opportunities for private environmental investment

Many poor countries in Asia count on agriculture, fisheries, forestry, or mining. But maintaining, increasing, or supplementing these sources of livelihood is conditional on sustainable management of natural resources and the environment. As these countries industrialize—and as their populations increase and concentrate in urban settlements—it is becoming urgent to balance the economic, social, and environmental benefits they derive from natural systems. Too often, the challenge of maintaining environmental integrity is placed squarely in the lap of the public sector. However, in industrialized countries, the private sector plays an ever more significant role in the provision of environmental goods and services. There, experience shows that such services can be provided in various ways, on a variety of scales, and at varying levels of waste, efficiency, and environmental impacts. That know-how can be transferred to developing countries where the markets for environmental goods and services, though small, will expand rapidly. There, demand for private environmental investment will be driven by the ever-increasing severity of environmental problems, rising awareness of such problems, growing support for better environmental stewardship, and international pressure on countries to harmonize and enforce environmental laws and regulations. It will be led by buyer groups such as central governments, state governments, local authorities, parastatal enterprises, private sector manufacturing concerns, developers, and individual consumers. Where are the Markets? That future is not distant. Already, opportunities for private environmental investment exist in: Water. The most promising market for environmental goods and services is in the water sector (where the need for potable water supplies and wastewater treatment facilities is often critical). Asia's rivers are far more polluted than the rest of the world's: typically, they have four times the world average of suspended solids. Good prospects exist in municipal and industrial water treatment, distribution and disposal, water conservation and recycling, and consulting and monitoring. Air. Air pollution in Asian cities is among the worst in the world: major sources of air pollution include vehicular exhaust gases and industrial emissions. Here, efforts to improve air quality will generate opportunities in emission control equipment for industry, clean energy technology and associated energy substitution, public transport, catalytic converters, vehicular emission filters, gas combustion systems, natural gas distribution infrastructure, solar power equipment, vehicle inspection, as well as consulting and monitoring. Waste. Economic progress and industrialization coupled with urbanization and population growth have aggravated urban sanitation throughout Asia. On average, municipal authorities there spend 50-70 percent of their revenues on managing solid and hazardous waste. Yet collection services remain low, with only 50-70 percent of residents receiving any service. Of even greater concern are the growing quantities of hazardous toxic wastes that hospitals and industrial and commercial establishments generate; about 60-65 percent are placed in dumpsites or landfills and 5-10 percent are dumped in water bodies; the rest is incinerated or chemically treated. Most of the time, environmental safeguards are absent or largely ineffective. Particularly in metropolitan areas, business can be done in waste collection equipment, waste sorting and recycling, waste treatment equipment and installations, and hazardous waste treatment and disposal. Renewable Resources. Private environmental investment in renewable resources is less dependent on legislation and its enforcement than in the three other markets identified. Opportunities include eco-tourism, plantation and sustainable forestry, integrated pest management, wildlife management, agro-industrial waste treatment, and renewable energy. Neglected Options. The private sector can move quickly in the right regulatory climate. As governments respond to environmental degradation with legislation, strengthened environmental protection institutions, and tougher enforcement of environmental laws and regulations, gateways such as those listed above will open up to private environmental investors. Constraints on public resources will also generate additional demand on private entities to extend utility services. But privatization and other supportive actions can harness private environmental investment even more directly. Privatization. In Asia, public utilities, state enterprises, and parastatal enterprises are often major polluters and inefficient users of energy and environmental resources; they also absorb large shares of central and state budgets. Well-planned privatization can cut financial costs and risks and promote private environmental investment. Several options exist. Some retain public ownership and control of assets and concentrate on competitive bidding among private operators for service, management, or lease contracts for a defined period. In the build-operate-transfer mode, a private company finances investments in addition to working capital, builds the project, operates it long enough to repay debt and achieve a return on equity, and then transfers the project to the government. In the most far-reaching option, i.e., divestiture, the government sells all or some of its shares to the private sector. Supportive Actions. Governments are not short of ways to harness private environmental investment. They can also, for instance, remove obstacles to the involvement of the private sector in reforestation in ways that promote tree planting on under-utilized or vacant lands. They can provide training to private entrepreneurs wishing to play a role in reclamation and rehabilitation of degraded public lands, sustainable agriculture, aquaculture and fisheries management, or environmentally sound industrial development. And, they can facilitate access to pollution control and abatement technologies and support programs aimed at raising private sector awareness of the need for more environmentally benign technologies. ADB's Reach. ADB can back up governments in their efforts to harness private environmental investment through privatization. It can also shore up the supportive actions mentioned, provide direct assistance to private enterprises wishing to avail of opportunities for environmental investment, and extend indirect assistance for the same purpose through development finance institutions. Privatization and Supportive Actions. ADB can offer policy advice to developing member country governments privatizing for environmentally sound development and taking other actions to promote private environmental investment. It can also provide complementary technical assistance to formulate and implement policy reforms, examine privatization possibilities, and create or improve a legislative and institutional framework in which private environmental investment can emerge and thrive. Direct Financial Assistance. ADB can also extend direct financial assistance to private enterprises for green projects through loans without government guarantee and underwriting and investment in equity securities. In this way, it can promote private investments in any of the markets identified above. Where suitable, ADB can also fund technical assistance to create or strengthen institutions assisting the private sector, or to prepare studies of build-operate-transfer or build-own-operate projects that can have demonstration and catalytic effects. Indirect Assistance through Development Finance Institutions. ADB assistance to promote private environmental investment can also be channeled through development finance institutions. Where its involvement is in the form of a credit line to be utilized by the latter, ADB's environmental concerns will be addressed at the policy and subproject levels. The most successful policy, program, and project interventions are those in which private sector players—including nongovernment organizations—are the primary investors and operators. In the developing countries of Asia, it is high time that governments and developers make better use of environmental investment opportunities. (November 2000) Copyright ©2002 Olivier Serrat