Some key changes in the enabling environment could lead to significant growth in the sanitation market.

Ethiopia is working to address sanitation and hygiene challenges through market-based sanitation. The stakes are high as poor sanitation and hygiene are leading causes of illness. According to the second Health Sector Transformation Plan of Ethiopia, the country aims to drastically reduce sanitation-related illnesses by increasing the proportion of households with access to a basic sanitation service from 20% in 2019 to 60% in 2025. Ethiopia plans to achieve these goals through market-based sanitation, a development approach in which a sustainable marketplace provides reliable sanitation goods and services to consumers and creates viable business opportunities for suppliers.

These efforts have already begun in earnest. The country’s Market-Based Sanitation Implementation Guideline, which was developed by the Federal Ministry of Health in collaboration with development partners, provides a framework for building and expanding market-based sanitation.

What is Market-Based Sanitation?

As stated in the Market-Based Sanitation Implementation Guideline, ‘’Market-based sanitation is a sanitation market whereby the household fully pays at once or through installments to the supplier for the preferred/desired basic sanitation and hygiene products and/or services.’’ Because the market will not work without attractive and profitable business opportunities for suppliers, creating a favourable environment for private-sector enterprises and consumers to conduct business through supportive regulations and policies is a critically important piece to implementing market-based sanitation. This is known as the “enabling environment”.

Challenges

According to USAID Transform WASH research conducted on Ethiopia’s WASH business climate, businesses offering sanitation products and services in the country face a multitude of challenges resulting from a poor enabling environment. These include access to foreign exchange, tax and tariff rates, intellectual property protection, business registration, and start-up requirements, import challenges, uncertain demand, and business and consumer financing. Lack of access to foreign exchange impedes importation of sanitation products and manufacturing inputs while taxes and tariffs levied on sanitation products increase the price of sanitation products and services, reducing affordability and customer willingness to pay.  Challenges related to intellectual property rights, business start-up requirements, business registration, and uncertain demand discourage emerging businesses. Transform WASH's study examining the introduction of new sanitation products into the Ethiopian market indicated that bringing innovative plastic sanitation products to the local market took nine months longer than was originally planned. Bureaucratic hurdles related to importation, customs, logistics, high and confusing duties, and risk-averse investment decisions of corporate leads created delays and reduced profitability.

Additionally, Transform WASH's study on the assessment of sanitation financing options for enterprises and households shows that local enterprises and consumers are facing financing challenges. Businesses that may wish to offer sanitation products and services lack the capital to purchase raw materials in bulk to use for the production process and marketing tasks. Loan products are hard to access because they carry high-interest rates, or there are no sanitation-focused financial products at all.

Suggested Solutions

Some key changes in the enabling environment could lead to significant growth in the sanitation market.

To make sanitation products and services affordable to all, the government of Ethiopia should exempt or reduce taxes and tariffs levied on sanitation products. Higher prices lower demand, placing additional economic burdens on poor households and reducing the profitability of businesses who wish to sell sanitation products.

Registering sanitation products as essential goods and including them in the priority items list would help solve challenges related to the scarcity of foreign exchange as such transactions receive priority status by sector and by good.

Building a favourable climate for emerging businesses by easing bureaucratic hurdles would enhance growth. There should be an environment in which businesses face fewer impending regulations and sluggish processes for business set-up.

Promoting household understanding of the value of sanitation products and why they should prioritise the improvement of their facilities will create demand for nearby products and services. To do this, Transform WASH experience and research shows that engaging health extension workers and women development army leaders in such promotion will yield positive results along with enhancing business marketing and sales skills.

Expanding financing options is critical for market-based sanitation as small businesses need more and better loan products to blossom. Providing sanitation-focused loans for businesses would enable them to produce, sell, and distribute sanitation products and services at a much greater scale.  Also, strengthening microfinance institutions and village saving and credit associations that provide sanitation loans to consumers would enhance the purchasing power of households. In addressing the poorest customers, smart and targeted subsidies will help address the biggest affordability challenges.

At a fundamental level, establishing a conducive climate for market-based sanitation, working on improving financing restrictions for the enterprises and households, lessening bureaucratic hiccups, and creating demand will change the game and allow Ethiopia to meet its goals. In improving financing restrictions, financial institutions and the regulatory body needs to understand the value of providing finance for market-based sanitation and improve their directives and policy.

About Transform WASH
USAID Transform WASH aims to improve water, sanitation and hygiene (WASH) outcomes in Ethiopia by increasing market access to and sustained use of a broader spectrum of affordable WASH products and services, with a substantial focus on sanitation.

