As climate change makes water supplies and management more critical than ever, public budget allocations for water access and treatment in Africa are declining. The continent faces a $45 billion annual financing gap for water and sanitation.
To bridge the capital gap, Tanzania is tapping the bond market with one of East Africa’s first green bonds for water. The city of Tanga’s utility floated a $20.8 million bond to deliver universal water access in the city and near-universal access in surrounding townships.
The green bond is among the first in East Africa for the water sector.
Water bond predecessors
In the US, cities and states commonly tap the bond markets to finance their water and sanitation needs. Texas’s Water Development Board last year issued a bond to drought-proof its water infrastructure.
Tanzania has few examples to follow for water-related green bonds in other emerging markets. Municipalities and water utilities in South Africa, Egypt, India and Georgia have issued green bonds to finance water and sanitation.
The city of Cape Town floated an $83 million bond in 2017 to help it cope with water scarcity. Egypt secured €27 million ($29.3 million) from the European Bank for Reconstruction and Development for a green bond to develop water treatment and other services in several towns. India’s Vadodara Municipal Corp. issued a $12 million green bond last month for wastewater management. Georgian Global Utilities’ raised $40 million for a green bond to refurbish water infrastructure in Tbilisi.
Private water funds
Just 2% of private financing in Africa goes to water and sanitation. More derisking mechanisms, such as catalytic grants and guarantees, are needed to prove out investment strategies and opportunities.
The Gates Foundation this month provided a $6 million catalytic grant to the Africa Water Facility, a fund managed by the African Development bank to provide catalytic capital and technical assistance for up to 50 water projects on the continent.
Two funds launched last year around the time of World Water Day: Incofin’s Asia and Africa-focused Water Access Acceleration Fund, which has made one investment (in India), and Metito Utilities and British International Investment’s partnership, Africa Water Infrastructure Development, which has not yet disclosed any investments.
ImpactAssets features 12 funds that invest in water and sanitation, including eight with emerging market exposure, on its latest IA50 list.
