WATER AND SANITATION PROGRAM: RESEARCH BRIEF 79549 The Economic Returns of Key Messages Sanitation Interventions • Sanitation interventions have very favorable socio-economic returns to in Lao People’s households and society, contributing to improved health, clean environment, Democratic Republic dignity and quality of life, among many other bene�ts. Economic returns are June 2013 potentially high—in excess of US$2 return per dollar invested in urban areas and at least US$4 return per dollar invested in INTRODUCTION in 1995 to 63% in 2010.iii Nonetheless, rural areas. The Economics of Sanitation Initia- almost three out of ten persons in Lao tive (ESI) is a multi-country study PDR still practiced open defecation in • Economic ef�ciency of improved launched in 2007 as a response by 2010. Sanitation conditions are also sanitation can be optimized by the World Bank’s Water and Sanita- worse in rural areas, where 8% of the improving program performance, which tion Program to address major gaps in population only had access to unim- leads to sustained behavior change. evidence among developing countries proved facilities and about 41% of the Future projects should carefully plan and on the economic aspects of sanitation. population still practiced open defeca- implement activities cost-effectively, and The study covers Bangladesh, Cam- tion. Furthermore, coverage �gures do closely monitor project costs and impacts, bodia, Chinai, India, Indonesia, Lao not reflect the other dimensions asso- to ensure that the project resources are PDR, Nicaragua, Pakistan, the Philip- ciated with the proper management of being appropriately utilized. pines, Vietnam and over twenty coun- human excreta, like properly designed tries in Africa. Its objective is to provide septic tanks and connections to sewers • Sanitation solutions in urban areas that economic evidence to increase the with wastewater management, which involve wastewater management are volumes and ef�ciency of public and also have implications for health risks potentially cost-bene�cial, despite not private spending on sanitation. This re- and the pollution to water resources. all bene�ts having been included. While search brief summarizes key �ndings of dif�cult to quantify in economic terms, Study Phase II - cost-bene�t analysis of The lack of access to improved sani- the associated environmental bene�ts of alternative sanitation options - from Lao tation facilities imposes a heavy bur- wastewater management are highly valued People’s Democratic Republic (PDR).ii den on society. Phase I of the ESI by households, tourists and businesses. estimated the overall economic costs PROBLEM STATEMENT of poor sanitation in Lao PDR to be • Improved hygiene and sanitation Despite signi�cant progress in recent US$193 million per year, in 2006 prices. conditions in institutions, public places years, access to improved sanita- Translating to about US$34 per person and tourist sites are important to attract tion is a major concern for Lao PDR. per year, these costs are equivalent to more businesses and tourists to Lao Access to improved sanitation facili- about 5.6% of gross domestic product PDR. ties rose from 17% of the population (GDP).iv Economic analysis measures the broader welfare bene�ts of products and services on popula- tions, such as value of life, time use, environmental and social bene�ts, as opposed to �nancial analysis, which measures the �nancial gains only (e.g. changes in income or cash situation). 2 The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic Economics of Sanitation Initiative STUDY AIMS & METHODS order to get a sense of the impacts of sanitation on business- The purpose of Phase II of the ESI is to provide sanitation related activities and tourism. Primary data were supplement- decision makers with improved evidence on the costs and ed with information from other national and local surveys, and bene�ts of alternative sanitation options in different contexts published documents. in Lao PDR. The study focuses on human excreta manage- ment, covering six selected �eld sites as well as national sur- Sanitation interventions evaluated varied by rural and ur- veys. ban location, comparing open defecation with the range of sanitation facilities currently used by the Lao population. Surveys were conducted in four rural and two urban sites These facilities are dry pit latrines, wet pit latrines (private and that have recently been the focus of intensi�ed sanitation shared), and toilets with septic tanks (private and shared). programs and projects and/or have a relatively wide range While these are currently not in use, the study also explored of sanitation interventions that can be evaluated (see Figure the economic ef�ciency of toilets that have access to treated 1). Primary data collection involved household surveys (1,200 sewers in Vientiane Capital. observations), focus group discussions, physical investiga- tions, and water quality