Water and Sanitation in the Developing world
Why trillions in aid have failed to bring adequate water and sanitation to much of the developing world.
There is an old joke in economics about two professors walking down the street. One spots a hundred dollar bill on the sidewalk. The other tells him to ignore it because if it were real someone would have picked it up already. Despite my exposure to economics professors, I have yet to see this situation play out in person.
I think about this joke constantly in relation to water and sanitation infrastructure in the developing world. The bill on the sidewalk is worth trillions, and nobody seems to be picking it up. Does this mean it isn’t real?
The World Bank estimates that every dollar spent on water supply and sanitation in Africa yields up to seven dollars in return. Some analyses put it at $21. If a hedge fund offered you those numbers, you would think about putting a reverse mortgage on your house. Today, somewhere between 2.2 and 4.4 billion people still lack reliably clean water and sanitation.
If returns are so high, why do we not see more investment? Answering this question is critical right now. With USAID cut and Chinese loans to Africa falling off from their 2016 peak, two of the biggest external funding pipelines into African infrastructure are simultaneously collapsing.
The Double Withdrawal
Between 2018 and 2022 Chinese foreign direct investment in Africa plummeted by 66.7 percent. New annual loan commitments cratered from a high of $28.5 billion in 2016 to under $1 billion by 2022. Investments in Africa’s resource-intensive sectors have declined roughly 40 percent since their 2015 peak. The infrastructure boom is over.
Concurrently, the United States Agency for International Development was effectively dismantled globally. In fiscal year 2023 USAID spent nearly $1.2 billion on water-related programs. By mid 2025 the agency laid off 94 percent of its staff. Projects mid construction were abandoned. Globalwaters.org, which hosted the agency’s entire water portfolio, went dark. In the Democratic Republic of Congo the cuts contributed to a massive cholera outbreak. Cholera cases rose 5 fold year over year.
Hundreds of billions of dollars flowed through these channels over the past two decades. If the returns on water infrastructure are so high, we have to ask why these flows stopped, and why they largely failed to leave self sufficient systems behind.
Is the developing world just too poor to build infrastructure?
The conventional explanation claims these countries are too poor to afford the infrastructure they need.
Mohenjo-Daro was a city in the Indus Valley that flourished around 2500 BCE. The settlement had over 700 wells and a dedicated sewerage system. The city featured covered drains running beneath the streets of residential neighborhoods. No one in Mohenjo-Daro had electricity or any idea what a germ was. Many of them enjoyed sanitation infrastructure that modern residents of Lagos or Karachi can only dream of.
Every single country on Earth today is wealthier than Mohenjo-daro was. Pipes, pumps, gravity, and sand filtration are tools that ancient civilizations mastered independently. I have written about many of these systems on this blog before, including Venice’s ingenious cisterns, Archimedes’ screws and Persian wheels, and China’s Grand Canal. These civilizations solved water distribution under far more severe constraints than any modern government faces.
So that’s the conventional explanation out the window, but what about one degree of well informed past that? Many point to Africa’s high disease burden, but disease burdens in Africa don’t really compare to those of say, Victorian London.
People on the ground seem to think that the locals have neglected what European investments were left behind. As Bruce Gilley has written, the colonial apparatus, driven by the absolute necessity of keeping its extractive logistics running, possessed a rigorous technocratic and administrative capacity capable of managing large-scale public works, a vital bureaucratic discipline that was tragically lost or deliberately dismantled in the tumultuous transition to independence.
Today, the surviving remnants of this colonial infrastructure hold immense replacement value, easily numbering in the hundreds of billions of dollars. Yet, the systemic, chronic failure of post-colonial states to maintain these inherited assets has triggered a compounding, multi-generational economic crisis. The "build-neglect-rebuild" paradigm has caused vital national logistical arteries to physically collapse.
The underlying issue is rooted in mechanism design. The incentive structures surrounding the pipes are broken in specific and identifiable ways. Private capital cannot capture the vast positive externalities of public health interventions without the presence of a highly capable state, a state capable of enforcing tariffs, executing eminent domain, maintaining complex assets over decades, and ensuring macroeconomic stability. In what ways do states fail to provide this environment?
