This report provides guidance on conducting political economy analysis in the urban water sector, highlighting lessons from case studies. The cases span successful reforms, such as in Chile and Senegal; reforms where the results are still incomplete or have not been replicated, such as Ghana and Panama; and those where reforms are pending, such as Pakistan. The paper identifies a wide range of political economy drivers and factors to consider in seeking to promote reform. The latter include: timing and sequencing; taking a long-term time horizon to build consensus; harnessing a crisis to promote change; improving the performance data available to policymakers and citizens; and building coalitions with non-traditional stakeholders.
The case studies describe the equity, efficiency and sustainability of water supply and sanitation services in each country, and summarise the legislative and regulatory framework and institutional arrangements and incentives. The studies confirm that two of the most common challenges for urban water revolve around i) financial (and other forms of) sustainability and ii) equity. Regarding institutional and governance arrangements, they find that responsibility for urban water is often spread throughout many different agencies, levels of government, and service providers, and that therefore careful institutional analysis is particularly important in this sector.
Successful reforms do not fit a single recipe. A wide range of context-specific political economy drivers explain why sub-optimal policies and practices remain and why attempts at reform have been successful or have met with (comparative) failure. These include:
- Historical legacies: The case studies confirmed that historical legacies – i.e. past practices in the country, district and/or city – are significant for the possibilities of reform.
- Path dependency: Path dependency is often linked with historical experience, as it refers to how previous policy choices and investments in organisational structures and capacities have lasting effects on subsequent situations and frames the range of policy options available.
- Rents and rent distribution: Rents in the urban water sector can be considerable: their size, and how they are distributed amongst stakeholders, influences the space available for reform.
- Stakeholders: Stakeholders in urban water are typically numerous. They include the government, the utility, service providers, business users, high- and low-income users, and informal providers of water. Incentivising operators to deliver efficiently, without corruption, is often a challenge. Chile managed to tackle this by ensuring that operators have their full costs recovered from both wealthy and from poor consumers. Vested interests around subsidies affect many stakeholders and were apparent in all the cases.
- Social trends and forces: Reform efforts – what direction they take, how they are viewed by the public, and how political they are – are significantly affected by social forces. For example, whether private sector participation is socially acceptable depends on the social forces in play as well as on experiences of privatisation.
- Role of a crisis: Crises can change the existing negative equilibrium around the urban water sector and promote new urgency, and new constituencies, for reform.
- Role of external donors: The role of donors is an important factor to consider, and should explicitly be included in PE analyses.
Overall, the report finds that political economy analysis provides a practical and useful operational tool that World Bank task team leaders and other urban water specialists can employ in their sector and project work. Factors to consider in seeking to promote reform include: the timing and sequencing of reform; taking a longer-term time horizon to build consensus for the direction and type of reform; harnessing a crisis to promote change; improving the performance data available to policymakers and citizens; and building coalitions with non-traditional stakeholders such as ordinary citizens and civil society organisations.