WATER P-NOTES ISSUE 13 JUNE 2008 44735 Managing Water Resources to Maximize Sustainable Growth: A World Bank Water Resources Assistance Strategy for Ethiopia Introduction reduce tensions between riparian States and foster cooperative development and manage- This note contains a summary, for practitioners, of ment of river resources. the World Bank Country Water Resources Assistance Strategy (CWRAS) report: Managing Water Resourc- es to Maximize Sustainable Growth: A World Bank Water resources and key economic Water Resources Assistance Strategy for Ethiopia sectors (March 2006). The note describes the scope and scale of the impacts of hydrological variability on Ethiopia's extreme hydrological variability has had Ethiopia's economic performance, poverty, natu- significant impact on its key economic sectors and ral resources, and socioeconomic conditions, and services. outlines the Bank's strategic approach to assisting water-related sectors in Ethiopia within an overall development strategy for the country. Water supply and sanitation Access to potable water services and improved sani- Ethiopia's water resources tation facilities is still low, particularly in rural areas, though with international support the government At first sight Ethiopia's water resource endowment is making real progress in the sector; for example, appears considerable. However, the country's devel- between 2002 and 2005 the percentage of people opment is constrained by its complex water resource with access to potable water increased from 30 per- legacy, which includes two main elements: cent to 42 percent. · A natural legacy of high, and apparently intensifying, hydrological variability, with regular drought and flood events resulting in resource Agriculture, livestock, and fisheries degradation and constraining growth. Agriculture accounts for almost 50 percent of Ethi- · A historical legacy of management difficul- opian GDP, but is finding it increasingly difficult to ties centered around its international rivers, meet the food requirements of a growing popula- particularly the Nile. International agreements, tion. The dominant agricultural systems, including such as the Nile Basin Initiative, are helping to smallholder rainfed cereal production and pasto- This note reports key messages and findings from "Managing Water Resources to Maximize Sustainable Growth: A World Bank Water Resources Assistance Strategy for Ethiopia" prepared at the World Bank by a team led by Claudia Sadoff (Washington D.C.: World Bank, 2007). Readers may download the complete paper from www.worldbank.org/water. WATER P-NOTES ralism, are extremely vulnerable to hydrological World Bank assistance strategy are given in sections variations, with knock-on effects on the rest of the 7 and 8. economy. Irrigation is little developed. Fisheries of- fer considerable scope for expansion. Strengthening water resource Transportation and market development and management infrastructure A number of opportunities exist in this area to miti- gate the impacts of hydrological variability: Even in agriculturally productive years, poor trans- port infrastructure and lack of storage and market- · Strengthen institutions and capacity for effective ing facilities can aggravate food insecurity in areas water resource management; of deficit. Improved market functioning would ben- · Increase water storage through dam construc- efit producers and consumers and stimulate agricul- tion and expanded rainwater harvesting; tural investment. Substantial progress in improving the road network has been made under the Road · Extend water supply and sanitation services, Sector Development Program. supported by institutional reform; · Expand irrigated agriculture, with involvement of the private sector; Energy and hydropower · Encourage community watershed1 management; Ethiopia's per capita electricity consumption is · Improve drought preparedness. among the lowest in the world, and the reliance on biomass for energy is rapidly degrading ecosystems, with deforestation, soil erosion, and sedimentation Enhancing economic resilience of reservoirs as damaging consequences. Inex- pensive, reliable electricity, for example through Proactive interventions outside the water sector to development of the largely untapped hydropower increase the economy's resilience to the impacts of potential, could reap significant economic benefits. hydrological variability include: · Encourage alternative livelihoods; Urban areas, manufacturing, and · Improve market infrastructure, including the services road system, particularly interregional linkages; · Encourage private investment in irrigation and Outside Addis Ababa, urban productivity is low in nonagricultural activities; and connectivity poor. Processing of agricultural raw materials is the dominant industrial activity but, · Expand hydropower generation capacity and as throughout the manufacturing sector, shortage enhance regional cooperation in power pro- of raw materials, a weak enabling environment, duction as part of the Nile Basin Initiative; and lack of investment constrain development. · Introduce measures to reduce financial risk. Liberalization of the banking sector has laid the foundation for private entry into the financial sec- tor. Tourism has enormous potential, with improved Hydro-economic model of service delivery. Ethiopia: Summary of findings Water resource challenges: To help understand the effects of Ethiopia's hy- drological variability and explore the potential Some priority responses This section considers management options to ad- 1The word "watershed" properly denotes the divid- dress the problems outlined in sections 2 and 3. ing line between two river basins, but it is commonly More details on possible interventions and the applied to a river's upper catchment area. ISSUE 13 · JUNE 2008 impacts on growth and poverty of mitigating Insights for interventions interventions, a computer model was developed to examine the effect of selected rainfall patterns Given the challenges and opportunities outlined (smoothed, drought prone, variable) on various above, a number of lessons can be drawn that are investment options (irrigation, transport/market of relevance to possible interventions in Ethiopia: infrastructure, or both) over a 12-year period (2003­2015). · Water resource development and manage- ment is crucial to water security and economic The findings suggest three main conclusions: growth, and capacity building is a continued · Irrigation has greatest returns under highly vari- priority. able