assessments. Interviews of business Conventional techniques of economic analysis were uti- owners/managers and foreign visitors were also conducted in lized to generate outputs such as bene�t-cost ratio, cost-ef- fectiveness ratio, net present value, internal rate of return, and Figure 1. ESI Field Sites in Lao PDR payback period of sanitation options. IBRD 39288 LAO P.D.R. C H I N A WATER AND SANITATION Economic bene�ts quanti�ed include impacts on health, PROJECT PROJECT DISTRICTS drinking water, and sanitation access time. Environmental and NATIONAL CAPITAL INTERNATIONAL BOUNDARIES social impacts of poor sanitation were not fully captured in PROVINCE BOUNDARIES Phongsali PHONGSALY Rural, Nambak District DISTRICT BOUNDARIES the monetary estimates of bene�t. Qualitative analysis was Louang Phrabang Province LOUANG Louang conducted on selected social and broader economic bene�ts. NAMTHA Namtha BOKEO Muang Xai VIETNAM Full investment and recurrent costs were measured for Sam-Neva Ban Huaisai OUDOMSAI LOUANG HOUAPHAN each sanitation option. PHRABANG Louang Prabang XIANG KHOANG Sainyabouli Xiang STUDY RESULTS Khoang Urban, Nan District Gulf of Louang Phrabang Province SAINYABULI VIENTIANE Xaysomboun Tonkin Pone Hong BOLIKHAMSAI Rural Areas: Highly Favorable Economic Returns Paksane Rural, Meun District Vientiane Province on Pit Latrines - When Used VIENTIANE Peri-Urban, Xaythani District Bene�t-cost ratios (economic return per currency unit invest- VIENTIANE Vientiane Capital KHAMMOUANE CAPITAL Urban, Chantabouly District Thakhek ed) are compiled for the four rural sites in Figure 2. Among the Vientiane Capital various sanitation options, the most favorable economic per- SAVANNAKHET Savannakhet formance was found for shared wet pits, followed by private THAILAND Rural, Champone District Savannakhet Province dry pits. These interventions had bene�t-cost ratios of at least Saravane SARAVANE SEKONG 9 and annual economic rates of return in excess of 100%. Sekong CHAMPASSAK It also requires less than one year to recover the economic LAO P.D.R. Champassak Attapeu value of the initial investment costs for these facilities. ATTAPEU Shared and private toilets that flush to septic tanks did not perform as well as pit latrines. However, with bene�t-cost ra- This map was produced by the Map Design Unit of The World Bank. CAMBODIA The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any tios greater than one, the study �nds that these options are endorsement or acceptance of such boundaries. MAY 2012 still economically viable in rural areas. www.wsp.org Economics of Sanitation Initiative The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic 3 Figure 2. Bene�t-Cost Ratio in Rural Sites Access time savings, which represent the monetized value of (economic return per unit of currency spent) time that was spent searching for a private place to defecate or waiting in a line in the case of shared toilets, was the largest source of gains. For the options presented in Figure 2, these represent at least 53% of the net bene�ts from improved sani- tation. Avoided health care costs were estimated to have the second largest contribution to net bene�ts. %HQHðWFRVWUDWLRV Private toilets with access to septic tanks were the most ex- pensive option examined for rural areas. Average investment costs for these facilities were estimated to be more than 10 times larger than the least expensive option (shared wet pit latrines) evaluated in the study (see Figure 3). The �ndings suggest that low-cost technologies, particularly wet and dry pit latrines, are worth pursuing especially for low-income groups. Although wet pit latrines have a higher Access time Water access Health productivity initial investment cost, a longer expected life leads to com- Water treatment Health mortality Health care parable annualized costs as dry pits. The most important bene�ts for all options are access time savings and avoided health care costs. In the cases of wet pits (shared or private) Figure 3. Annualized Costs in Rural Sites and private dry pits, the annual values from either health or (2010 prices, using average exchange rate with US$) access time exceed the annual costs of the facilities them- selves. Urban Areas: Favorable Economic Returns on Full Excreta Management Options Bene�t-cost ratios are compiled for the two urban sites in Fig- ure 4. As with rural areas, the most favorable economic per- formance was found for wet pit latrines (shared and private) — with bene�t-cost ratios of about 6 and annual rates of return of more than 100%. For these facilities, it also requires less than one year to recover the economic value of the initial investment cost. With returns of at least US$2 for every dollar invested, US$ toilets with access to septic tanks or sewers had lower returns relative to wet pits, but were still economically viable. As in rural areas, the largest sources of bene�ts are access time savings and avoided health care costs. For all