USAID launches $65M water sector project

An Article Analysis Submitted in Partial Fulfillment of the Requirements of

the Course Public Finance (ECO 226)

Presented to Mr. Garabed Boghossian

Prepared By:

Garen Afarian

Spring 15/16

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 Table of content
I. Introduction

II. Summary

III. Analysis

IV. Opinion

V. Recommendation

VI. Conclusion

VII. References

VIII. Article

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 I. Introduction

Water is one of Lebanons most precious resources. However, Lebanon is

facing water crises merely because of the dry winter that took over the years 2013-
2014. The lack of rainfall has exposed fundamental shortfalls in the countrys
water management policies and infrastructure. Lebanons water crisis, however, is
not only the result of a dry winter season. Local scientists also warned that
Lebanons rivers are alarmingly polluted with untreated sewage and waste, posing
health risks for consumers who use the water at home and for farmers who irrigate
their crops with it. Water has always played a central role in human societies; it is a
key driver of sustainable growth and poverty alleviation as an input to almost all
production; in agriculture, industry, energy, transport, and by healthy people in
healthy ecosystems. The destructive quality of the resource in its natural,
unmanaged state is arguably unique. We therefore define water security to be the
reliable availability of an acceptable quantity and quality of water for production,
livelihoods and health. The institutions, investments and management skills
required for basic water security will differ across countries and across economic
actors. Likely, The U.S. Embassy launched a new five-year, $65 million project to
support four Lebanese regions (Beirut-Mount Lebanon, Bekaa, north and south
water companies as well as the Litany River Authority) improve access to clean
water. USAID is planning to invest in water in Lebanon to enhance the efficiency
of water usage and distribute safe and clean water across the country. The embassy
is also working on strengthening the economy by solving the water crises through
different policies in order for the Lebanese to use, drink and work with clean and
secured water. Lebanons water issues are not new, but the recent drought has
helped display the governments inability to properly manage and distribute the
countrys water resources and now its a great opportunity to Lebanon from the
USAID to improve its water system.

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II. Summary

The U.S. Embassy launched a new five-year, $65 million project Wednesday
to support four Lebanese regions improve access to clean water. Over the next
five years, USAID will work with the Energy and Water Ministry to assist the
Beirut-Mount Lebanon, Bekaa, north and south water companies as well as the
Litany River Authority. They will strive to improve access to clean, sustainable
drinking water and improve efficiency of the water utilities to improve capacity
to extract and distribute safe water. The senior adviser to the energy and water
minister, the director-generals of the five water utilities and other stakeholders
and donors in the water sector also attended the launch ceremony for the
project.

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 III. Analysis

As mentioned in the article The U.S. Embassy launched a new five-year, $65
million project to support four Lebanese regions (Beirut-Mount Lebanon, Bekaa,
north and south) improve access to clean, sustainable drinking water and improve
efficiency of the water utilities to ameliorate capacity to extract and distribute safe
water. So what are the advantages of clean water on the Lebanese society? First of
all clean water is a public good and it results a positive externality. The regions
that receive clean water benefit themselves, by reducing the probability of having
waterborne diseases such as cholera. But they also provide benefits to those who
do not benefit from this project by reducing the number of persons who will
become hosts for the disease. This, in turn, reduces the risk of outbreaks of the
waterborne diseases for the entire population including those who do not benefit
from this water project. Eventually if the waterborne diseases are controlled by this
way, the entire world population will benefit. The external benefit of receiving
clean water is the reduction in the probability that those other than the persons
having access to clean water will contract the waterborne diseases. In general,
when a positive externality exists, marginal private benefit will fall short of
marginal social benefit at each level of output.

Moreover, the reduction of waterborne diseases in the country improves the

HDI (which is a measure of economic development and economic welfare) of the
country since health is one of the three components (other than education and GNI
per capita) of HDI. Better access to clean water and water management creates
tremendous opportunity for the poor and is a progressive strategy for economic
growth. It is important to mention that this U.S. Embassy project will not only help
in having access to clean water, but also it will help to improve capacity to extract
water. This means that the availability of water in the country will increase.
Therefore, the country will be rich in natural resources and this way result to a
sustainable development. A country with rich natural resources could also attract
tourists. Tourism can provide direct jobs to the community and visitors'
expenditure generates income for the local community and can lead to the
alleviation of poverty in countries which are heavily reliant on tourism. By this
way the consumption of the country will increase and this results for the whole
GDP of the country to increase.