Transform WASH achieves this by transforming the market for low-cost quality WASH products and services: stimulating demand at the community level, strengthening supply chains, and improving the enabling environment for a vibrant private market.

USAID Transform WASH is a USAID-funded activity implemented by PSI in collaboration with SNV, Plan International, and IRC WASH. The consortium is working closely with government agencies, including the Ministry of Health, the Ministry of Water, Irrigation and Electricity, the One WASH National Program, and regional and sub-regional governments.

Home improvement campaigns for sanitation and hygiene assessed in 49 villages in Mugusu and Kasenda sub-counties in Uganda.

A family demonstrates to the monitoring team how they practise handwashing at home using a tippy tap

Access to safe sanitation and a clean hygienic environment are fundamental human rights that everyone should enjoy. Kabarole District has set targets to deliver water sanitation and hygiene services to every person, leaving no one behind. Kabarole’s WASH vision commits that by 2030, the district will be 100% open defecation free (ODF), with 72% of the population enjoying basic and 28% safely managed sanitation services.

But sanitation and hygiene are not the only service mandates that the district has. That means that the conditional grant from central government is not nearly enough to reach everyone at once. The district leadership has strategised to concentrate resources in selected underserved sub-counties, making sure that every village and home is served.

Thus, in 2020, IRC made a collaborative commitment to Kabarole District Local Government to support sanitation and home improvement campaigns in two sub-counties per year.  The core purpose of the campaign is to create awareness and inspire change from the grassroots up, by empowering households to install and maintain good sanitation and hygiene facilities, and gradually eliminate open defecation in the entire district.

This year, the sanitation improvement campaign has concentrated on Mugusu and Kasenda sub-counties reaching 49 villages with various activities including community engagement meetings, a baseline survey, home visits and education, piloting of the Participatory Hygiene and Sanitation Transformation (PHAST) tools, celebration of the 2021 Sanitation Week and rewarding homes that depicted outstanding standards of sanitation and hygiene. 

The ideal home: sanitation and hygiene standards in rural Kabarole

Every household must have a sanitation facility that is in good condition and ensures privacy; have hand washing facilities with clean water and soap, bath shelters, proper garbage disposal, proper water chain management and zero tolerance for open defecation (Uganda Public Health Act CAP 269 (194)).

In Mugusu and Kasenda, most people live in houses built with mud and sticks (semi-permanent, or bricks and mortar (permanent)) with basic sanitary requirements, namely a kitchen and a traditional pit latrine. Before the campaign, only a few homes had a designated bath shelter, 47.5% in Kasenda and 62.6% in Mugusu. Utensil racks with levels for washing and drying were not a priority in many homes; nor were rubbish pits for domestic waste. Even fewer were homes that had hand washing facilities with soap, 32.9% in Kasenda and 37% in Mugusu, and safe water chain management 40.7% in Kasenda and 52.3% in Mugusu.

The change is happening, one home at a time

A monitoring exercise done approximately three months after the campaign revealed that two villages, Magunga and Karwoma in Mugusu Sub-county had recently been declared open defecation free by the District Inspectorate team while 15 more villages had 89% of their households with no evidence of OD. Those which did not have latrines before the intervention were found with new or in the process of excavating pits for latrines. Others had improved from traditional to ventilated improved pits (VIPs) or installed SatoPans and Ecosan toilets to scale-up cleanliness and hygiene.

“After attending the sanitation improvement campaign that was conducted in this village, I committed myself to improve my latrine. I decided to put in a SatoPan. My latrine is now free from the smell and flies. I have inspired other community members to replicate my example of using locally available materials.”- Mr. Darius Nasasira, a community member in Kasenda.

Leading by example

Community leaders including those who represent the people on the lower local councils, as well as those who serve in technical capacity such as the secretary for health and the Village Health Teams (VHT), are expected to have and maintain exemplary homesteads. That means that during the home visits, their homes are also assessed, and model homes awarded with certificates. Model homes not only inspire other homesteads to achieve the ideal standard, but they also constitute a good proportion of households in the village, thus raising the standard of the sub-county closer to the ideal sanitation and hygiene situation.

Lessons learnt

PHAST in action: Community mapping of sanitation conditions (L) and a participant in the training rates her home on the sanitation ladder (R).

Behaviour change is a laborious process and requires time. The impact of a sanitation campaign may not be visible in only three months.

Although resources for constructing most sanitary facilities are within easy reach, some community members remain adamant. Local leaders have resorted to enforcement through police arrests of those who do not comply to the basic requirements of sanitation and hygiene. But this has not significantly contributed to the desired behavioural change. In some cases, because people have acted in fear of the law, the full installation, maintenance and use of ideal sanitary facilities remains below minimum.