facilities examined, access time savings exceed the annual costs of the facilities. Investment (annualized) Recurrent Figure 5 shows the costs associated with the differ- ent facilities evaluated. It clearly shows the extent to www.wsp.org 4 The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic Economics of Sanitation Initiative which toilets with access to septic tanks and toilets that Figure 4. Bene�t-Cost Ratio in Urban Sites flush to sewers are more expensive than wet pit latrines. (economic return per unit of currency spent) Comparing Figure 5 with Figure 4, it also suggests the extent to which costs influence the bene�t-cost ratios of the different options. The �ndings suggest that low-cost technologies, particularly %HQHðWFRVWUDWLRV improved wet pit latrines, are economically viable for urban ar- eas. Septic tanks with septage treatment and sewerage with treatment are economically attractive options but to a lesser degree. However, the environmental bene�ts of improved sanitation, which were not fully captured in monetary terms in this study, are likely to raise the net bene�ts of facilities with treatment options. Sanitation Links to Tourism and Economic Development Access time Water access Health productivity A survey of 235 foreign visitors found that the general sanita- Water treatment Health mortality Health care tion conditions can still stand some improvement, particularly in the tourist site of Vang Vieng (Vientiane Province).v Toilet availability in public places also appears to be a serious con- Figure 5. Annualized Costs in Urban Sites cern. Close to half (46%) of the respondents said that, when (2010 prices, using average exchange rate with US$) outside the hotel, they could not �nd a toilet at a time of need. About a �fth (19%) of the respondents admitted to having experienced gastrointestinal problems during their stay. On average, affected visitors were incapacitated for about half a day but felt the symptoms for slightly more than two days. This is a cost to tourism. The amount that visitors could have spent during those days of illness represents foregone earn- ings for the tourism industry. Seventeen business owners/managers operating in Vientiane Capital were asked to rate different aspects of sanitation in US$ their areas of operation. On a scale of 1 (best) to 5 (worst), the most favorable average ratings were given to the water quality of rivers (2.4), air quality from human excreta in public spaces (2.6) and household coverage with private toilets (2.6). In con- trast, the least favorable ratings were given to the presence of toilets in public places (4.2). While sanitation did not appear to be a serious consideration in the location of the �rms sur- veyed, the study found evidence that it has an effect on busi- Investment (annualized) Recurrent ness operations. All respondents cited that poor water quality could have a serious impact on their business, suggesting an important link between sanitation and business operations. www.wsp.org Economics of Sanitation Initiative The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic 5 KEY FINDINGS AND RECOMMENDATIONS to improved sanitation in Lao PDR. This can be seen clearly This study �nds that all sanitation interventions examined from the WHO/UNICEF Joint Monitoring Programme (JMP) have bene�ts that exceed costs, when compared with “no statistics for 2010, which indicate that about 4 in 10 people sanitation facility.� The high net bene�ts from low-cost sanita- (37%) in the country did not have access to improved sanita- tion options, such as wet pit latrines in urban areas and all tion facilities. This is further supported by evidence that the types of pit latrines in rural areas, suggest that these technol- economic costs of poor sanitation are large. ogies should be at the center of national plans for sanitation improvements, especially where funds are scarce. However, Recommendations: treatment facilities should not be overlooked especially in ur- 1. Increase access to improved sanitation in rural areas. Data ban areas. For one, these options also had positive net ben- from the JMP show that access to improved sanitation is e�ts, albeit lower than pit latrines. Moreover, the appropriate substantially lower in these areas. The stronger emphasis treatment and/or isolation of waste are essential to the future on investment in rural areas is also supported by the �nd- sustainable development of Lao PDR. ing that the net returns to sanitation investments, at least from the perspective of the bene�t-cost ratios, are higher The net bene�ts of sanitation interventions also vary consider- in these areas compared to urban areas. This recommen- ably from one site to the next. This suggests a careful con- dation does not suggest abandoning efforts to increase sideration of site conditions before interventions are imple- access to improved sanitation in urban areas. For one, mented. 