In addition, in the article it is mentioned that in the absence of state

distributed water, many rely on private water trucks to supply rooftop tanks. These
types of jobs are a part of the informal sector. The informal sector is characterized
by a large number of small-scale production and service activities that are

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individually or family-owned and use simple, labor-intensive technology usually
self-employed workers in this sector have less formal education, are generally
unskilled, and lack access to financial capital. As a result, worker productivity and
income tend to be lower in the informal sector than in the formal sector. Moreover,
workers in the informal sector do not enjoy the measure of protection afforded by
the formal modern sector in terms of job security, decent working conditions, and
old-age pensions. Having a large number of workers in the informal sector could
result a negative impact on a country because first of all their productivity is
excluded from the GDP. Moreover, these workers are exempted from direct taxes
imposed by the government which will affect the governments budget. Finally,
many informal-sector activities cause pollution and congestion which results a
negative externality. In our private water trucks that supply rooftop tanks case, we
heard that these trucks are sometimes distributing dirty waters to the citizens. This
could result diseases for the people using from these waters and if this disease is
spread to other people this means that a negative externality is occurred, since cost
to a third party other than the buyers and sellers is resulted. So by increasing the
availability of home water (which will happen by referring to the article) all these
disadvantages are avoided.

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 IV. Opinion

Water is an essential element in our economy, society, and lives. Access to

clean water is a basic human right that we need in order to go about our day-to-day
lives. However, a question remains about the nature and allocation of this good.
The immense value that we get from value is much greater than the price that we
pay for it. To understand how important water is and in order to propose the best
market mechanisms to efficiently allocate this precious resource, we must
understand what kind of good water is in the economy.
Water falls into the different classifications of the goods that we value,
depending on who has access to it and who consumes it:
1. Water as a Private Good: a bottle of water is considered as a private good
because its something that can be owned and that others cannot consume
once it is purchased by another. Thus, when one benefits, others lose. In this
sense water should be managed by prices and markets.
2. Water as a Club Good: a good to which everyone that pays the initial price
(price of entry) can consume without limit. Example: urban water service.
Usually the price is much lower than the cost of maintaining the system.
3. Water as a Common Pool Good: a good that is exhaustible but can be
managed sustainably, thus, withdrawals are less than the recharge flows.
Example: a bottling plant takes water from a communal water resource.
4. Water as a Public Good: everyone can enjoy it without fear that one
persons enjoyment will deny pleasure to someone else. Example: oceans
and waterfalls.
To propose an efficient and effective method of water allocation, the economy
must manage it in such a way that it fulfills its best use with the least opportunity
cost. Allocation of water depends on value, information, incentives, and market
power; i.e. turning water into wealth.
Value: its relevant when water is scarce. Since drinking water is considered a
private good in Lebanon, the economy must depend on market forces and price
that benefit both buyers and suppliers in the economy. However, its unthinkable to
raise the price of water when its scarce.
Lebanon is facing major challenges in its water shortage and control system.
With millions already invested in the Energy & Water Ministry to provide safe and
clean water to millions of people around Lebanon and to increase efficiency and
availability of the water distribution facilities. However, Lebanon still faces a
constant need of safe drinking water, especially in areas that have a large number
of refugees. This is due to the dependence of the water supply on yearly rainfall,
which has been steadily decreasing over the years. Water in Lebanon is also

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affected by agricultural, industrial, and domestic wastewater. Like pesticides and
fertilizers and chemicals released in the water respectively.
Therefore, Lebanon must focus on enhancing the water distribution systems,
using the bottled water industry as a form of revenue, and finding better
mechanisms in order to store the water to prevent any shortages in case of low
rainfalls.

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 V. Recommendations

Water and sanitation are human rights recognized by the UN General

Assembly. Its a right composed of having clean, good quality, water and access to
this water. In order to improve the current water situation in Lebanon and we
recommend the following project goals:
1. Improving the water distribution systems:
The government must transfer some of the $65 million project fund into
building a new water supply system. Its the basic infrastructure for the collection,
transmission, treatment, storage, and distribution of water throughout the country.
It typically includes water purification facilities and drainage system, a collection
point that traps untreated water, storage facilities like water towers, pumping
stations, a pipe network and a connection to the sewers.
Besides offering safe water to all of those living in Lebanon, it offers many
other benefits. Firstly, by offering clean water, it reduces the costs incurred on
health issues and illnesses from bad water hygiene on the Ministry of Health,
insurance companies, and on the individuals themselves. It also reduces the
number of days lost from work, school, or other productive ventures.
2. Make use of the bottled water industry:
The bottled water industry would have many positive effects on the Lebanese
economy. First, companies that manufacture and distribute bottled water employ
thousands of people and paying them wages that they spend on consumption and
saving.
Second, the bottle water industry is growing at a rate of 8-10% yearly.
Lebanon can benefit off this sector by exporting bottled water to neighboring
countries, especially the Gulf countries. Third, it would enhance Lebanons
industry sector.
3. Better storage of water:
There are numerous methods of storing natural water from rainfall for later use.
This is done to increase the volume of water available and to decrease the amounts
wasted. Some methods use aquifers, soil water, artificial ponds, tanks, and
reservoirs behind dams.
Man-made ponds can act as storage areas to be filled with rainwater. These
are beneficial to farmers. Where as dams are mostly used to store water; they help
protect a country from drought and floods. While another helpful method is the use
of underground water storage tanks. They can be used to harvest the rainwater that
Lebanon experiences. Because theyre installed underground, the tanks dont take
landscape space.