The holistic campaign offers a more sustainable approach. The PHAST tools involve the whole community beyond the Health Assistants, allowing them to learn and adopt solutions as their own. Promoting community led total sanitation (CLTS) using tools such as “the walk of shame” and the household cluster approach (UMOJA plus) that embraces togetherness to promote inclusive participation, were found to better influence behaviour change.

Kabarole District and IRC together with other actors such as Amref which is involved in sanitation marketing can consolidate the gains in the same sub-counties by extending the campaign for longer periods. Importantly, learning and knowledge sharing should not be limited to the campaign timelines. For example, training Environment Health Workers and VHTs on new technologies such as installation of SatoPans should continue.

Such collaborative campaigns are an opportunity for civil society to lobby policy makers to put in place guidelines and by-laws that support the technical teams to ensure strict adherence to minimum standards of sanitation and hygiene.  Existing guidelines should be improved to include missing aspects, such as menstrual hygiene management and climate change at household level.

Every single homestead that transforms to the model sanitation and hygiene standards is one step towards building a critical mass of individuals that will propel communities, villages, sub-counties and ultimately the district closer to full and safe access for all.

Guidance and tools for designing, developing, planning, implementing and monitoring and evaluation of a market-based sanitation approach and related sanitation product & service delivery mechanisms.

In February and March 2021, home improvement campaigns were conducted in 49 villages of Mugusu and Kasenda sub-counties, and a monitoring exercise carried out in June-July to assess the levels of impact registered by the intervention.

Challenges and successes of a public private partnership between Kabarole District Local Government, National Water and Sewerage Corporation (NWSC) and IRC Uganda.

Interview with Alana Potter, co-drafter of the Africa Sanitation Policy Guidelines.

Stream of water pouring into children's hands in southern Burkina Faso. Photo: Jadwiga Figula / Getty Images

"Good policy with political ownership and leadership is the lynchpin and the lodestar of governance; of an enabling environment", says Alana Potter, a former IRC staff member and associate, now working as a Senior Policy Analyst at WaterAid.

The Ngor Declaration on Sanitation and Hygiene defines clear, achievable commitments intended to deliver dignity and equity in sanitation and hygiene in Africa by 2030. The 2015 Ngor Declaration is a successor to the eThekwini Declaration (2008), and an assessment of the progress in honouring the commitments of both declarations over the last decade, it reveals a strong predication of an enabling environment as the lynchpin for progress. Good policy with political ownership and leadership were affirmed as key to creating an enabling environment necessary to meet sanitation and hygiene commitments.

The African Sanitation Policy Guidelines (ASPG) is an initiative of the African Ministers’ Council on Water (AMCOW), based on research on Africa’s sanitation and hygiene policies and legislation in 2019. The study reveals gaps in laws and policies, which negatively impact sanitation service delivery, foster inequalities in sanitation service delivery and complicate financial resource allocation. The ASPG provides African governments guidance on the policy development process, vision, objectives and principles and addresses the hygiene and sanitation behaviour change; institutional arrangements; regulation; capacity development; funding, and monitoring, evaluation, and reviews elements of a clear and comprehensive sanitation policy to guide national sanitation and hygiene improvements. The Guidelines provide advice on the process and suggested contents of a sanitation policy for policy makers in national and subnational governments and other stakeholders involved in supporting policy reform initiatives and developing implementation strategies. 

Implementing the ASPG guidelines offers African governments the opportunity to develop a policy and an implementation plan that aligns efforts and to mobilise the required resources and investments. It provides a tool to galvanise and communicate in order to generate political support and increase prioritisation of sanitation and hygiene in the public and private sector.

Evidence affirms that for every 1 dollar spent on sanitation, countries can save up to 5 dollars in healthcare and lost income from tourism. By developing and implementing sanitation policies, governments will therefore build their economies and strengthen public and environmental health.

How the guidelines will help the WASH sector in Africa as it responds to COVID-19

The ASPG guidelines can help governments build the institutional strength and public trust required to tackle the COVID-19 pandemic, by developing policies, plans and budgets, leading multi-stakeholder processes, and prioritising and allocating the resources needed to meet their human rights and public health obligations. Policy clarity now will build the resilience needed to tackle future global health and climate crises.

How can the WASH sector and IRC help to implement these guidelines?

WASH sector practitioners, partners and governments should popularise these guidelines far and wide, use them, adapt them, pilot them, and suggest improvements. In addition, IRC could create WASH academy learning modules from them.

