Debt-for-water swap: a first in Sudanby Cole P. DodgeUNICEF has advocated economic adjustmentwith growth through three recently publishedbooks: Adjustment with a Human Face, WithinHuman Reach: A Future for Africa's Children andthe 1989 State of the World's Children Report.UNICEF combines advocacy with practice,although in the case of indebtedness this hasbeen difficult. In December, 1988, the MidlandBank announced a debt-for-development swapin Sudan to finance a UNICEF water andenvironmental sanitation project.

While there is a global trendtowards debt forgiveness betweencountries and multilateral debtreschedulement is covered underIMF adjustment packages, it is thecommercial debt which is mostworrying and problematic. Thebanking institutions of the worldhold these bad loans with little orno way realistically to make goodon their investment. Consequently,a secondary market has developedwhere loans which are in default aretraded at a discounted value rangingfrom as little as 2 to 5 per cent upto 70 or 80 per cent depending onthe economic prognosis of theparticular country. In the case ofSudan the secondary market valueof commercial debt is estimated to

ZAIRE

N 0

- NatlOOal boundary. • • . • .. Regional boundary

--- Railway••••• - Paved road.......-v- RivertlOOOC> RoJte of Jonglet Canal

Map of Sudan showing project area circled.

institutions, one-quarter to Westerngovernments and one-quarter toArab and OPEC plus other non-Western donors.

Cole P. Dodge has recently left UNICEF'sSudan Country office. His new address isUNICEF, 3 United Nations Plaza, NewYork, New York 10017, USA.

WATER AND environmentalsanitation have been the mainstayof the UNICEF programme inSudan since the mid-1970s. It hasnot been until recently, however,that drilling and handpumpinstallation targets have been metdespite large investment, provisionof technical assistance and theintroduction of hammer drilling rigs(see Figure 1 for a comparisonbetween targets and achievementsin Kordofan region). The dramaticsuccess represented by newboreholes overtaking andsurpassing targets in 1988 wasachieved through improvedmanagement by the National RuralWater Corporation (NRWC) whichincluded the introduction ofproduction bonuses. Forbackground on production bonuses,see 'Drilling and pump replacementincentives in Uganda', Waterlines,Vol 5, No 2, 1986.Economic conditions in Sudan

have declined throughout 1987 and1988, in part due to the cripplingdebt burden which the countrybears. The drilling programme,however, has had its best year ever.Sudan's foreign debt has risen fromapproximately US$300 million inthe early 1970s to over $1.3 billionin 1988. The interest paymentsalone have been too high to meet,and thus the burden goes ongrowing, even without any newloans being made. The structure ofSudan's debt reflects the generalsituation in Africa. About one-fifthof the total loan is commercial,one-quarter is owed to multilateral

WATERLINES VOL.8 NO.1 JULY 1989 5

TARGET1-_•..---1

Success factorsIt must be recognized that thesuccess of this project is a majorfactor which gave UNICEF and theNRWC confidence to proceed andlater convince the Ministry ofFinance and Planning and the Bankof Sudan, as well as the PrimeMinister, that the project wassuccessful and worthy of furtherinvestment. While water andsanitation projects are popular,nonetheless, overall, the Water andSanitation Decade (1980s) hasfailed. Therefore, it is important torecognize the factors whichcontribute to increased water andsanitation performance in Sudansupported by UNICEF.Two of the most important

factors are production bonuses toincrease NRWC work output, and

1,695

2,476 ACTUAL

by the debt burden, shortage offoreign exhange and recurrentcosts. In this case UNICEF providesthe foreign exchange component forwater and sanitation while theMidland swap generates new localcurrency.But the biggest winners in the

debt for development swap are therural people who benefit fromimproved water and sanitation. Thefunds used are truly additional toexisting government or UNICEFresources. The project itself will beimplemented in record time, inearly 1989. Five thousand residentsof rural Kordofan will benefit from:o Twenty-five Hyati (India Mark

11) handpumps, including toolsfor maintenance.

o Two hundred VIP latrines.o Ten village seedling nurseries,

which will receive water from thehandpump run-off.

o Ten village wood lots will beplanted.

o Ten village health committeeswill be formed to strengthencommunity participation in theproject.

