale service provid- Moreover, among the 12 African countries where ers are particularly active in the capital cities of operators is activity by small-scale providers in electricity Côte d'Ivoire, Guinea, Kenya, Senegal, Sudan, has been documented, the evidence suggests encouraging Tanzania, and Uganda. The share of the popula- that these providers are relatively important in tion or households served by such providers in Kenya, Mali, and Somalia and somewhat so in important urban centers ranges widely, from 21 Mozambique, Ethiopia, and Uganda (table 2). percent in Dakar to 30 percent in Kampala, 35 In the other six countries they are less important. percent in Abidjan, 56 percent in Dar es Salaam, But this may be because the literature review 60 percent in Nairobi, 66 percent in Conakry, excluded battery recharging services, numerous and80 percent in Khartoum. in many African countries. FiguRe 2 Reliance on small-scale private service providers for electricity is also high in some countries Source: Kariuki and Schwartz 2005. Policy challenges Small-scale operators have often extended basic Table 2 Small-scale private electricity service providers infrastructure services in the face of such chal- and customers served in Sub-Saharan africa lenges as lack of finance, resistance by public utilities, and unclear legal status or tenure. Customers served by small-scale providers That record is encouraging, particularly given As a the reluctance of international infrastructure Small-scale percentage Average of all investors and operators to develop services in Country providers customers Kenya 20 5,000 21 periurban and rural communities and the general Mali 100 300 15 failure of public utilities to expand coverage to Somalia 100 200 12 these areas. Mozambique 10 1,000 4 Ethiopia 100 200 3 In African countries where urbanization has Uganda 5 500 1 Zimbabwe 30 300 1 outpaced the ability of public utilities to provide Côte d'Ivoire 3 10 0 services, small-scale providers may have an espe- Ghana 3 10 0 cially important role to play in the medium term. Senegal 3 10 0 In some cases these providers may not represent South Africa 10 1,000 0 Tanzania 5 300 0 a viable solution for the long term, and public Total 389 736 2 utilities will eventually take over their role. But note: Data are estimates. even if small-scale providers represent a solution Source: Kariuki and Schwartz 2005. for the short to medium term, their role should be carefully studied to develop appropriate policy and regulatory responses. Moreover, creating an environment more condu- Given the right incentives, small-scale providers of cive to greater and more formal participation networked services have the potential to become by small-scale providers should in no way delay local operators of existing public networks in small more fundamental reforms. Most African coun- towns--and over time this may lead to a new breed tries face big deficits in infrastructure, and their of local private operators working in medium- efforts to scale up the services of small-scale size and large towns. That role will require some service providers may be impeded by lack of rethinking among policymakers as well as donors, capacity or resources or even by collusion and which have often viewed small-scale service provid- rent seeking by larger, formal service providers. ers as temporary, as providing an inferior service, Improving or extending the services of small- or as rent seekers taking advantage of vulnerable scale service providers must therefore be part consumers. While some small-scale service provid- of--not a substitute for--reform of the infra- ers do exhibit these characteristics, many others structure sector. provide a service that satisfies their customers. Notes Recognizing the potential role of small-scale 1 Whether this apparent increase reflects better reporting or providers may create new opportunities for lever- documentation of activity--rather than actual increases in aging private investment in infrastructure. But activity--is not entirely clear, however. GRIDLINES their role cannot be developed in isolation. 2 As in water supply, the total number of small-scale private Instead, it must be elaborated as part of a providers in the electricity sector is probably far higher. China alone could have as many as 1,000. Gridlines share emerging knowledge broader sector strategy that may seek on PPP and give an overview of a wide to phase out certain types of small- Reference selection of projects from various regions of Kariuki, Mukami, and Jordan Schwartz. 2005. "Small-Scale Private the world. Past notes can be found at www. scale private service providers Service Providers of Water Supply and Electricity: A Review of ppiaf.org/gridlines. Gridlines are a publication while fostering the development Incidence, Structure, Pricing, and Operating Characteristics." of PPIAF (Public-Private Infrastructure Advisory of others. This strategy must World Bank Policy Research Working Paper 3727. World Bank, Facility), a multidonor technical assistance consider whether a role for the Energy and Water Department; and PPIAF, Washington, D.C. PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY facility. Through technical assistance and short, medium, or long term is knowledge dissemination PPIAF supports the efforts of policymakers, nongovernmental organizations, likely, and plan accordingly. research institutions, and others in designing and implementing strategies to tap the full potential of private involvement in infrastructure. The views are those of the authors and do not necessarily reflect c/o The World Bank, 1818 H St., N.W., Washington, DC 20433, USA the views or the policy of PPIAF,the World Bank, the World Bank, Phone (+1) 202 458 5588 FAX (+1) 202 522 7466 or any other affiliated organization. PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY generAl eMAIlppiaf@ppiaf.org Web www.ppiaf.org