Process of developing these guidelines, virtually

After the country consultations, the drafting team engaged twice face-to-face before lockdown and conceptualised the ASPG. The structure of the different sections and of the overall document went through many iterations, as this kind of work does. From there they worked on different sections and commented on each other’s work. The ASPG went through 5 or 6 rounds of detailed comment and review with different stakeholder groups because the drafters felt that the more sector stakeholders at all levels engaged with the material, the more ownership they would have, and the better the product would be. All five drafters discussed each comment in the entire document, online, together, in each of these reviews. The drafter leading a particular section got to make the call on how to address the comment and feedback and everyone kept track in an Excel document. Dr Amaka Godfrey, as the Lead Consultant, managed an extremely thorough and rigorous process. We had excellent editorial assistance from IRC board member Clarissa Brocklehurst. Finally, each drafter reviewed the entire Guideline. It took years, a lot of updated project plans, and at least one budget revision!

Additional information is available in the useful links and resources below.

Interview by Vera van der Grift and review by Cor Dietvorst and Tettje van Daalen

The African Sanitation Policy Guidelines will be of great value to Ethiopia as the country currently does not have an official policy.

IRC WASH Ethiopia staff recently attended the launching of the African Sanitation Policy Guidelines (ASPG) by the African Ministers' Council on Water (AMCOW). According to AMCOW, “the ASPG… are designed to provide guidance to African governments on the review, revision, and development of sanitation policies and strategies for their implementation.” IRC WASH Ethiopia has supported the development process at the invitation of the Ministry of Health, attending and providing input at a stakeholder consultation meeting and participating in a virtual consultation on the document.

The guidelines will be valuable to Ethiopia as the country does not currently have an official sanitation policy. It is hoped that these guidelines will be an entry point for developing a national framework, help improve coordination nationally, better track progress, and allow for comparisons regionally. Overall, progress in sanitation has not been as successful as water and it is hoped these guidelines refocus and re-energise stakeholders to engage in improving sanitation in Ethiopia.

IRC WASH Ethiopia looks forward to engaging with the Ministry of Health, Ministry of Water, Irrigation, and Energy and other local partners to build upon the momentum these guidelines provide and give sanitation the attention it deserves. IRC WASH can also capitalise by continuing to advocate for sanitation financing, private sector engagement (with particular emphasis on women entrepreneurs), and taxation related to sanitation products. 

Involvement of IRC Ethiopia

• Invited to participate by the Ministry of Health. The Ministry facilitated the stakeholder meeting. IRC WASH Ethiopia participated and provided input.
• IRC WASH Ethiopia participated in discussion in online forums.
• Issues have been raised in Africa sub meetings in which IRC staff and associates participated.
• The launch of the guidelines was attended by IRC staff.
• IRC WASH is active in AMCOW (secretariat under the African Union responsible for sanitation) (in AfriSan meetings, subcommittees).

How it impacts Ethiopia

• No sanitation policy in Ethiopia so this will help shape one.
• Long overdue to have clear policy and guidance.
• Many activities but difficult to enforce across the country.
• Demands all states to embrace and have commitment based on this framework.
• Hope to improve coordination in the country for sanitation.
• Entry point for more national frameworks, better systems, track changes through time.
• Help compare performance regionally.

How it impacts IRC WASH

• Know the gap in WASH, but sanitation is not a focus.
• Advantage – momentum and reason to engage with government on sanitation.
• Helpful to WASH actors to catalyse them to do more in sanitation.
• Achieved national target for water but not sanitation in the past, this will continue to give more focus and remotivate actors.
• Ministry of Health is mandated. Sanitation sits in different government offices, personnel, etc. No activity by government to make people aware. Awareness and priority are missing and this can help enforce standards.
• Opportunity for more partnerships.

This article is based on an interview with Michael Abera.

This manual is for planners, implementers and other stakeholders in the WASH sector working on social mobilisation and behaviour change communication activities in Ethiopia.

This annual report 2016-2020 presents the work the Watershed empowering citizens programme has done with its partners and its achievements since its initiation in 2016.

This strategy is developed to guide design and implementation of evidence based social behavior change interventions for promoting recommended WASH behaviors to create demand for products and services at household and community level for the USAID Transform WASH project in Ethiopia.

The Ethiopian Ministry of Health, in collaboration with non-governmental partners among them IRC Ethiopia, developed the National Market-Based Sanitation Implementation Guideline.

Ethiopia's Ministry of Health has, together with partners, developed a national market-based sanitation training manual to properly implement the guideline on the same topic.

