Climate Risks Spur Private Investments in Ethiopia's Green March

Mar 9 , 2024
By Madalo Minofu

Climate-related risks present a formidable challenge to Ethiopia's sustainable growth and development. However, the private sector has significant opportunities to build and fund low-carbon and climate-resilient projects.

A recent World Bank Group report finds that climate change could shrink Ethiopia's gross domestic product (GDP) by between one percent and 1.5pc of GDP annually and rise to five percent by the 2040s, potentially pushing millions of Ethiopians into poverty. Millions in the greater Horn of Africa, including Ethiopia, face acute hunger as the region suffers one of the worst droughts in decades. The Ethiopia Country Climate & Development Report (CCDR) outlines how Ethiopia can attract private funds into its green economy to support projects in the agriculture, infrastructure, and water management sectors. These are the sectors with the highest potential to help Ethiopia develop greater climate resilience.

Ethiopia's government recognises climate change's challenges and has an ambitious Climate Resilient Green Economy (CRGE), a strategy designed to support resilient and sustainable growth. The strategy calls for investing in climate-smart agriculture practices to boost production and food security, expanding electricity generation from renewable sources, and modernising transport and industrial activities to be more energy efficient.

The price tag is sizable. The report finds that Ethiopia needs more than 27 billion dollars by 2050 and that the government cannot fund these goals alone. The CCDR offers a blueprint for how the private sector, supported by a robust regulatory framework, can help Ethiopia meet its climate ambitions.

For example, private sector financing could be used to modernise Ethiopia’s infrastructure — including roads and bridges — to better withstand climate shocks.

Potential investors also have opportunities to contribute to the country’s green energy sources. This could mean investing in renewable energy-independent power producers in the agriculture sector to expand access to irrigation and affordable post-harvest storage facilities, to develop climate-resilient livestock and seed, and for targeted insurance products.

The International Finance Corporation (IFC) is already working with partners to strengthen farmer resilience and boost food security. Through its work with Soufflet Malt Ethiopia and Heineken Ethiopia, a local supply chain was established. These companies are now sourcing from more than 70,000 barley farmers, which has helped drive an increase in their production and productivity.

To mobilise this financing, the CCDR recommends that the government leverage public-private partnerships to bring private-sector know-how and investment.

Ramping up green investment in Ethiopia is urgent: the country is particularly vulnerable to climate change, with extreme climate shocks, including drought and floods, adversely impacting agriculture and endangering critical infrastructure in the transport and energy sectors. IFC and the broader World Bank Group are ready to continue supporting Ethiopia in its efforts to attract investment and support its green development.

Ethiopia may not be the only country facing climate change. But given its location and population size, it has the potential to be a regional leader in leveraging creative private-sector engagements for a more sustainable future.

PUBLISHED ON Mar 09,2024 [ VOL 24 , NO 1245]

Madalo Minofu is a country manager of the International Finance Corporation (IFC) for Ethiopia, Malawi, Zanzibar.

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