In an astute analysis of the global response to climate change, contrasting perspectives on economic development emerged between international partners and Ethiopia. Both representatives of the World Bank and International Finance Corporation (IFC) advocated for a market-led decentralised economy with heightened private sector involvement, while officials from the federal government stressed the indispensable role of development partners' financing.

Ethiopia will require billions of dollars in financing over the next quarter of a century to effectively address the impacts of climate change, according to the Country Climate & Development Report (CCDR). Released by the World Bank last week, the report depicts a grim scenario, predicting a combination of reduced agricultural productivity, damage to infrastructure, economic growth setbacks, and increased poverty levels, if substantial reforms worth nearly 27.6 billion dollars are not implemented.

Officials and representatives convened at the Hyatt Regency, Africa Avenue (Bole Road) to launch the findings of the report. While the effect of climate change and its impact is realised, they had differing realities of going about it.

According to Ousmane Dione, country director of the World Bank, there is an urgent need to adjust development policies to account for potential growth losses due to the impacts of climate change. He shared poignant anecdotes during one of the country's worst droughts in the past four decades, such as a woman in the Somali Regional State, who had to travel 500Km in a failed search of water and another 11-year-old girl who had dropped out of school as she spent her days fetching water for her family.

"Millions are pushed to the brink of hunger," he said.

A market-led decentralised economy with increased private sector involvement was stressed by the Country Director and echoed by Madalo Minofu, country manager of the International Finance Corporation (IFC). However, for the Minister of Planning & Development, Fitsum Assefa the role of public finance and development partners is significant.

"The private sector can't replace the role of development partners," she remarked.

The Minister recalled a 30-year low-emission climate-resilient development strategy Ethiopia has recently unveiled. Between 2011 and 2019, Fitsum said Ethiopia had spent nearly 82 billion dollars on climate change mitigation and adaptation programs; a staggering figure when compared to the country's GDP in 2019 which was 95.1 billion dollars.

"Climate change requires collective efforts," Fitsum said.

The report projects that Ethiopia stands to lose up to 30pc of its average decadal GDP between 2030 and 2040, with even more significant losses if the current economic policy structure persists. The potential consequences include worsening conflicts, increased internal migration, reduced labour productivity due to heat stress, and heightened poverty levels.

Urvashi Narain, a lead economist at the World Bank, has highlighted the disproportionate impact of climate change on Ethiopia's lowlands, particularly the Afar Regional State, where mortality rates could potentially rise by 50pc. She said livestock yield in the regional state is projected to decrease by 13-25pc in the 2040s under current economic policies, significantly higher than the national average.

Climate change has garnered increased attention from international development partners, with the World Bank committing at least 45pc of its funding towards addressing this issue. A contributor to the report, Tehmina Kahn, also stressed the necessity of comprehensive structural reforms, including decentralisation of the economy and increased private sector participation.

The economist indicated that under the existing policies, Ethiopia would lose up to1.5pc of GDP annually, with cumulative losses increasing to 14pc until 2030. She outlined the need to develop bankable projects and explore blended financing modalities for the near term, during her presentation.

"Structural reforms alone would be insufficient," Tehmina said.

Addressing macroeconomic instability, the report recommends priority areas for structural reforms, such as rectifying the overvaluation of the exchange rate, removing regulatory barriers, and expediting accession to the WTO.

Minister of Finance Ahmed Shide acknowledged the profound challenges posed by climate change. He highlighted ambitious government initiatives such as incentivising electric car imports and the Green Legacy initiative, aiming to plant nearly 50 billion trees.

"We are doing more than our fair share," Ahmed said.

He called for continued financial support from development organisations, citing the difficulty of realising climate change objectives amid broader economic targets.

"We expect adequate financing," Ahmed underscored.

Despite these efforts, Ethiopia's infrastructure is vulnerable to significant climate change damage without structural reforms. The CCDR projects up to 755 million dollars for the repair and maintenance of roads and bridges between 2041 and 2050, which would decrease to 628 million dollars, even with structural reforms.

While getting almost four-fifths of their energy from fossil fuels, largely because of the unreliability and storage problems of solar and wind energy, rich countries refused to fund anything remotely fossil fuel-related, according to an article written by Bjorn Lomborg, president of the Copenhagen Consensus, describing it as smacks of hypocrisy.

A local economist who spoke anonymously to Fortune concurs. He said the focus should be put on adaptation, as it is difficult to formulate economic growth strategies.

"We will have to continue to demand previous financial pledges be met," he told Fortune.

PUBLISHED ON Mar 02,2024 [ VOL 24 , NO 1244]

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