climatic conditions. · Hydrological variability must be incorporated · The complementarity of combined investment into modeling to give a true reflection of the in irrigation and market infrastructure would be economic gains from irrigation and drainage pronounced in Ethiopia. investments. · Investment in roads and market structure are · Multipurpose water infrastructure is a powerful essential for leveraging returns to irrigation in- investment, with benefits for water supply, regu- vestments and will help shift the structure of the lation of flow, hydropower, irrigation, transport, economy toward a more water-resilient, less ag- fisheries, and environmental protection. riculturally dependent growth path. · Parallel investment in irrigation and market Although the model did not explicitly incorpo- infrastructure, including all-weather and inter- rate hydropower, a coordinated investment strategy regional roads, has significant benefits for food should clearly exploit opportunities for multipurpose security and marketing, with positive impacts on infrastructure to manage the impacts of hydrological economic growth and diversity, investment, and variability on the Ethiopian economy. poverty reduction. · Alternative means of obtaining water should be Water security, water resources, further explored, such as tapping groundwater and growth and harvesting rainwater. · Improved water supply and sanitation are pri- Ethiopia's difficult hydrological legacy is reflected orities for human health and productivity. in its lack of water security, which can be defined · Watershed management is crucial for water re- as the reliable availability of an acceptable quanti- sources, livelihoods, and the environment, and ty and quality of water for production, livelihoods, contributes to equitable development. and health, coupled with an acceptable level of risk of unpredictable water events. It implies a · Proactive intervention outside the water sector, minimum platform of water infrastructure and insti- for example promotion of alternative livelihoods, tutions for water to have a positive net impact on is needed to increase the economy's resilience growth. By regional and international standards, to the impacts of hydrological variability. water storage and availability in Ethiopia are very · Drought preparedness and agricultural resil- low. ience need further strengthening, supported by Careful balancing and sequencing of invest- storage of wealth in forms other than livestock ments in both water institutions and infrastructure and increased availability of credit facilities and is required in Ethiopia to achieve and surmount risk insurance. this minimum platform, giving due consideration to transboundary water resource issues. Incentives need to be identified to overcome the risk aversion Water Resources Assistance of actors and encourage investment in a more di- Strategy of the World Bank versified, water-resilient economic structure. This section examines current government and donor initiatives and seeks to define a strategy for World Bank assistance. WATER P-NOTES Government's water resource Strategy for World Bank support in program water resources The government of Ethiopia's integrated approach Four areas stand out as priorities for investment: to water resource development is reflected in its Water Resources Management Policy, followed by Multipurpose hydraulic infrastructure a strategy and a sector development program. It is development undertaking a wide range of programs aiming to: Schemes of various sizes can create storage capac- · Promote efficient and equitable utilization and ity, regulate flow, generate power, support irrigation management of water resources at national and provide fisheries. Parallel institutional develop- level; ment and capacity building are vital. Opportunities exist for regional synergy under the Nile Basin Initia- · Promote international cooperation as regards tive, of which the World Bank is the lead donor and transboundary resources, particularly the Nile; facilitator. It is recognized that dam development · Mitigate the impacts of hydrological variability schemes will receive close international scrutiny. on the Ethiopian economy. Water supply and sanitation Attaining the Millennium Development Goal of World Bank assistance in Ethiopia halving Ethiopia's unserved population by 2015 will require further support for the range of activities the The World Bank's broad engagement in Ethiopia government is already carrying out in this area. It is guided by a set of strategic documents, includ- is essential that water resource concerns, such as ing the Poverty Reduction Strategy Paper, Country groundwater management, siltation, and watershed Economic Memorandum, and Country Assistance management, are integrated into water supply and Strategy. The Bank currently supports a portfolio of sanitation projects. projects that deal directly or indirectly with water re- Watershed management sources, but interlinkages need strengthening in or- der to support Ethiopia's integrated water resource Good watershed management can help moderate management policy and strategy and to increase the hydrological cycle and sustain agricultural liveli- resilience to hydrological variability and associated hoods and ecosystems. Innovative approaches are economic shock. required to methodology, financing (including car- bon offsets), and alternative livelihoods. This area Some realignment of the Bank's portfolio is should be given priority in the Bank's portfolio. required to reflect these needs, for example by ex- amining the spatial distribution of projects to see Transport, market infrastructure, and whether synergies might be captured by adopting private sector development: Growth poles a growth pole approach, and by giving priority to Investment in fully functioning market cities (growth road projects that will provide strategic intercon- poles) with regional infrastructure and commu- nections between regions with potential trade op- nication interconnections is a powerful means of portunities. managing hydrological risk and contributing to eco- nomic diversification in Ethiopia. The Water Sector Board Practitioner Notes (P-Notes) series is published by the Water Sector Board of the Sustainable Development Network of the World Bank Group. P-Notes are available online at www.worldbank.org/water. P-Notes are a synopsis of larger World Bank documents in the water sector. THE WORLD BANK | 1818 H Street, NW | Washington, DC 20433 www.worldbank.org/water | whelpdesk@worldbank.org