top of page

MEMO: Financialization, Debt, and Water in Africa

by Patrick Bigger, Sophie Webber, Suraya Sheba, Nate Millington


Water is life, but it is also big business. Over the last 20 years activists and scholars have noted an alarming rise in the financialization of water; that is, water, and the infrastructure to manage and deliver it, is made into something that financiers can invest in to make a profit while ignoring the underlying social and material realities of water itself. This happens in a number of ways, from the privatization of public water systems, to public-private partnerships for urban resilience, to new financial products to profit from water provision, like water-themed financial derivatives. The intersection of worsening climate change and the pandemic’s economic effects make the financialization of water particularly worrying. Climate change is making weather less predictable, leading to all sorts of disruptions to local water systems, while African countries are facing serious economic challenges, including high levels of debt, costly public health measures, economic slow-down with high unemployment, and looming turbulence in exchange rates- all of which will make public investment in water even more challenging. It is a perfect storm for financiers to exploit.


What is financialization? 

When we talk about financialization, we are identifying two parts of a linked process. On one hand, there is the broadening of the reach and importance of finance. The global economy is overflowing with investment capital as inequality between and within countries has accelerated. When the rich control an ever-greater proportion of global wealth, they are constantly looking for new places and new things in which to invest. This, in turn, requires policy changes to make new things, like water, investable in more and more places. By making more things investable, financialization describes the deepening importance of finance in all sorts of new things as the tentacles of debt or even more complicated financial arrangements find their way into our everyday lives- like how we access water.  


The UN Special Rapporteur on the Human Rights to Safe Drinking Water and Sanitation, Pedro Arrojo Agudo, describes the financialization of water as, “water management as a financial asset whose value is managed on the financial markets, and in particular on the futures markets, under the speculative logic and strategies that dominate this type of market, with large banks and institutional investors as the main players. It is also used to express the growing influence of these financial actors in the development of infrastructures for water, sanitation and hygiene (WASH) services.” For example, water can be privatized when for-profit companies build or take over a city’s water system; then water can be further financialized. In this process, water is first turned into a commodity, then into financial products that speculators around the world can bet on. By attaching a supposed ‘market price’ to the water that a company sells to the public, water can be made subject to all manner of complicated financial bets behind the scenes, raising costs for water users while sending profits abroad.  


The Financialization of Water 


To African governments facing the challenges of overwhelming debt and the devastating impacts of a global pandemic, private financing may appear to be the only way forward. However, the financialization of water systems elsewhere in the world has proven especially harmful to poor and marginalized communities.  Water infrastructure is a public good: something that benefits society collectively. Private investors are usually unwilling to finance infrastructure that serves everyone equally because they are only interested in paying customers. 


We can see a cycle of underinvestment in water infrastructure (and many other public goods) across the formerly colonized world, where infrastructure was built to serve colonial administrators and settlers, but neglected the remainder of the city and its citizens by design. In many instances, this vastly unequal distribution of water infrastructure remains, with large (often poor ) swathes of cities and the countryside underserved by water and sanitation infrastructure. Water infrastructure provision that depends on cost-recovery and complicated financial arrangements often reworks colonial logics of who is a ‘deserving’ recipient, so repairing and expanding this infrastructure requires reworking systems of inequality that are built into WASH systems themselves- including the ways that water infrastructure is paid for, and by whom.   


Water utilities that were previously owned by the public have been sold to for-profit companies, or where they remain government owned they have been forced by International Financial Institutions, like the IMF, to behave as though they were a profit maximizing company. For example, in Cape Town, many residents are at risk of losing access to water because subsidies are being recalibrated in light of both the physical problem of water scarcity and the financial distress the city is in. And it is not only utilities that are being subjected to financial logics, but water itself; in Kenya, NGOs and financiers devised the Upper Tana-Nairobi Water Fund as a way for Kenya to pay for infrastructure maintenance on the Tana River that it depends on for agriculture and Nairobi’s drinking water. The water fund allowed investors like Coca-Cola, the company that brews Tusker beer, and others to secure future water supplies by channeling money upstream for conservation efforts, making ongoing water availability up-and-down stream dependent on profit-seeking investment. 


Financialization, debt and underdevelopment


Pan-African historian Walter Rodney described “underdevelopment” as a relationship of exploitation characterized by colonialism, imperialism and capitalism- relationships that are all integral to the financialization of water. This push to make water part of the international financial system through revenue streams based on cost-recovery stems from these relationships of exploitation through which resources- people, money, and raw materials- flow from the global South to the global North. Countries and cities around the world are indebted to creditors through the day-to-day operation of the international economic system that stacks the rules of the game against the Global South. The institutions that govern this system, like the World Bank, IMF, and WTO, coordinate to ensure the ‘rules-based’ order of the economy is maintained. 


