□  The characteristics of small-scale and informal service providers

In many parts of the world, small-scale independent providers (SSIPs), and those who often work within the informal sector - have long been the providers of water and waste services to large sections of urban populations.9 Municipalities have, at least implicitly, relied on the range of services that this private sector group has provided, be it water supply through tankers (see Box 6.8), sanitation services by way of vacuum trucks or manual latrine cleaners, or solid waste services through local sweepers and small collection vehicles (see Box 6.9). Despite this important role, municipalities have done little to influence the development of these operations, for good or ill. On the one hand, these independent providers fill gaps in municipal service provision, and their services are in urgent demand. On the other hand they are ignored. Their informality, the vast differences in their standards of service, the constraints of the regulatory context, and the fact that they generally deliver to politically marginalised and perhaps illegal settlements, means that it is easier to overlook their existence than work with them in the supply process.

In terms of the private sector debate, it is notable that small-scale independent providers have been delivering a fully private service to high numbers of poor households for decades. However, rarely do we witness a partnership arrangement in which the municipal (or line) agency is responsible for the urban service, and rarely do we see any official recognition of the role independent providers play within the city. In contrast to the increasing attention being paid to municipal labourers - often a subject of great concern in the formulation of PPPs - the impacts of formal private sector involvement on independent providers are rarely addressed. On the contrary, SSIPs often have their investments expropriated by newly-appointed concessionaires without compensation (see Box 7.11 illustrating the aguateros in Paraguay).

In many cases, the important role played by small-scale independent providers in developing cities has been overlooked in the push to attract the capital investment and managerial skills that come with large-scale operators and long-term contracts. However if municipalities are to work successfully towards an overall poverty strategy, it is absolutely essential that they recognise the complementary roles of these smaller private entrepreneurs. The poverty analysis and the technical analysis of existing services should therefore include a detailed assessment of the existing role and impacts of small-scale service delivery to the city and to poor communities in particular. With this information in hand, municipalities are in a better position to devise arrangements that build on local capacities.

Box 6.10 outlines some of the types and characteristics of small-scale independent providers working in water, sanitation and solid waste services in developing cities. They provide a diverse collection of services in a highly competitive market. Activities tend to focus on activities in the secondary and tertiary sectors (with the exception of borehole operators, or the few small-scale private networks) as small-scale independent providers tend to operate in distribution and collection at the local level; there is a clear distinction between water, sanitation and waste service providers. They rarely provide services in more than one sector.

The small-scale enterprise is typically an informal, independent, subsistence, self-employed or family-based arrangement, managed on a day-to-day basis and providing a service that requires low levels of investment. Most have developed in response to demand; they must win their customers' loyalty, maintain their equipment effectively to maximise their efficiency, and innovate and adapt in order to stay in business in a competitive market.10 As a result they are often knowledgeable about users' ability and willingness to pay, and about the specifics of local conditions - what works and what does not. With the exceptions of those who operate exploitative monopolies, a characteristic of SSIPs is the demand-responsive nature of their service.

Conditions obviously vary according to context, but in terms of water supply, small-scale independent providers frequently work in the expanding peripheral areas of cities. These areas are settled informally and are rarely served by networks. These marginalised poor communities and households require small quantities of water for domestic (and sometimes agricultural) use. They find ways to pay for it, and it is now well established that they are often willing to pay, or have to pay well over the price paid by the non-poor for their water supply. The consumption patterns and the preferences shown by consumers reinforce the need for flexibility, as the livelihood strategies of the poor adjust in accordance with varying incomes and expenditures. Small-scale service providers also serve non-poor customers residing outside the network area, and poor communities in core areas of the city. Many of the inner areas of cities have no access to water due to the unaffordable nature of water connections, the illegality of the settlements, the marginal nature of the land, or the political difficulties of accessing network supply. In a range of Latin American, Asian and African cities, evidence suggests that the ISPs operate a competitive water distribution market for the poor, and they work in parallel with, but rarely in association with the monopolistic, large-scale, private or public sector water operators.

Levels of sanitation services vary considerably throughout the South. Even within Africa, the extensive networks of Southern African cities, such as those found in Zimbabwe, stand in stark contrast to East Africa, where most cities lack sewerage networks. For the overwhelming majority of poor citizens, access to clean and effective sanitation services is limited (generally more limited than water), and SSIPs fill the gaps in this provision. As with solid waste, workers in sanitation services (often called 'conservancy workers' when employed by the government) tend to be very poor themselves; they operate vacuum trucks for the cleaning of septic tanks, or clean latrines manually to remove sludge. The work is poorly paid, has a low status and is detrimental to their health. Other entrepreneurs have established public toilet (or shower) facilities which, apart from providing a service to the general population, provide a safe alternative facility for women and girls, otherwise accustomed to squatting in unsafe neighbouring areas at night.

Solid waste services provided by SSIPs include sweeping, door-to-door collection, area collection by handcarts, rag- picking and recycling. Often, the poor provide these services to the non-poor or better-off poor, who are willing to part with small sums to avoid having to undertake these tasks themselves. Evidence in Hyderabad and Bangalore in India concerning CBOs that arrange for poor householders to collect waste indicates a demand for lane-level solid waste services, and shows that mechanisms can be arranged for payment. In each case, householders paid the waste collector a small monthly fee for the service.

Evidence suggests that a number of factors, closely linked to the informality of SSIPs, constrain their inclusion in government-initiated partnership arrangements. These include:

•  lack of inclusion of SSIPs as stakeholders in the strategic approach to the partnership;

•  lack of legal provision for SSIPs, even in the context of policies encouraging private sector participation;

•  drive to formalise business activity, which can put small-scale operators under financial stress (if taxation systems are biased and they do not have the financial management support necessary to undertake their trade in the formal sector);

•  lack of access to credit or a sound financial base;

•  fear that their efforts will be expropriated in the future;

•  lack of capacity of their customer base (e.g., low levels of literacy, unemployment and the lack of physical wellbeing and empowerment), which makes their clientele vulnerable to crisis;

•  lack of land tenure in the areas serviced by the SSIPs, which means that the type of service they provide is limited;

•  lack of coordination between SSIPs in addressing blockages;

•  lack of SSIP associations that can effectively interact with large-scale operations; and

•  lack of business management skills.

Despite these impediments, SSIPs bring substantial benefits to cities and to poor communities. For instance, they typically:

•  reach the households that formal service providers have failed to reach;

•  reach physically marginal areas (e.g., flooded marshlands, steep hillsides) that are not served by networks or formal providers due to technical constraints on network infrastructure and/or a lack of land tenure;

•  are flexible and can provide, either individually or through market forces, the type of service that customers demand (and can afford);

•  adapt to changing circumstances to ensure they make a profit;

•  are particularly knowledgeable about the constraints of local conditions and communities; and

•  are often efficient due to the high density of the settlement.11

It is important for municipal officials to note that SSIPs already play a role in service provision in their cities. Where they are not exploitative, small-scale providers that fill gaps in existing services represent a significant resource that frequently meets the differentiated needs of poor consumers. Sectoral reform that focuses on increasing private sector involvement should recognise that small-scale providers are an essential part of this sector. The strategy developed for service partnerships should consider, through unbundling approaches, how SSIPs are brought into the partnership in the short, medium and long term, the formal and informal relationships between these partners, and the impacts of this change on the poor. Understanding of what SSIPs provide and why is a key starting point. Over time strategies may also need to define mechanisms for assisting these service providers to find new areas of employment or enhance their businesses, whether through skills training, income generation activities or the development of alternative approaches.