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126 Diagnosing Corruption in Ethiopia
Water supply and sanitation services in developing countries have a
number of characteristics that make them appear highly prone to corruption,
including the following:
• Monopolistic public service providers are associated with weak regulation;
when public services fail, they are supplemented by informal, often
illegal, private services, which distort sector pricing.
• Large flows of public money (high-cost assets) and uncoordinated donor
contributions may be subject to few of the controls that would be
expected in private financing. Furthermore, the sector rarely achieves
full cost recovery, depends on government subsidies, and sector financing
often fails to achieve its financial objectives.
• Complexity of stakeholders’ relationships and no clear institutional
leadership result in a lack of clarity of rules, regulations, roles, and
responsibilities.
• Asymmetry of information on sector policies and procedures means there
is little shared understanding of how systems work, who does what, and
what the costs of water services are or should be.
• Little accountability in user-provider relationships means that, at best,
most systems use “the long route to accountability,” in which governments
mediate between consumers and providers.
Many of the fundamental issues—such as low capacity, low wages,
dysfunctional institutions, and large-scale procurement—are common to
public service delivery. The water and sanitation sector is also part of the
construction sector, globally thought to be the most corrupt of all sectors
(TI 2005).
Water Sector Corruption Costs
What does water corruption cost? There is no clear answer. Hypotheses
on the scope and incidence of corruption in the water and sanitation
sector are largely untested, and the range appears large. An order of
magnitude has been estimated at as much as 30–40 percent in “highly
corrupt” countries; a path-breaking study in South Asia estimated
25–30 percent (Davis 2004). In the urban sector, if water utilities were
operating in corruption-free environments, costs could be reduced by an
estimated 64 percent (Estache and Kouassi 2002). If the 30 percent estimate
is correct and water investment matches Millennium Development
Goal (MDG) needs, 2 up to US$20 billion could be lost to corruption in
the next decade.