One-third of people in Africa and Asia live in towns of between 2,000 and 200,000 people. Both the number of towns and the number of people living in them in Africa, Asia, and Latin America are expected to double within 15 years, and to double again within 30 years. This rapid pace of urbanization, together with challenges and opportunities for local governments resulting from decentralization, make town water supply and sanitation(WSS) fundamental to economic growth and achievement of the Millennium Development Goals.

Key Challenges
Towns with population between 2,000 and 50,000 face special challenges in WSS. The demand for differentiated technologies—piped water supply in the core, alternative technologies in the fringe areas—and the often rapid and unpredictable water demand growth and spatial expansion require planning, design, and management skills that go beyond those needed for community-based management approaches in rural areas. But, unlike larger towns or cities, these smaller towns often lack the financial and human resources to independently plan, finance, manage, and operate their WSS systems.

Another key challenge for small town WSS is to allocate limited government resources among a large number of dispersed towns. For every large town (50,000 to 200,000 people) there are ten smaller ones (2,000 to 50,000 people). The goal should therefore be to establish town utilities with the minimum viable investment, and to ensure that reforms are put in place so that the utilities can meet carefully defined cost-recovery objectives.

Traditionally, central governments have used their grants to local governments and utilities to bail out poor performers. In the past decade, however, some governments have managed to make their transfers conditional on the milestones in reform or performance of local governments or utilities. Decentralization – especially in countries that lack the financial resources to fulfil all needs – enables central governments to provide financial incentives to those municipalities or utilities that do better, and withhold finances from the non-performing ones.

For instance, Ethiopia has recently introduced a simplified system that provides grants for reforms and loans for investments to towns based on a series of institutional and financial milestones. Several countries in Latin America are also using fiscal incentives, such as Brazil, Ecuador, and Colombia.

In addressing the small town WSS challenge, governments may need to identify appropriate management arrangements that can cut across more than one town, ensure that design and financing requirements are suited to these towns, and make arrangements to secure effective professional support, for example by contracting with local partners. A business planning approach that integrates these aspects of service provision and factors in the role of both utility managers (service provision) and town administrators (regulatory oversight) is a fundamental part of town WSS.

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