Why We Invested: Sanivation
Let’s cut to the chase: the state of global sanitation stinks. Faced with competing priorities, governments in the developing world under-allocate to a sector with massive infrastructure and maintenance requirements. Investors, for their part, don’t find sanitation, along with water and hygiene (WASH), to be as “sexy” as other sectors, like solar energy. Consequently, funding to WASH has been declining, with private capital particularly hard to court. In 2013, for example, private capital to the sector totaled $3.4 billion globally, or just 7 percent of the money that flowed into energy and information and communication technologies.
Of course, shunning the sector doesn’t make its dire reality disappear. Globally, 2.3 billion people lack access to basic sanitation, such as a flush toilet or a private pit latrine. In sub-Saharan Africa, only 28 percent of the population has access to basic sanitation services with 23 percent practicing open defecation. Around the world, 829,000 deaths per year are caused by diarrheal disease due to inadequate sanitation. In fact, diarrheal disease is the second leading cause of death in children under the age of 5. Malnutrition resulting from diarrheal disease contributes to stunting or impaired growth and mental development in children. And, there is an economic cost; the global economy lost over $223 billion in 2015, for example, because of poor sanitation.
With public and private capital more engaged elsewhere, can sanitation attract the estimated $114 billion per year that it needs to meet Sustainable Development Goal targets? Yes, if it can showcase the human dignity imperative as well as the business case for investing in the sector. That is why we at FINCA Ventures invested in Sanivation — an innovative infrastructure investment to help scale safely-managed sanitation.
Sanitation without Sewers
The sanitation service chain is long and complex, encompassing where human waste is deposited and stored, how it is collected and transported to a treatment facility, and how it disposed of or reused. Most of the developing world struggles with some or all of these stages due to budget constraints: The cost of sewered, water-based sanitation is, simply, astronomical. In poor and rapidly expanding cities, fecal sludge management is one of the biggest sanitation challenges. Absent adequate treatment, fecal sludge accumulates in poorly designed pits and eventually is discharged into storm drains, open water or waterways. The combination of a rapidly rising population and widespread untreated fecal matter is particularly toxic and only getting worse.
While sanitation-focused enterprises may be struggling to attract investment capital, the sector’s maladies are widely known. Exciting innovations are happening all over sanitation, from the Gates Foundation-funded improved toilets initiative to new and improved vacuum truck technology. The challenge becomes how to blend the private with the public sector in catalyzing these innovations and scaling them to mass markets.
Turning a Cost Center into a Profit Generator
Sanivation, a FINCA Ventures portfolio company, tackles many aspects of the sanitation service chain. From installing container-based toilets in homes, businesses and refugee camps, to the collection, transportation and treatment of waste, Sanivation is addressing many of the sanitation pain points of developing country municipalities. By delivering on the whole model, Sanivation can tap into larger markets for growth.
The company’s unique selling point, however, is its innovative re-use model, which turns a waste treatment plant into a profit generator, not a cost center. Sanivation safely treats fecal sludge, largely using renewable energy, and transforms it into improved alternatives to charcoal and firewood for cooking and heating. Their end product blends treated fecal sludge with charcoal or wood dust, resulting in fuel briquettes that are sold for domestic and commercial use. Sanivation’s innovative waste processing technology was selected for the 2018 Patents for Humanity Award by the United States Patents and Trademarks Office (USPTO).
Nimble and Bespoke Solutions
Sanivation’s first implementation was a contract by the UN Refugee Agency (UNHCR) and the Gates Foundation to manage waste in one of the largest refugee camps in Africa — Kakuma in northwestern Kenya, with nearly 200,000 people. There, Sanivation honed its expertise to deliver in population-dense settings. Its success convinced Naivasha, a mid-sized town in western Kenya, to contract them for its own waste management. Sanivation built and operates a waste treatment plant for the municipality, with a second factory coming online in November. From operating the entire sanitation service chain in Kakuma to deploying just treatment and re-use solutions in Naivasha, Sanivation is demonstrating a remarkable capacity to adapt quickly and effectively. We have been hugely impressed by Sanivation’s nimbleness and ability to create bespoke solutions to local needs.
Sanitation Built for the Sub-Municipal Level
Sanivation’s treatment facilities can be manufactured for as little as $200,000, and because they use a blend of fecal sludge and other organic materials, they can be built to serve smaller communities of even 5,000 people profitably. The technology is a great fit for sub-municipalities (100,000 to 400,000 people), where a lot of the sanitation problems occur, and Sanivation is currently the only company in East Africa that is deploying a waste-to-energy solution at that level. The combination of locally available materials, small and dense geographic footprints, and enthusiastic governmental partners at the sub-municipal level helps keep operating costs for Sanivation’s treatment facilities low.
Improved Health and Environmental Outcomes for the Poor
Sanivation’s container-based toilets, servicing and treatment eliminate the negative health impacts associated with pit latrines and open defecation. Their waste-to-energy model produces briquettes that burn for one-and-a-half times longer than traditional charcoal, produce one-third of the smoke, and are more affordable. The combination of safety, performance and affordability is a perfect driver for the products’ mass adoption at the base of the economic pyramid. And, as an environmentally friendly alternative to charcoal and firewood, the products meet with regulatory and policy approval. Sanivation’s treatment process has been certified by the Kenya National Environment Management Authority and the Kenya Bureau of Standards, in addition to the American Centers for Disease Control and Prevention (CDC).
Bringing Waste Treatment to Scale
Our investment in Sanivation illustrates that tremendous opportunities exist in sanitation, and there are numerous entry points across the sector’s value chain (such as public toilets, waste collection and transportation) that could leverage the working capital solutions of microfinance networks, like FINCA Impact Finance. Not that anybody should really need convincing; after all, every dollar invested in sanitation yields $5.50 in health and productivity benefits, a return on investment that is among the highest of all the sectors. The state of global sanitation may stink right now, but with Sanivation we smell the rosy prospects of bringing innovative infrastructure to scale in a sector deserving of long overdue attention.