This means that debts, no matter how outrageous or damaging, have to be paid back at the expense of spending on social or ecological priorities, like WASH; one way International Financial Institutions do this is by enforcing austerity. For example, in 2020 Zambia became the first country to default on its external debt as the economic impacts of the pandemic began to bite. This debt distress was long in the making, given Zambia’s reliance on copper exports to pay off loans while the price of the metal has been falling since 2014. The reliance on copper compounds Zambia’s financial woes and shows how financialization more broadly impacts water- the government has kept taxes and royalties low for mining companies in a bid to attract foriegn investment. These investments are often structured in financially complex ways, routed through tax havens and secrecy jurisdictions. This lost tax revenue stands in stark contrast to the scale of financial needs to provide even basic services like water and sanitation maintenance, much less invest in green, inclusive development. As part of a December 2021 rescue package with the IMF, new funding for Zambia is contingent on deep cuts to public spending. This is especially troubling in Zambia because more than 6 million people still lack access to basic sanitation infrastructure, mostly in rural areas where investment in public goods like sanitation is unlikely to be profitable. Further, most of the countries’ urban and rural drinking water is already run through a system that is municipally owned, but must operate through market practices. The quasi-public structure of these utilities- privatized in previous rounds of Structural Adjustment in the late 1990s- are potential targets for foriegn operators with financial incentives offered by International Financial Institutions, or targets for ‘improved creditworthiness’ that  enable these utilities to borrow money on their own, then pass interest costs onto users while sending profits to bankers- taking money out of the country that could be spent on water or other priorities. Thus, the cycle of debt, austerity, and underdevelopment is playing out in Zambia as it is across the Global South, where countries are left with little recourse other than to start the process again by taking on more debt to pay to provide and manage water. 


The current debt-austerity-underdevelopment cycle started in the mid-2000s, following a period where Global South debts fell to their lowest levels in decades because of debt restructuring and cancellation, as well as rising commodity prices for raw materials exports. Since the Global Financial Crisis of 2008, debts have been rising again, as they must in a global economy where the Global South exports raw materials, then imports finished goods at much higher prices. However, under the banner of ‘Maximizing Finance for Development’ and similar rubrics, Development and private banks have also been pushing new debt on Global South countries to meet infrastructure needs. More direct mechanisms, like grants and low cost loans are being scaled back while new, complicated financial mechanisms take their place. In this process, lenders and donors are using their funds to ‘leverage’ private investment for development and environmental action by assuming some of the financial risk to make private investment more attractive- a process that, in effect, is the financialization of aid. The flipside is that investors expect a competitive return on their investment: the investments they are making, from municipal sewage systems to rural drinking water supplies, have to be able to pay for themselves, and then some. Danielle Gabor calls this ‘The Wall Street Consensus’: the belief that public finance will never be sufficient to meet environmental and development needs, so private investors have to be coaxed into providing public goods with subsidies and the promise of future profits.


The Financialization of Water in Africa


Water inequality is still rife across the Africa the number of people without access to safe drinking water actually increased by more than 50 million people between 1990 and 2015. At the same time, water privatization and subsequent financialization has accelerated. The World Bank Private Participation in Infrastructure database returns 30 instances in ‘Sub-Saharan Africa’ (the Bank’s category) where private companies have government contracts in the provision of water or handling sewage in cities from Durban to Dakar. Under the banner of ‘public-private partnerships’, these contracts range from build-own-operate where a company (usually European or North American) has full control over the design, construction, and operation of a water system or facility, to cases where private companies lease or are given management authority over water infrastructure. This management authority comes with complicated financial terms that blend International Financial Institution lending, bilateral aid, and commercial investment, subjecting water or other public goods to evermore distant financial management. The privatization and financialization of water infrastructure will play out differently wherever it is applied because of the uniqueness of each city, country, and water system. Nonetheless, the outcome is often either project failure on the criteria of the private company taking hold of public goods (and their investors) and/or increasing financial burdens on governments and water users. Despite this poor track record, city and national governments often have little choice but to look to the private sector for help with water investment or management because of the debt-austerity-underdevelopment nexus in which they are mired, coupled with the ideological and structural preference of development banks and aid organization for private investment over a more just allocation of global funding to meet the needs of the majority world. Once water is subjected to commercial practices through outright privatization, spin-offs into quasi-public utilities tasked with cost recovery, or public-private partnerships, the path to financialization is open, throwing off profits through complicated contracts all over the world while water vulnerability continues to grow. 


Making urban and environmental infrastructure ‘investable’ through new financial partnerships is encouraged not just through the big development banks, but also international funds like the Green Climate Fund and the Global Environment Facility. Vulnerable countries are increasingly forced to turn to bankers and lenders to pay for climate adaptation, water infrastructure and other pressing needs as direct funding is scaled back. But, because vulnerable countries pay more to borrow money, climate change is accelerating the debt-austerity-underdevelopment cycle, making it harder for cities to provide essential goods and services and putting millions of people at even greater risk. As ecological conditions deteriorate, putting individuals, cities and countries further into debt will not deliver just hydrological outcomes. Instead, water justice will require debt justice as a first step towards rewiring the political economic systems that produce water inequity

bottom of page