11.4 The Business of Water. The potential and limitations of Base of the Pyramid strategies for delivering a sustainable water supply in developing countries

Louise Koch , SPIRE Centre for Participatory Innovation, University of Southern Denmark, Soenderborg, Denmark

Background

According to UNDP, currently 1,1 billion people in the developing countries have inadequate access to safe water for household, agriculture, and production activities. Furthermore, climate changes are causing a worsening of this global water crisis due to changes in rainfall patterns and higher temperatures. Amongst the effects are severe productivity losses in agricultural production especially for small farmers, exposing an additional 75-125 million people to the threat of hunger (UNDP 2006: 28).

UNDP calls for increased attention to this challenge with an ambitious increase in aid for water management programs. However, the question remains:

-       Is a donor-based approach capable of addressing this challenge in time?

-       What role can and should the private sector play in creating sustainable solutions to this challenge?

The ambition of this paper is to explore the potential and limitations of the private sector in developing solutions to the challenge of ensuring socially, environmentally, and financially sustainable water supply across the globe. I will take as a departure the approach of the Base of the Pyramid strategy and the assumption it holds of business being able to make profit and alleviate socio-economic problems at the same time. Hereafter, I present three cases of market based water solutions, and based on these examples, I will discuss the potential and limitations of a private-sector approach in relation to a more traditional development approach, and in conclusion suggest perspectives for further research and practice.

Introducing the concept of Base of the Pyramid

The term Base of the Pyramid (BoP) refers to the 4 billion people constituting the base of the economic pyramid in the world. According to Cornell University's BoP Learning Lab Network, a BoP enterprise has the following characteristics:

Based on a private-sector business model with mutual value creation for both community and the enterprise

Triple Bottom Line strategy with consideration of both environmental, social, and economic impacts

Aspiration and potential for scale and replication

However, in practice, there is not one overall BoP Strategy, but a range of different strategies and business models. The existing cases in the BoP literature show different business models, and different priorities between social impact and profit as either means or goal.

A main part of the discourse in the field of BoP is coined in terms of business concepts, presenting BoP as an 'untapped market' (World Economic Forum 2009). There is thus a tendency to project a western-centric business logic and practice into a socio-economic context in low-income communities that is in many ways very different from the markets in the usual business setting. One key difference is what Erik Simanis and Stuart Hart are highlighting in their distinction between market entry and market creation. There might be a need for access to water, but not necessarily a market (Simanis & Hart 2008: 64). This clearly points to one of the challenges of a market based approach to water supply, which I will explore further in the three examples.

A business of water?

The report from the World Resources Institute on the market potential in different sectors of the 'next 4 billion customers' estimates the BoP market size for water to be 20,1 billion usd (World Resources Institute 2007: 53). The question is, whether and how this potential can actually be realized. I will present three examples of private-sector based approaches to water supply, looking at aspects of technology, socio-cultural competencies, partnerships, and business model.

The first example presents Kalebu Ltd., an SME water supplier in Uganda, who is organized in the Association of Private Water Operators in Uganda. This case is a more 'traditional' example of private companies delivering a service of piped water and water kiosks on behalf of the public sector.

The second example is from the multinational company Proctor & Gamble, and the project of PUR – Purifier of Water, which focused on providing sachets of powder to purify water at point-of-use in households. The project failed to become a viable business, however, and is now part of the company's non-profit activities, being sold at production cost to humanitarian organisations.

The third example, which has proven a market-based business model and is working directly with communities, is the Water Health International. The technology of this company is based on a high-tech solution for cleaning water using ultra-violet light, and the business model incorporates elements such as community-based loans.

These examples show different technologies and business models, and they might also broaden or challenge the definition of a BoP Strategy. They also point to the opportunities and barriers of private companies in providing safe water. Providing sustainable solutions to safe water involves much more than a technological solution. It involves people in their everyday life, and the success of the solution is very dependant on the ability of building on the local socio-cultural context and resources.

Business and development – a new potential?

Although the private sector is new to the business of water, water has been a focus of development programs for more than 50 years. However, with modest success. Key challenges of traditional development approaches have been bureaucratic entanglements, corruption, lack of maintenance systems, lack of financial sustainability, top-down approach, and lack of engagement of the local community (Gardner & Lewis 1996: 62ff).

The BoP Strategy can be used as a probe into what the limitations of development and business are, and how we can develop interesting models that combine the interests of both. Is there a pragmatic and socially sound commercial solution in the donor-space of international development? And what competencies and mindset are needed from business to engage in this work?

I will bring these aspects into my final discussion of the potential and limitations of a Base of the Pyramid strategy in providing socially, environmentally, and financially sustainable solutions to water access in developing countries.