Mechanism Failure 1: The Ribbon Cutting Paradox
Working as an engineer, I learned that infrastructure depends heavily on sustained maintenance. A water treatment plant that costs $10 million to build might cost $500,000 a year to run properly. Skipping maintenance for two years effectively wastes the original $10 million.
This creates a nasty incentive problem for politicians. Building a new dam provides a great photo opportunity. A president can cut a ribbon and make a speech. Replacing corroded underground pipes offers no ceremony.
Developing economies face extreme budget volatility. In a flush year a government builds infrastructure. In a lean year maintenance is the first thing cut. In the next flush year they rebuild the thing they let fall apart. The money is there and is systematically misallocated toward the visible and away from the essential.
Mechanism Failure 2: The Attribution Problem
A politician faces a brutal attribution problem when investing in infrastructure. These projects take years to bear fruit. By the time clean water flows voters may have forgotten who authorized the project. A rival may be in office to take credit.
Politicians get a much higher return by spending on easily attributed goods like bags of rice or targeted jobs programs. With clientelism the attribution is instant. With a pipe replacement project two years from completion the attribution is diffuse and delayed.
Mechanism Failure 3: Rent seekers and the Tanker Mafia
In Karachi the municipal water utility has been failing for decades. Large areas of the city get no formal water service at all. A network of private water tanker operators stepped into this vacuum. They have every incentive to keep the utility broken.
Tanker operators illegally siphon water from unmetered municipal taps and sell it to households at enormous markups. Utility water costs roughly $1 per 1,000 liters. Tanker water sells for $20 or more. The arbitrage is extraordinary. The profits flow upstream into a network of police and politicians who protect the scarcity that makes the business model work.
When tanker operators siphon water from unmetered taps they physically depressurize the distribution network. Low pressure means more leaks and more contamination from groundwater infiltration. The theft makes the utility fail harder and creates more demand for tankers. As we all know, once a rent seeking equilibrium is established, the parties benefiting from it will actively resist any reform.
Mechanism Failure 4: The Legal Wall
In most developing cities formal utility connections require legal title to your property. No deed means no water meter. In many African and South Asian cities up to 30 to 50 percent of the urban population lives in informal settlements. These people are legally invisible to the utility.
What they pay to informal vendors or tanker operators is typically 10 to 15 times more per liter than formally connected households pay. The poorest people in the city pay the most for the worst water.
The Money on the Table
Chinese Belt and Road funding and American USAID dollars together poured tens of billions into African infrastructure over the past two decades. The Chinese Africa Research Initiative estimates that between 2000 and 2019 Chinese financiers signed 1,141 loan commitments worth $153 billion with African governments. USAID was investing roughly $1 billion per year on water programs alone.
Chinese investment was heavily concentrated in large scale infrastructure. Much of this investment was structured as loans to sovereign governments. When China’s own economy slowed and the loans dried up there was no institutional capacity left behind to maintain what was built. Projects stalled, and African countries began suspending or abandoning many projects.
USAID’s approach was different, focused on community-level programs. But when the agency was dismantled in 2025 there was no handoff. Programs stopped overnight. More than 700,000 people lost access to clean water immediately.
How to do it right: Phnom Penh
In 1993, the Phnom Penh Water Supply Authority was a catastrophe. The city was emerging from decades of war and genocide. Only 20 percent of the city had connections at all, and water flowed for just 10 hours a day. 72 percent of the water was non revenue water. It was lost to leaks or stolen through illegal connections.
Into this mess walked Ek Son Chan, a young Cambodian engineer appointed as Director General. Over the next two decades he executed an incredible institutional turnaround.
Chan replaced corrupt managers with qualified engineers. He got rid of unmetered taps. Every single connection received a meter and was billed. The old system of manual billing was replaced with a computerized system, which cut down on low level employees giving out free water and receiving kickbacks. Bill collection rates went from 48 percent to 99.9 percent. These changes were intensely unpopular, and Chan faced fierce resistance from rent seekers, from freeloading customers to his own employees. He established an incentive system based on bonuses among the workers, introduced an internal discipline system with a penalty for violators, and set up a discipline commission for all levels of the organization to deal with corruption
He divided the distribution network into pressure zones with flow monitoring. A 24 hour leak detection team walked the streets at night with listening bars to identify underground leaks.
