Wednesday, 28 March 2012

BPD & SEI Sanitation Entrepreneurs Series: Part 2

When is it appropriate to expect business plans? The conundrum of the missing middle

by David Schaub-Jones for BPD and SEI

I just came back from Dar es Salaam, Tanzania, where an interesting experiment is going on around sanitation entrepreneurs. WaterAid are working both in Dar and in three rural districts of Tanzania to support small providers of sanitation goods and services. I say experiment partly because WaterAid are being open-minded about testing different models and approaches. But partly also because others (both in Tanzania and some of the neighbouring countries) are supporting sanitation with approaches that contrast somewhat with those of WaterAid. Hopefully, over time, some useful comparisons will be possible.

Figure 1: UMAWA - a pit emptying business
gets to work in Dar es Salaam ©Schaub-Jones 

One of the questions being asked of those providers that WaterAid supports is whether they have business plans. Yet when you meet some of these providers you wonder whether having a business plan is really going to bring any significant changes to the way they go about their business.

WaterAid has chosen largely to work with small groups that have roots in the communities that they serve. Some are fully-fledged CBOs (Community Based Organisations), some are entrepreneurial community groups with a private sector slant. You get the impression in talking with them that they know their own communities well and that this local knowledge both shapes and supports their work.

Analysis of their income statements suggests they are doing well. So well that many are asking why they don’t invest in more equipment and expand their business? While we cannot know for sure, it seems the answer has as much to do with their level of comfort and ambition as it does with the financial constraints (or otherwise) of expanding. If the saying is ‘think global, act local’ then these organisations are really taking the ‘act local’ bit to heart. For whatever reason they’re not about to scale up their business dramatically just because outsiders feel the need (and suggest that they’re making enough money to be able to do it).

This situation, one of many small-scale and scattered providers, seems to typify sanitation in many contexts around the world. Working with these providers (e.g. equipping them with accounting skills, introducing new technologies...) may help improve sanitation on a very local level. But if the sector is to 'go to scale’, then it is either going to need these small providers to scale up or something else needs to happen.

Two other scenarios seem feasible: 1) replacing the ‘small guys’ (where they exist) with larger operators; or 2) bringing in new intermediary organisations to ‘sit in the middle’ in some sort of pyramid where one larger operator oversees, manages, supports (and maybe regulates) a group of smaller ones.

For now this middle ground seems largely to be occupied by NGOs, particularly international ones. This seems, to me at least, both inappropriate and limiting – in that INGOs are never going to be able to support sanitation within countries at the scale required. Nor are they best placed to respond to local demands. Indeed they themselves find it hard to scale up even when they do happen upon a successful approach.

Recognising this, there are examples of others looking to fill this middle ground in different ways. In South Africa, the Water Research Commission (WRC) has supported a pilot programme of ‘sanitation franchising’. Here a larger organisation (Impilo Yabantu) with skills, business approaches, access to capital and technology supports smaller groups (mostly women) who go out and clean and empty school toilets on contract to the South African Department of Education.

In Ouagadougou, SEI has been involved in a project that supports the municipality, which in turn supports associations to play this role. The municipality has divided the city into four zones and an association exists in each that supports small providers with the emptying, treatment and selling of urine and faeces from around 600 toilets. 

WASTE is busy looking into the potential of a Sanitation Operators' Partnership (SOP), which will put in place and 'cross-fertilise', i.e. share learning among mid-size organisations that take on this intermediary role. They had started out hoping that city governments could do this but did not meet with great success, so are increasingly looking to the private sector. This is very much the route that Water for People has taken in Uganda – where they have gone through an elaborate screening process to find ‘new’ entrepreneurs that are keen to enter into the sanitation sector (often building on successful businesses in other sectors to do so).

Back to the opening question then: when is it appropriate to expect a business plan? Gut feeling - and some experience - suggests that asking business plans of very small organisations, particularly those with a community orientation, may be an exercise in frustration. For perhaps it is not the plan that is needed so much as a ‘business vision’ – significant impacts will best be achieved by groups who know where they want to go and who want to do it at some scale (and who plan and budget accordingly).

Figure 2: A lack of a business plan is not always
the most immediate challenge! © Schaub-Jones 

As organisations get larger and more sophisticated, business plans are more to be expected. But even here a note of caution is warranted – many successful businesses don’t have anything resembling a business plan – they ‘follow their nose’ and have great success in doing so.

Figure 3: A waste transfer station in Dar -
but localised treatment would be better © Schaub-Jones 

When it comes to sanitation, whilst a business plan may be useful, a “getting government buy-in plan” may be even better. What constrains sanitation entrepreneurs in many settings is not access to capital, nor finding the right technology, but getting governments to provide the support needed. For pit emptying businesses in Dar es Salaam that means the Government accepting and supporting waste transfer stations or decentralised waste treatment. In rural Tanzania it means acting as an enabler and supporter of sanitation businesses and not as a gatekeeper.

Now there’s a strange thought - perhaps it is governments who need a business plan more than the actual businesses themselves?!

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