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 VI. Conclusion

It can be seen that the project established by the USAID is incurring many
benefits for the Lebanese society. Economically speaking, by securing the water it
is enhancing both economic growth and development for the country. However,
health being one of HDIs components, access to clean water will prevent the risk
of waterborne diseases. Thus, clean water results as a positive externality. To
understand the most effective method of allocating and distributing water, it has to
been seen in light of the different classifications of water as a private good, club
good, consumer pool good or as a public good. By investing in the water
distribution systems, finding better mechanisms to store water to prevent shortages,
and by utilizing the abundance of water to invest in the bottled water industry;
Lebanon has a very good chance of making good use of the money invested by the
USAID.

VII. References
- http://www.dailystar.com.lb/News/Lebanon-News/2016/Mar-24/343820-
usaid-launches-65m-water-sector-project.ashx
- http://growingblue.com/blog/solutions/water-energy-and-the-economy/
- http://growingblue.com/blog/economics/how-we-should-manage-water-but-
sometimes-dont/
- http://growingblue.com/blog/economics/the-value-of-water-versus-the-price-
we-pay/
- http://www.unep.org/dewa/westasia/Assessments/national_SOEs/west%20as
ia/Lebanon/Chap8Water.pdf
- file:///Users/apple/Downloads/9.WASHUNHCRMonthlyUpdate-
March2014.pdf
- http://www.dailystar.com.lb/News/Lebanon-News/2016/Jan-02/329948-
hundreds-of-drinking-water-companies-to-be-shut-lebanon-health-
ministry.ashx
- http://www.worldbank.org/en/news/feature/2013/12/23/water-in-lebanon-
matching-myth-with-reality
- http://www.who.int/water_sanitation_health/wsh0404summary/en/
- http://www.tanksdirect.com/blog/the-many-benefits-of-underground-water-
storage-tanks/
- http://www.bottledwater.org/economics/bottled-water-matters
- http://www.sbdcnet.org/small-business-research-reports/bottled-water-
industry

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 VIII. Article

The Daily Star

BEIRUT: The U.S. Embassy launched a new five-year, $65 million project
Wednesday to support four Lebanese regions improve access to clean water.

Water is a vital factor in the health and strength of any economy. This is why we
believe that investing in water is more than just the right thing to do; its the smart
thing to do, said U.S. Charg dAffaires and interim Ambassador Richard H.
Jones at the launch ceremony for the scheme.

Over the next five years, USAID will work with the Energy and Water Ministry to
assist the Beirut-Mount Lebanon, Bekaa, north and south water companies as well
as the Litani River Authority. They will strive to improve access to clean,
sustainable drinking water and improve efficiency of the water utilities to improve
capacity to extract and distribute safe water.

The senior adviser to the energy and water minister, the director-generals of the
five water utilities and other stakeholders and donors in the water sector also
attended the launch ceremony for the project.

The latest undertaking is just the most recent in a long string of water related
schemes that date back to the 1950s and 60s. In the mid-20th century, USAID built
irrigation canal networks along the Litani River, in the Bekaa Valley, and helped
build the Qaraoun Dam in the Bekaa.

Since the early 2000s, the government of the U.S. has invested over $180 million
in the water sector of Lebanon through USAID projects. They estimate that these
have improved access to safe, clean water for 2 million people in Lebanon.

The development initiatives have also increased the efficiency and pumping hours
of water facilities, increasing the availability for homes and improving the quality
and safety of the water distributed.

Water in Lebanon is an issue as shortages are common supply remains highly

dependent on annual rainfall.

This is despite the country having better water resources than many of its
neighbors with abundant aquifers, springs and groundwater.

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Poor investment in infrastructure over decades has left a patchy, outdated pumping
and distribution network that wastes a huge amount of water a year.

With less than half the average annual rainfall, 2014 was a particularly dry year.
This led to widespread drought and water shortage across the country.

In the absence of state distributed water, many rely on private water trucks to
supply rooftop tanks. However, this option is often expensive and is a costly
undertaking for many to maintain over a long period of time.

The Syrian crisis has also placed the already stretched water network under
increased pressure following the influx of more than a million refugees.

A version of this article appeared in the print edition of The Daily Star on March 24, 2016, on page 3.

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