1.500

1,000

3,000

o

2.500

500

80 81 82 83 85 86 87 88 YEAR

Figure 1. Total successful boreholes, Kordofan region, Sudan.

2.000

On the other hand it was not easyto secure government approval forthe scheme, given the recentonslaught of non-governmentorganization, environmental andbusiness proposals for swaps whichthey had already received.Therefore, a successful drillingprogramme which not only met butexceeded agreed targets would beattractive to the government. Otherfactors which helped in the processof persuasion were UNICEFadvocacy in not only the threebooks cited above, but also throughconferences and press statements;endorsement by the IMF and WorldBank of growth-orientedadjustment; UNICEF's legalposition as an offical UN agency;and finally the unique UNICEFNational Committee network. TheUK Committee for UNICEF is aregistered charity and was veryactive in approaching, encouraging,negotiating and finalizing theMidland deal.The benefits to Midland Bank for

making the swap are straight-forward. First, carrying bad debtson its books year after year withlittle or no prospect of repaymentis a burden. Secondly, swappingtheir loan for development throughUNICEF is good: intrinsically goodas the proceeds contribute to thedevelopment process, and good forpublic relations.The benefits to Sudan are equally

transparent. First, their debtburden is reduced, and secondly,they pay only in local currency. Thedebt burden of Africa is more aresult of a shortage of foreignexchange than local currency. Thisproblem is quickly recognized whenthe annual balance of payments isanalysed. In the case of Sudan,income from exports amounts toonly about $600 million annuallywhile the import bill is around$1,350 million. Equally theavailability of funds for a nationalpriority such as water is hampered

These seedlings will be irrigatedusing the run-off water.

range between 2 and 5 per centalthough the actual sale of debt hasbeen rare because of poor anddeclining economic prospectsresulting from the costly civil warin the South and unfavourableeconomic policies which continuethe stagnation of themanufacturing, agriculture andbusiness sectors.

Debt-for-water swapAgainst the background ofworsening economic conditions andindebtedness on the economic frontand dramatically improved drillingperformance in the water sector,UNICEF saw scope for innovation.Both factors contributedsignificantly to making the swappossible as UNICEF had toconvince both the government ofSudan and a commercial bank onthe merits of the swap. If theeconomy of Sudan had been on themend then commercial banks wouldhave been less inclined to donatetheir debt, preferring to hold out forrepayment or sale on the secondarymarket. Likewise the fact that thedrilling programme had decisivelyimproved performance, reducedcosts per borehole and increasedefficiency was another majorattraction for the bank authoritiessince they were assured that theirdonation would be put to good use(see Figure 2 for cost and efficiencycomparisons).

6 WATERLINES VOL.8 NO .1 JULY 1989

1976-7 78-9 80-1

Figure 2. Cost per successful borehole.

community ownership of thehandpumps (formerly the pumpsremained government property,and consequently, maintenance wasinadequate). Communityownership of handpumps leadsmore truly to community-basedmaintenance and repair.A third factor designed to assure

long-term project success issufficient back-up handpumpcapacity to aIlow for handpumpdown time commensurate with therealities of rural Sudan. NRWCdrills and installs more handpumpsthan are technically required withinwalking distance of each other to

Other benefitsHandpump run-off water is used toirrigate small tree nurseries. Thewomen in Kordofan have twoprincipal needs: the first is potable

required for moving the rig fromone site to another and payment ofproduction bonuses.This back-up capacity is very

important. UNICEF's experienceover the past decade indicates thatwhen handpumps are spread toothinly (in response to either politicalpressure to provide water to a largenumber of communities or from thetechnical desire to install exactly theratio of pumps to population withthe goal of providing potable waterto as many people as possible) thehandpump has a greater risk ofbeing discredited. Women growfrustrated if the queue is too longat the handpump, or if the pumpbreaks or is down for normalmaintenance and repair, or if itbreaks from constant use. NRWCnow installs enough pumps in closeproximity to provide back-upcapacity and concentrates itsdrilling efforts to saturate a givenarea. The result: users are happyand the pumps are popular.