This article is written by: Abireham Misganaw, Federal Ministry of Health

The implementation guideline launched during world toilet day celebration (photo by: Tsegaye Yeshiwas)

The Ethiopian Ministry of Health, in collaboration with non-governmental partners, recently developed and launched the National Market-Based Sanitation Implementation Guideline. According to Dr. Dereje Duguma, State Minister of the Ministry of Health, ‘’The guideline aims to facilitate the development of sustainable sanitation and hygiene markets whereby households have access to a broader range of quality, affordable and preferred basic sanitation and hygiene products and services from private-sector suppliers at accessible delivery outlets.’’

The guideline, the first major revision of the National Sanitation Marketing Guideline published in 2013, was launched on November 19, 2020 during World Toilet Day events. To properly implement the national market-based sanitation guideline, the ministry and its partners also developed the national market-based sanitation training manual.

Since November 19, 2020, the Ministry and the USAID Transform WASH project have been delivering a series of training sessions for trainers from 30 regional and other WASH sector organisations as part of their support for a market-based approach to sanitation. So far, a total of 114 woredas (districts) have received training (24 in the Amhara region, 13 in the Southern Nations Nationalities and Peoples region (SNNPR), 45 in the Oromia, 10 in Somali, eight in Sidama, four in the Gambela, six in Benishangul Gumuz, and four in Dire Dawa municipality).

86 districts that received training were awarded 151,500 birr to build sanitation centres. Previously, as part of on-going support for market-based sanitation, an additional 50 districts received financial support for market-based sanitation.  48 of them trained young entrepreneurs, provided working sites, and launched 65 sanitation marketing centres.

The Ministry of Health is planning to strengthen market-based sanitation by:

• reinforcing market-based sanitation training;
• strengthening sanitation market centres;
• advocating and working with financial institutions to provide sanitation services for low- and middle-income households;
• providing a subsidy protocol for poor households;
• developing a sanitation, hygiene, and environmental health policy; and
• conducting a study on approaches of sanitation and hygiene practice.

In the second Health Sector Transformation Plan, the Ministry of Health aims to increase the proportion of households with access to basic sanitation services from 20% in 2019 to 60% in 2025, through market-based hygiene, sanitation and environmental health facilities and an inclusive market-based approach.

Pourquoi avons-nous besoin de renforcer les systèmes WASH ?

L'accès à l'eau, à l'assainissement et à l'hygiène constitue le fondement même d'une vie saine et digne. Il est essentiel pour améliorer la santé, l'éducation et les moyens de subsistance. Pourtant, dans le monde, 2,1 milliards de personnes n'ont pas accès à l'eau potable et 4,5 milliards de personnes n'ont pas accès à l'assainissement.

Pour garantir la pérennité des services WASH, il faut une réflexion globale et la mise en place de systèmes solides. Désormais, grâce aux cours en ligne gratuits de la WASH Systems Academy, chacun peut apprendre les bases de la fourniture de services d'eau et d'assainissement résilients et prendre part au changement nécessaire pour ne laisser personne de côté. Construisons ensemble des systèmes WASH solides.

Renforcement des systèmes WASH : les bases

Vous voulez tout savoir sur le renforcement des systèmes WASH ? Rejoignez le cours gratuit "Renforcement des systèmes WASH : les bases".

La WASH Systems Academy est une plateforme interactive développée pour aider les professionnels du secteur WASH à appliquer une approche de renforcement des systèmes WASH. Si vous êtes en début de carrière ou si vous êtes un expert senior du secteur WASH qui souhaite comprendre ce qu'est une approche de renforcement des systèmes et comment vous pouvez l'intégrer dans votre travail, ce cours en ligne gratuit est fait pour vous. Les systèmes WASH forts ne peuvent être construits qu'ensemble.

Voici comment créer votre compte

Objectifs du cours

Ce cours couvre les concepts de base du renforcement des systèmes WASH. Il s'agit de comprendre comment parvenir à une prestation de services WASH durable pour tous et comment fonctionner efficacement dans ce processus. Il vous aidera à comprendre l'approche du renforcement des systèmes WASH :

• ce qu'il est
• comment et pourquoi il a été développé
• comment commencer à l'appliquer.

Chaque session a des objectifs d'apprentissage spécifiques qui sont décrits au début. A la fin du cours, vous aurez une bonne compréhension de l'approche de renforcement des systèmes WASH.

Aperçu des sessions

Le contenu de cette formation couvre les concepts de base du renforcement des systèmes WASH et est divisé en neuf sessions. La formation dure au minimum 16 heures et vous avez trois mois pour la terminer.

Après un an, l'accès au cours ne sera plus disponible.

