Funding blues set back waste disposal sector

Lack of financing and failure to invest in better sewerage systems are holding back the take off of waste management business, slowing down a growth area with potential to create jobs and ensure cleaner environment.

Investors engaged in this trade told Business Daily that banks have been difficult sources of capital because of the way they value the waste processing business model.

Banks for example decline to finance garbage collection equipment that they believe cannot be resold easily in case of business failure.

“Banks take garbage collection as a non-traditional business. It does not make sense how they evaluate some segments of this business,” said Moses Nderitu, the managing director of Excloosive, a waste management company.

Mr Kimanthi Mutua, the managing director of K-Rep Bank, said the waste management business is classified as “unique” business in the banking industry and therefore banks are usually advised to be “more careful” when deciding to fiancé the business.

The risk assessment process for such businesses is intense and therefore less of them qualify for business loans.

“You look at the equipment used in such a business and if you were to repossess, whom would you sell it to? Then the loan becomes non-performing and you are forced to discount all of it,” he said.

For example, banks shy away from financing the trailers used by Excloosive to pull temporary toilets because it is not easy to sell them in case the business collapses.

“My interaction with banks has been disappointing,” said Mr Nderitu.

Mr Mutua, however, said the problem is beyond a single bank because even the Central Bank has lending standards for unique businesses.

“What we as the banking industry need to do is to rethink how we can finance such business because they have potential for mass creation of employment. This opportunity is being lost.”

Banks only finance waste management projects in Kenya if they are in partnership with development groups like the World Bank and United Nations agencies, which can absorb the loss in case of business failure.

New evidence based on a survey from research firm Frost and Sullivan said waste management business will be an important growth area in the next five years, an opportunity for private sector because of inability of local authorities to handle all of waste management process.

Garbage is a major resource for processing into fertiliser, plastic products and decomposes to produce highly flammable gas that can be tapped and used to generate electricity or used as cooking gas.

A thriving waste management industry would also mean that garbage collection companies will offer free services to the households and recover their cost when they sell the waste; the raw material; to the processors.

In Durban, South Africa, the Durban City uses the municipal garbage to produce electricity, an income generator that also helps to transform lives by increasing access to electricity.

In Nairobi, the Dandora dumpsite could well be used for a similar purpose. It could create jobs, add to Kenya’s industrialisation capacity and save the country foreign exchange used to import diesel that runs emergency power generators.

Mr Edward Muodo who manufactures plastic poles said it is difficult for an investor in waste production to have a business plan dependent on sourcing material from Dandora dumpsite for example because access can be restricted .

“The Nairobi City Council should first have control of the site and then develop a plan how it can partner or license the private sector to tap into the resource. That way, even raining money becomes easier,” he said.

Such control will provide certainty of access to the raw materials like plastic or biomass and will ensure adequate volumes of the raw materials to make a business sense.

“We cannot plan around tapping methane from the human waste when we do not adequate volumes that can be accessed from a centralized place,” said Mr Nderitu. “What you find is that the cost of collection in the case where we lack a better sewage system is discouraging.”

Mr Timothy Muriuki, the chairman of the Nairobi Central Business District Association (NCBDA) said earlier that success of waste management industry in Nairobi depends on changing the way Nairobi City Council engages the private sector.

“There is a lot of uncertainty and the case of Adopt A Light—whose partnership with NCC collapsed under unclear circumstances—has made a lot of business people to shy away from partnerships with the council,” he said.

The financing challenge is, however, starting to ease based on the interest of some private equity companies like Acumen Fund to invest in the industry.

The company has invested Sh47.2 million Ecotact as part financing for the construction of Ikotoilet, the pay as you use toilets being constructed in major towns.

“We invested in Ecotact because this enterprise is driven by the market and is more sustainable in the long-run.  We focus on both commercial return and social impact in any investment we make, and the social case for improved sanitation is clear,” said Amon Anderson, Portfolio Associate at the Acumen Fund.

Frost & Sullivan, a South Africa- based research group, has forecast that waste management projects are becoming major business opportunities in Kenya, Uganda and Tanzania where managing waste is still problem

“Population growth and rising urbanisation are increasing waste production in East Africa. Since local authorities are incapable of handling most solid waste material, this opens up opportunities for the private sector,” said Derrick Chikanga, environmental technologies analyst.

East African solid waste management market earned Sh2.4 billion in 2008.

The market is expected to continue growing at a compound annual growth rate of about 7 per cent from 2008 to 2015, said the company.

Analysts said rapid urbanisation and higher standards of living have been the major drivers of growth in this market, adding that more solid waste is generated by high income households in their daily activities.

The East African region is currently experiencing a growth rate of approximately 7.1 per cent per annum and about 34.5 per cent of the region’s population resides in urban areas.

The urban population generates the bulk of the solid waste material in this region.

However, the inability to collect refuse collection charges from households is a major obstacle to the development of this market.

Mr Nderitu said waste management would be easier with investments in waste collection infrastructure especially in the slums areas where such facilities are rare.

“If for example we had a better sewer system in Mathare, it would be easier to collect the human refuse and use it to manufacture methane gas and fertilizer,” said Mr Nderitu. “That investment has to be made by the Government.”

While the high-income areas are willing to pay for improved services, the low-income areas receive the least attention, as most households do not have the financial means to meet even the minimum tariffs charged by local authorities or the private sector for garbage collection.

Private companies

Yet in a place like Nairobi City, statistics show that the private companies that require to be paid serves 73 per cent of the population that has access to garbage collection services while the Nairobi City Council serves only 1 per cent of this population.

There is also a lack of understanding and prioritisation amongst people towards refuse collection.

“The level of awareness on the need to pay refuse collection charges is low,” said Mr Chikanga. “Residents prioritise other services such as water, energy, transport and healthcare.”

Frost & Sullivan identifies strategic partnerships between private companies and local authorities as a growth area like the expected partnership between the Nairobi City Council and the General Electric (GE) to generate methane gas from municipal waste that will be used to power electricity generators.