This content is from: Local Insights

Brazil: Time for sanitation?

Economic turbulence does not affect sanitation as much as it does other infrastructure industries. Demand is inflexible, revenue stream is predictable and services are monopolistic by nature, which is not the case with other industries – transportation, for example, is more permeable to economic downturns.

Sanitation should be high up on the list of any political agenda. Lack of adequate sanitation services spreads diseases and creates breeding grounds for Zika virus and dengue-carrying mosquitoes. It is clear that every dollar invested in sanitation represents a cut in health costs, appreciation in real estate, and an increase in productivity and education by reducing absenteeism from work and schools.

Nonetheless, sanitation has not received adequate attention from governments. The fact that it is buried and thus 'invisible' to the electorate's eye is a factor. In addition, it is perceived as not as profitable as other industries such as energy and oil and gas, which receive concentrated investment to the detriment of sanitation. An additional complication is that constitutional competence in this area is within the municipalities' sphere of power.

Although the Brazilian Sanitation Law celebrated its 10-year anniversary last January, we are still far from universalisation, which was originally targeted by the government to be achieved by 2033. The private sector will have to play a crucial role before universalisation becomes a reality.

Most of the sanitation in Brazil is dominated by state-owned companies that were created by the states of the federation as a result of a model adopted in the 1970s by the military government, and intended to promote public investment where capital intensive projects required concentration of investment. Today, private sector presence accounts for only six percent of municipalities.

There is a concerted effort by the government, through the Programme for Partnership in Investments (PPI) to change this situation. To this end, the Brazilian Social and Economic Development Bank (BNDES) has been mandated to model and structure solutions for the 15 states that adhered to the programme. BNDES is selecting technical experts (engineers, financial advisors, attorneys) to assist the bank in diagnosing the existing situation and developing concessions, and public-private partnerships (PPPs) or privatisations for the municipalities within those states.

Other initiatives are also under discussion, such as a review of the Sanitation Law, to address some of the concerns of the industry. One common complaint is the lack of uniformity among the municipal agencies, with most of them in need of technical and personnel capacity to fulfil the demands of the industry.

Another concern is the credit risk of the municipalities in cases of PPPs, where the returns depend on payment from the municipalities. The creation of a federal fund with assets set aside to guarantee municipal obligations is under discussion to address this concern.

Once these measures and initiatives are finalised, the private sector is expected to play a larger role in developing sanitation infrastructure in Brazil, which, in turn, will generate development on several other fronts – health, productivity, real estate and tourism, to name a few.

Karin Yamauti Hatanaka

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