11% of the urban population in 2010 did not have access to improved sanitation. However, investment in urban ar- While not directly drawn from the study, it is important to em- eas may have to go beyond latrines and more into off-site phasize that there is still an urgent need to increase access treatment facilities. www.wsp.org 6 The Economic Returns of Sanitation Interventions in Lao People’s Democratic Republic Economics of Sanitation Initiative 2. Focus on least expensive solutions to improved sanitation. Information Acknowledgments with highest bene�ts. Achieving eco- from the World Bank shows that The Research Brief was prepared by Guy Hutton nomic bene�ts from increased ac- one third of the Lao population lives and U-Primo E. Rodriguez based on the full cess to improved sanitation does not on less than 1.25 International Dol- report titled “Economic Assessment of Sanitation require expensive toilet facilities. This lars per day, and two-thirds live on Interventions in Lao PDR.� The study also study found that the highest net re- less than 2 International Dollars per bene�ted from valuable inputs from Almud turns were for wet and dry pit latrines day. The households with no ac- Weitz, Viengsamay Vongkhamsao and in rural areas, and wet pit latrines in cess to improved sanitation facilities WSP-EAP staff. Editing support was provided by urban areas. While the study found are predominantly belonging to this Yosa Yuliarsa and Viengsompasong Inthavong. that shared toilets have comparable segment of the population. This ar- bene�t-cost ratios to private toilets, gument is further supported by the these facilities should not be disre- focus group discussion �ndings, About us garded altogether. For one, shared where respondents cited economic The Water and Sanitation Program (WSP) is a toilets were still found to be economi- factors (e.g. cost is too high), for not multi-donor partnership created in 1978 and cally feasible (their economic bene�ts having a toilet. However, some care administered by the World Bank to support exceed investment and recurrent must be exercised in the manner in poor people in obtaining affordable, safe, and costs) despite the fact that users of which institutions participate in pro- sustainable access to water and sanitation these options still incur time losses viding access to improved sanitation. services. WSP provides technical assistance, and are less likely to realize the health The �eld research conducted in this facilitates knowledge exchange, and promotes bene�ts, especially when facilities study found that respondents in all evidence-based advancements in sector are not maintained very well. Where sites cited “never offered a toilet� as dialogue. WSP has of�ces in 24 countries space and funds are seriously con- a reason for not having one. This re- across Africa, East Asia and the Paci�c, Latin strained, these facilities may continue sponse creates the impression that America and the Caribbean, South Asia, and in to offer a practical option until private households seem to be waiting for Washington, DC. WSP’s donors include Australia, facilities can be made available to an intervention rather than trying to Austria, Canada, Denmark, Finland, France, households. However, some consid- address sanitation problems on their the Bill and Melinda Gates Foundation, Ireland, eration must be given to the demand own. Along with the �nding that only Luxembourg, Netherlands, Norway, Sweden, of the community for such facilities. half of the respondents in the survey Switzerland, United Kingdom, United States, and claimed to have washed their hands the World Bank. 3. Promote equitable access to im- after defecating, this underscores the proved sanitation. The Government, need for evidence-based behavior donor agencies and other institu- change approaches that emphasize tions will continue to have an integral the potential bene�ts of improved Contact us role in increasing equitable access sanitation and hygiene. For more information please visit www.wsp.org or email wspeap@worldbank.org i Yunnan Province of China ii Economic assessment of sanitation interventions in Lao PDR. Rodriguez U, Hutton G and Boatman A. Water and Sanitation Program. World Bank. 2013. iii The �gures are from the WHO/UNICEF Joint Monitoring Programme. iv Economic Impacts of Sanitation in Lao PDR. Hutton G, Larsen B, Leebouapao B and Voladet S. World Bank, Water and Sanitation Program. 2009. v A small town located between Vientiane and Luang Prabang, Vang Vieng is popular among backpackers and low-budget travelers. It is currently being developed to target visitors from higher-end markets. 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 �ndings, interpretations, and conclusions expressed herein are entirely those of the author and should not be attributed to the World Bank or its af�liated 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. The material in this publication is copyrighted. 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