ADDIS ABABA, February 28, 2024 — A new World Bank report released today finds that annual average losses to gross domestic product (GDP) are expected to range between 1-1.5% of GDP and to rise to 5% by the 2040s, potentially pushing millions of Ethiopians into poverty.
The new Country Climate and Development Reports (CCDR) for Ethiopia sounds the alarm regarding the increasing impact of climate change that are threatening Ethiopia’s development prospects. The drought of recent years–the most severe in 40 years–has been devastating for people in the arid pastoral areas. Simultaneously, flooding has damaged infrastructure and disrupted livelihoods in other parts of the country.
The largest impacts in the future are expected to be felt on labor productivity and livestock yields, and some regions – especially the lowlands – will be hit harder than others. Through these impacts, climate change could undermine the development gains of the past and slow the economy’s future structural transformation needed to provide jobs for a growing population.
But the new analysis also points to opportunities for growth and increasing prosperity from climate informed development policies. These are especially visible in agriculture where, with the support of reforms, Ethiopia can potentially shift from being a net importer of agricultural commodities to generating sizable surpluses of as much as 20% (relative to domestic demand), with climate change, especially under potentially warmer and wetter conditions, increasing these surpluses to 25%.
"Merging structural reforms with adaptation strategies is pivotal because it can substantially reduce expenses arising from climatic disasters such as droughts and floods, and can help Ethiopia harness opportunities, especially in agriculture" said Ousmane Dione, the World Bank Country Director for Eritrea, Ethiopia, South Sudan and Sudan. “Although formulating policies that account for the various levels of geographic vulnerability to climate change is key, it is equally important to encourage collaboration with regional governments in order to develop tailored solutions that effectively address their specific challenges,” he added.
The report outlines three priorities to boost climate adaptation, build resilience, and foster low-carbon growth in a context of tight fiscal space:
1. Fast-tracking structural reforms coupled with overhauling social safety nets key will yield both development and growth benefits and help to strengthen climate resilience, reduce the cost of adapting to climate change and alleviate domestic resource shortages needed to respond to development and climate imperatives.
2. Investing in climate-resilient infrastructure is required to lessen the effects of climatic variations on key services. Protecting existing structures from climatic threats while investing in new robust facilities and infrastructures (e.g. in roads and energy sector) is urgent.
3. Adopting more decentralized approaches in dealing with climate responses is critical. Climate impacts will occur at the local level, and local governments will need to will need to support to in designing and implementing policies to respond to climate change. A more active role for the private sector – investors, farmers, and firms - in responding to the risks of climate change through autonomous adaptation is also imperative.
“The private sector can be a key partner in helping to finance Ethiopia’s green development by bringing technological solutions and innovations for climate mitigation and adaptation. Private sector investment can also contribute to more stable and food-secure livelihoods and green infrastructure, which will support Ethiopia in strengthening its resilience to climate change” said Mary Porter Peschka, International Finance Corporation (IFC) Regional Director for Eastern Africa.
Achieving these three transitions will require approximately $27.6 billion by 2050 across agriculture, infrastructure development, and water management systems geared toward climate resilience. Given Ethiopia’s vast development needs and significant resource constraints, proposed strategies consist of leveraging additional domestic revenues and concessional resources from international partners; increasing the flow of credit to the private sector; including for green finance; employing blended financing techniques for more effective capital raising; plus establishing a risk management framework comprehensive enough to address residual climate impacts through avenues like disaster risk insurance schemes.
The World Bank has introduced Country Climate and Development Reports (CCDRs) as a core tool for integrating climate and development. CCDRs assist countries in identifying and prioritizing actions that address greenhouse gas emissions and adaptation needs in ways that align with broader development objectives. These reports provide data, research, cost assessments, and suggest priority actions to facilitate a low-carbon, resilient transition. They are intended to guide governments, the public, private sector, and partners by feeding into the World Bank's diagnostics and operations to enhance funding for effective climate action.