Il est recommandé de suivre le cours en suivant toutes les sessions, dans l'ordre (par exemple, de la session 1 à la session 9). En cours de route, vous pourrez tester votre compréhension dans les trois tests à choix multiples et les deux quiz.

Le contenu du cours est le suivant :

• Session 1 : Présentation de la WASH Systems Academy.
• Session 2 : Des pompes cassées aux systèmes durables
• Session 3 : Qu'est-ce que le renforcement des systèmes WASH ?
• Session 4 : WASH est un service
• Session 5 : Renforcement des systèmes d'assainissement
• Session 6 : Promotion de l'hygiène pour le renforcement des systèmes WASH
• Session 7 : Renforcement des systèmes WASH à l'extérieur de la maison
• Session 8 : Ne laisser personne de côté
• Session 9 : La feuille de route pour des services WASH durables

Travailler hors ligne

Vous pouvez télécharger les textes complets des sessions, y compris tous les exercices, via l'onglet ressources du cours. Cela vous permet de suivre une partie du cours hors ligne.

Cependant, vous devrez vous connecter à la plate-forme en ligne pour participer aux discussions du forum, télécharger les documents que vous créez et répondre aux tests à choix multiples et aux quiz.

Le certificat

Si vous réalisez toutes les activités de toutes les sessions et obtenez une note de 80 % ou plus aux trois tests à choix multiples et aux deux quiz, vous pouvez télécharger un certificat numérique de réussite à ajouter à votre profil LinkedIn ou Facebook.

Votre certificat indiquera votre note de cours ainsi que le nom figurant dans votre profil, la date d'achèvement et un code de vérification.

Guidance for African governments and other stakeholders on the review, revision, and development of sanitation policies and associated implementation strategies.

Inspirational stories about how ordinary women in India and Kenya have converted the challenges posed by COVID-19 into an opportunity to promote good hygiene practices.

Taxes and tariffs imposed on sanitation products significantly increase the cost of the product and affects affordability.

SATO pans for sale in Amhara Region, Wore Illu Woreda - Photo by: Tsegaye Yeshiwas

In a series of posts, we will present the main challenges that businesses face when expanding their range of WASH products and services in Ethiopia. We will also highlight a set of recommended regulatory and policy actions to overcome these challenges. This is the fourth out of eight posts. It covers challenges related to taxes and tariffs for sanitation products and services.

According to the UNICEF/WHO Joint Monitoring Programme, only seven percent of Ethiopians have access to basic sanitation services (JMP, 2019). Achieving universal access to basic WASH services in the country requires further development of the country’s private sector. The Government of Ethiopia recognises the importance of the private sector in generating demand and creating access to materials and services for construction of improved latrines and leads market-based sanitation efforts (FMoH, 2016). However, the current market for WASH products and services meets only a fraction of the country-wide need. To gain more insight, the USAID Transform WASH team talked to more than twenty key informants (business owners and government officials) in Ethiopia and the East Africa region to identify the main challenges facing WASH market development in Ethiopia.

To learn more, follow this link to the full Learning Note.

Overview of tariffs and taxes

One of the primary challenges that businesses face in Ethiopia is taxation, which significantly increases the cost of goods to customers, particularly for imports (sum of taxation can be up to 50% of the retail price). To promote domestic manufacturing, the Ethiopian government follows an “import substitution” model, using import tariffs (duties) to raise the cost of imported finished goods and selectively reducing duties on imports of raw materials used to manufacture goods domestically. In the price-sensitive WASH market, relatively low demand can prevent businesses from achieving profitability when introducing or expanding a WASH product and service portfolio. As both imports and domestically produced products are key components of building any nascent market, current levels of taxation should be considered a major impediment to market growth.

Goods imported into Ethiopia are subject to up to five different types of tariffs and taxes, including customs duties, value added tax (VAT), surtax, excise tax, and withholding tax – all of which generally are added into the retail sales price paid by consumers.

• Customs duties are applied to imported goods and can range from zero to 35 percent, depending on how government classifies the item as a raw material which will be further developed locally or a finished product to be sold directly.
• Excise tax is typically levied on items considered “luxuries” (e.g., perfumes) or goods that are hazardous to health (tobacco products and alcoholic beverages).
• Value added tax (VAT) of 15 percent is levied on imported goods, as well as on all domestic sales transactions where products are sold and change hands.
• Surtax is a flat 10 percent fee used to raise additional revenue on certain products. It is based upon the sum of customs value, customs duty, excise tax, and VAT. Some products have been exempted from surtax, including fertilizer and petroleum (Kebede, 2019).
• Withholding tax is applied to all purchases (3% for imported goods and 2% for domestic goods).