82-3 84-5 86-7 88

guarantee an uninterrupted supplyof borehole water - even if asignificant number of thehandpumps are out of action atonce. The NWRC policy ensuresthat there is always a back-up pumpnearby. This allows the communityto place their confidence in thepump. In practice, this means neversinking less than two boreholes inany community, even if it has fewerthan 200 people, and drilling moreboreholes than the prescribed onepump per 200 people. But this isaccomplished quickly andefficiently with new high-speeddrilling equipment, minimal time

o

8,000

10.000

2.000

4,000

6,000

WATERLINES VOL.8 NO.1 JULY 1989 7

1985 1986 1987Figure 3. Latrine construction numbers.

water, and the second is firewood.Kordofan experienced a drought in1984-5 and deforestation iswidespread in the northern part ofthe region. Tree nursery seedlingswill be replanted on to communitywood lots cared for by women.While this aspect of the project isstill very recent, we feel it isimportant given the twin objectivesof both improving the supply of safewater, and reducing the timewomen spend collecting it. If ahand pump saves time which is thentaken up by walking further andfurther to collect firewood in adeteriorating environment then noreal gain would have been made.The sanitation component of the

project will see the construction ofventilated improved pit (VIP)latrines in each extended familycompound. Figure 3 illustrates theincrease in latrine constructionwhich has been accomplishedthrough payment of a smallproduction bonus to governmentextension workers; replacement ofexpatriot staff with local Arabic-speaking professionals; experi-mentation with small cash paymentsto families who complete latrinesto encourage self-help; and the saleof subsidized slabs and vent pipes.While the formation of a village-based health committee made upequally of men and women is aprerequisite to drilling, and one oftheir tasks is to promote latrines,nonetheless the latrine componenthas lagged behind drilling untilrecently.The village health committee is

provided - through training and arichly illustrated Hyati manual -with the technical capability tomanage, maintain and repair theirpump. Subsidized tools arepurchased by the committee andspare parts sold at full cost to assureeffective cost recovery. This systemdiscourages corruption or misuse offunds, and creates accountabilitybetween the users and the NWRC

CONSALLEN[J@[J'

STRENGTH CIlDDcd1 DURABILITY

will open the floodgates for furtherswaps. In the case of Sudan, the$2,000 million in commercially helddebt could be transformed intoenough local currency (at adiscount, of course) which could becombined with a hard currency fundto meet import costs of a nationwidewater and sanitation programme.This would make possible the oldwater Decade goal of providing safewater to every village by the year2000.This innovative debt-for-water

development swap was madepossible because of the success ofthe water programme in Sudan.This success has been built on goodtechnical implementation andpractical community participationwhich have generated confidenceat all levels: from the village usersto the district and regionaladministrators right up through theranks of politicians and the topleadership of the country. UNICEFcorrectly judged the time to be rightfor new development initiativesbecause of the worsening economicsituation in Africa. Finally, MidlandBank had confidence in both theproject and in UNICEF. ~

TARGET

ACTUAL

HANDPUMPS FOR WELLS & BOREHOLESCONSALLEN GROUP SALES LTO.,

23 Oakwood Hill Industrial Estate,LOUGHTON. Essex IG10 3TZ. England.Phone: 01-508 5006 Telex: 9312130871 EN G

1267

924

1988

for the occasional majorbreakdowns. Because thecommunity owns the handpump andpays for spare parts, servicing andrepairs, they can demand theirmoney's worth and prompt servicewhenever a major repair isrequired.

ReplicabilityOverall, the 10 villages will be thereal winners in this innovative debt-for-development swap. But all theparties - Midland Bank, theGovernment of Sudan andUNICEF - hope that this example

385

924

385

924

40

924

o

200

800

400

600

1.200

1,400

1.000

8 WATERLINES VOL.8 NO.1 JULY 1989