The institutional change dwarfed the infrastructural change, but was absolutely necessary to make the infrastructure investment worthwhile. In fact, even back then, funders had an idea that this approach could work. A large portion of Chan’s funding and support came from the Institutional Capacity Building Project financed by UNDP (United Nations Development Program) and implemented by the World Bank. I would fund him too. Chan was absolutely committed to his approach in an intoxicating way, reminiscent of the “X factor” many founder-types reverently respect.
This commitment would not be untested. When Chan tried to enforce bill payment on Cambodia’s elite, and sent his team out to install a water meter on the property of a high ranking general who had been freeloading. The general refused the installation of a meter, so the team attempted to disconnect the water. The general and his bodyguards ran them off the property. When Chan heard of this, he decided not to back down, and mobilized his own team to dig up the pipe and install the meter. Always a leader from the front, Chan jumped in the hole to take a shift at digging. When he looked up, his team had fled, and he was facing down the general himself, pointing a gun at his head. In Cambodia in the 90s, consequences for such a high ranking official were unlikely. CHan didn’t give up. He mobilized the local armed police and returned with 20 men to standoff against the general, disconnected him from service and left him out to dry. Chan said this about the dispute:
”He had no water. My office was on the second floor and the general came in with his ten bodyguards to look for me. I said, “ No. You can come here alone, but with an appointment”. He couldn’t do anything. He had to return. He said, “Okay”! At that time we had a telephone, a very big Motorola. He came in to make an appointment for tomorrow. I said, “ Okay, tomorrow you come alone”. So he comes alone, we talk. “Okay. I’ll reconnect on two conditions. The first condition is that you have to sign a commitment saying that you will respect the Water Supply Authority and second, you need to pay a penalty for your bad behavior and you must allow us to broadcast the situation to the public, or no way, no water in your house”. So he agreed. “
Others quickly fell in line. The utility reduced its non revenue water from 72 percent to 8.75 percent. When it started making profits instead of losses, Ek requested financial autonomy from the government to prevent the authority’s funds from seizure. In 1996, this was granted an PPWSA was the first government-owned org to get autonomy.
By 2010, coverItage in the city went from 25 percent to over 90 percent with 24 hour service. The utility became financially self sustaining and turned a profit. It was listed on the Cambodia Securities Exchange in 2012. Chan won the Ramon Magsaysay Award in 2006.
By separating the utility company from the low-capacity local government, Ek and PPWSA proved that:
Functional infrastructure relies on institutional quality and mechanism design.
State capacity need not exist within the state
The Opportunity
The pattern of aligning incentives and granting operational autonomy works widely when it is tried in earnest.
Senegal adopted an affermage model, a public private partnership where a private operator manages billing and operations. The operator’s revenue is tied to the amount of water delivered.
CityTaps, a startup operating in Niger and Kenya, deployed prepaid smart meters that let customers pay for water via mobile phone. This bypasses the corrupt bill collectors entirely.
Chinese and American money flowing into African infrastructure failed to fix the core mechanism design problems we discussed above. This is an unforced error. Large scale capital expenditure without institutional reform functions as a temporary fix at best, and provides little to no return.
The Atlantic Council projects that finance from China’s banks will continue to decline under any growth scenario. USAID is imperiled at best. But while the withdrawal of that funding creates a moment of genuine crisis, it is also an opportunity to restructure future funding more wisely. A shrewd lender could stand to prevent a lot of deaths and make a killing
The trillion dollar bill is still on the sidewalk. It’s up to us to pick it up!
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Connor Tabarrok is a Water & Wastewater engineering consultant at Kimley-Horn, working in Texas and the D.C. metro area.
"Today, the surviving remnants of this colonial infrastructure hold immense replacement value, easily numbering in the hundreds of billions of dollars. Yet, the systemic, chronic failure of post-colonial states to maintain these inherited assets."
I'm curious if you have a reference for this as a general pattern vs. a series of anecodes. Even if anecdotes, I'm curious which ones motivated this.
>Disclaimer, I asked Gemini Pro for this graphic, YMMV
Did you really post this graphic without fact checking it? Or even asking another LLM to fact check it?