Tariff and tax relief and reform

An example of how taxes and tariffs affect the sanitation sector is provided by the SATO pan, a low-cost toilet improvement option, which is currently imported into Ethiopia at a cost of 152 ETB from a manufacturer in Kenya. SATO pans are classified as “finished products” so they are subject to the following tariffs and taxes:

• Customs duty of 30 percent
• VAT of 15 percent
• Surtax of 10 percent
• Withholding tax of 3 percent.

With all relevant tariffs and taxes applied to this product (and no credits applied for previous VAT payments) as well as profit margins, the pan’s consumer price more than doubles from around 200 ETB to nearly 500 ETB full retail price (Kebede, 2019). This poses a significant challenge to SATO retailers – the tax-induced price increases make the product difficult to sell, particularly to lower income customers.

In the interest of keeping the price of SATO pans as low as possible and help establish them as a new market entry in Ethiopia, the government has permitted the first few rounds of bulk imports to be exempted from customs duties; however, a long-term solution is not yet in place.

The government is presently engaged with interested parties in proposals to reduce or eliminate customs duties and taxes on a range of WASH products, such as low-cost sanitation items, menstrual pads, and household water treatment products. In early 2021, Ethiopia recognised menstrual hygiene management products as essential items and reduced custom duties from 30 percent to 10 percent (MoFEC, 2021).

A long-term solution to the tariff and tax issues on WASH products will require that the Ethiopian Revenues and Customs Authority and the Ministry of Finance get involved to re-classify certain products as “priority” items or take other relevant steps to help keep the cost of these products as low as possible.

The VAT is an especially challenging tax due to its outsized importance for government revenue and complicated administrative implementation. It accounts for 41 percent of total federal domestic revenue and thus is a very important income source for the government and is applied on imports and all subsequent product sales transactions. In principle, it should be possible to deduct VAT charges paid in previous transactions throughout the value chain. However, in practice this procedure, which requires accurate accounting and reporting, is not always possible.

Some outlets and retailers may be exempt from charging VAT (e.g. when annual turnover is less than 1,000,000 ETB), and instead pay a turnover tax (similar to a sales tax) of two to 10 percent.

Although there are procedures for adjusting VAT payments based on prior amounts paid, it is likely many businesses do not follow these procedures due to a lack of understanding of how the process works (Kebede, 2019). The consumer ultimately covers the cost of VAT and all other applied taxes.

Recommendations

Steep import tariffs and a range of domestic taxes can greatly increase the cost of sanitation and other critical WASH products. This lowers overall demand and places additional economic burdens on poor households. We recommend the following actions:

• Complete ongoing research to understand the effects of lowering tariffs and taxes on sanitation products, including influence on consumer demand and government revenues.
• Review and revise the classification of imported WASH products to ensure critical items can be readily imported.
• Review and revise import tariff and domestic tax rates and policies to ensure critical WASH products are as affordable as possible to households.
• Provide training on VAT to raise awareness on accounting and reporting processes among stakeholders.

This document provides guidance, available tools, and case studies from Agenda for Change members on district-level planning for sustainable sanitation services.

Some business owners and government officials have doubts regarding whether current intellectual property rights are adequately protected or enforced once granted.

The USAID Transform WASH team interviewed more than twenty key informants, business owners and government officials, in Ethiopia and the East Africa region to identify the main challenges facing WASH market development in Ethiopia. Based on the findings of this study, this is the third of a series of eight articles that explore the primary challenges that businesses face introducing or expanding their range of WASH products and services in the country. We will also highlight a set of recommended regulatory and policy actions to overcome these challenges. This post covers challenges related to protection of intellectual property rights, a significant area of concern among the key informants. 

According to the UNICEF/WHO Joint Monitoring Programme, only about seven percent of Ethiopians have access to basic sanitation services, and more than one-fifth of the population practices open defecation (JMP, 2019). Achieving universal, sustainable access to basic WASH services in Ethiopia will require expanded involvement and development of the country’s private sector. The Government of Ethiopia recognizes the importance of the private sector at all levels  and leads a country-wide effort to strengthen businesses that offer WASH products and services. The Ministry of Health recently updated its market-based sanitation strategy, which aims to generate demand and expand access to supply of basic sanitation and related products.

To learn more, follow this link to the Learning Note.

Intellectual property (IP) rights are granted to persons or companies for creating a unique design, invention, process, or work of art or music. IP rights are awarded through a legal process and generally give the owner exclusive rights to use their creation for a specified period of time. Patents, copyrights, and trademarks are examples of legal mechanisms that codify IP rights.

If business owners do not earn recognition or financial benefit from what they invent, they will feel unprotected, discouraged and may even decline to work in the business. Putting in place robust intellectual property rights fosters an environment in which innovation and productivity can flourish. Therefore, intellectual property rights are fundamental to business investment and growth. According to many stakeholders in Ethiopia, intellectual property regulations needs reconsideration to ensure adequate protections for inventors and businesses. Foreign investors feel the annual intellectual property right renewal process as a risk. In joint ventures the local partner is also obtaining the patent right, some foreign business owners are questionable that it will risk their intellectual property protection. There is also uncertainty about the adequate protection or enforcement of intellectual property rights once granted.

Ethiopia's intellectual property rights and protection

IP rights for industrial designs enable companies to earn recognition and/or benefit financially from their inventions or creations. The Ethiopian Intellectual Property Office registers intellectual property protections under the Patent Act. (Proclamation Concerning Inventions, Minor Inventions, Industrial Design No. 123/1995).

Two types of IP protection are most common with respect to WASH products:

• Patent of Invention: This patent applies to the first registration of a piece of intellectual property invented in Ethiopia or for IP that is registered in Ethiopia within 12 months from successful first registration in another country. A patent of invention is granted an initial period of protection of 15 years and can be extended for another five years.
• Patent of Introduction: This is used for protected inventions from abroad that will be introduced to Ethiopia. A patent of introduction is valid for a maximum of 10 years. However, patent owners must file to extend this protection every year - after the third year - and pay relevant maintenance fees. For some patent owners, the annual renewal process may be perceived as a risk and threat to their IP protection. For example, in the United States, depending on the patent, protection is granted for 14 to 20 years (with periodic fees) (STOPfakes.gov, 2016).

Most locally registered businesses interviewed for this study found the application process for patents to be relatively easy and straightforward. The application process requires a certificate of incorporation, suggesting it is advantageous to be a locally registered business or joint venture (a foreign business with a local counterpart).

For a joint venture, the local partner also acquires patent rights. Some patent owners have said the risks of this increase to their IP protection.

There also were concerns raised by respondents regarding whether current IP rights are adequately protected or enforced once granted. Businesses that have invested extensively in design innovations and their “brand” need to be able to protect those designs and brand names and will continue to rely upon patents and royalty payments to maintain their ability to operate competitively in the market.

Use of patents in licensed production

Licensed production is the authorized production (in Ethiopia) of a product using technology developed elsewhere. This involves obtaining permission from a company (licensor) to manufacture and sell its products. The company in Ethiopia that obtains these rights (the licensee) usually agrees to pay royalty fees to the owner or licensor (Haile, 2018).

For example, a plastics manufacturer established licensed manufacturing and distribution contracts with local manufacturers in the East Africa region, including in Kenya and Tanzania. IP rights (patent protection) played a crucial role by protecting the licensor’s technology, and they also gave the licensee (local manufacturer) a market advantage.

In Ethiopia, the same company experienced challenges licensing a local manufacturing company for production of their sanitation product. If a licensor does not have a valid Ethiopian manufacturing license, Ethiopian law does not permit the licensor to import and own a mold. Injection molds are the main capital investment required to start manufacturing plastic products. Therefore, a manufacturing licensee would purchase and import the mold and would then fully own the intellectual property. Such a transaction would be permanent; in effect, it would not allow the licensor subsequently to change the local manufacturer by giving the mold to a new licensee, if they felt that this was required. This limits flexibility among participants of the market and generally leads to increased costs of doing business, which are passed on to the consumer.

These licensing challenges could be avoided if an enterprise could obtain an Ethiopian manufacturing license. Other options include establishing a joint venture with a local manufacturing company, possibly with specific contractual arrangements between the licensor and licensee, to mitigate the risks discussed above. However, the financial and administrative hurdles associated with these approaches may be perceived as deterrents by potential investors, adding to the risk factors that inhibit companies from exploring local manufacturing of new WASH products in Ethiopia.

Recommendations

Stronger IP protection, as well as longer protection periods, could help encourage certain investors to introduce and/or invent new WASH products and services in Ethiopia. This type of reform also would encourage local manufacturing of essential WASH products.  USAID Transform WASH recommends:

•  A review of trademark and patent protection systems and implementation of any needed reforms to ensure they are competitive both regionally and globally. Reforms might include issuing multi-year protections, ensuring joint-venture partners can retain certain IP protections, lengthening overall protection periods, and adequately enforcing current laws.
• A review (and reform, if needed) of importation policies for manufacturing equipment to simplify licensed production of WASH products in Ethiop