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reduce tensions between riparian States and foster cooperative development and manage-ment of river resources.

Water resources and key economic sectors

Ethiopia’s extreme hydrological variability has had significant impact on its key economic sectors and services.

Water supply and sanitation

Access to potable water services and improved sani-tation facilities is still low, particularly in rural areas, though with international support the government is making real progress in the sector; for example, between 2002 and 2005 the percentage of people with access to potable water increased from 30 per-cent to 42 percent.

Agriculture, livestock, and fisheries

Agriculture accounts for almost 50 percent of Ethi-opian GDP, but is finding it increasingly difficult to meet the food requirements of a growing popula-tion. The dominant agricultural systems, including 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.

Introduction

This note contains a summary, for practitioners, of the World Bank Country Water Resources Assistance Strategy (CWRAS) report: Managing Water Resourc-es to Maximize Sustainable Growth: A World Bank Water Resources Assistance Strategy for Ethiopia (March 2006). The note describes the scope and scale of the impacts of hydrological variability on Ethiopia’s economic performance, poverty, natu-ral resources, and socioeconomic conditions, and outlines the Bank’s strategic approach to assisting water-related sectors in Ethiopia within an overall development strategy for the country.

Ethiopia’s water resources

At first sight Ethiopia’s water resource endowment appears considerable. However, the country’s devel-opment is constrained by its complex water resource legacy, which includes two main elements:

A natural legacy of high, and apparently intensifying, hydrological variability, with regular drought and flood events resulting in resource degradation and constraining growth.

A historical legacy of management difficul-ties centered around its international rivers, particularly the Nile. International agreements, such as the Nile Basin Initiative, are helping to

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ralism, are extremely vulnerable to hydrological variations, with knock-on effects on the rest of the economy. Irrigation is little developed. Fisheries of-fer considerable scope for expansion.

Transportation and market infrastructure

Even in agriculturally productive years, poor trans-port infrastructure and lack of storage and market-ing facilities can aggravate food insecurity in areas of deficit. Improved market functioning would ben-efit producers and consumers and stimulate agricul-tural investment. Substantial progress in improving the road network has been made under the Road Sector Development Program.

Energy and hydropower

Ethiopia’s per capita electricity consumption is among the lowest in the world, and the reliance on biomass for energy is rapidly degrading ecosystems, with deforestation, soil erosion, and sedimentation of reservoirs as damaging consequences. Inex-pensive, reliable electricity, for example through development of the largely untapped hydropower potential, could reap significant economic benefits.

Urban areas, manufacturing, and services

Outside Addis Ababa, urban productivity is low and connectivity poor. Processing of agricultural raw materials is the dominant industrial activity but, as throughout the manufacturing sector, shortage of raw materials, a weak enabling environment, and lack of investment constrain development. Liberalization of the banking sector has laid the foundation for private entry into the financial sec-tor. Tourism has enormous potential, with improved service delivery.

Water resource challenges: Some priority responses

This section considers management options to ad-dress the problems outlined in sections 2 and 3. More details on possible interventions and the

World Bank assistance strategy are given in sections 7 and 8.

Strengthening water resource development and management

A number of opportunities exist in this area to miti-gate the impacts of hydrological variability:

Strengthen institutions and capacity for effective water resource management;

Increase water storage through dam construc-tion and expanded rainwater harvesting;

Extend water supply and sanitation services, supported by institutional reform;

Expand irrigated agriculture, with involvement of the private sector;

Encourage community watershed1 management;

Improve drought preparedness.

Enhancing economic resilience

Proactive interventions outside the water sector to increase the economy’s resilience to the impacts of hydrological variability include:

Encourage alternative livelihoods;

Improve market infrastructure, including the road system, particularly interregional linkages;

Encourage private investment in irrigation and in nonagricultural activities;

Expand hydropower generation capacity and enhance regional cooperation in power pro-duction as part of the Nile Basin Initiative;

Introduce measures to reduce financial risk.

Hydro-economic model of Ethiopia: Summary of findings

To help understand the effects of Ethiopia’s hy-drological variability and explore the potential

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1 The word “watershed” properly denotes the divid-ing line between two river basins, but it is commonly applied to a river’s upper catchment area.

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impacts on growth and poverty of mitigating interventions, a computer model was developed to examine the effect of selected rainfall patterns (smoothed, drought prone, variable) on various investment options (irrigation, transport/market infrastructure, or both) over a 12-year period (2003–2015).

The findings suggest three main conclusions:

Irrigation has greatest returns under highly vari-able climatic conditions.

The complementarity of combined investment in irrigation and market infrastructure would be pronounced in Ethiopia.

Investment in roads and market structure are essential for leveraging returns to irrigation in-vestments and will help shift the structure of the economy toward a more water-resilient, less ag-riculturally dependent growth path.

Although the model did not explicitly incorpo-rate hydropower, a coordinated investment strategy should clearly exploit opportunities for multipurpose infrastructure to manage the impacts of hydrological variability on the Ethiopian economy.

Water security, water resources, and growth

Ethiopia’s difficult hydrological legacy is reflected in its lack of water security, which can be defined as the reliable availability of an acceptable quanti-ty and quality of water for production, livelihoods, and health, coupled with an acceptable level of risk of unpredictable water events. It implies a minimum platform of water infrastructure and insti-tutions for water to have a positive net impact on growth. By regional and international standards, water storage and availability in Ethiopia are very low.

Careful balancing and sequencing of invest-ments in both water institutions and infrastructure is required in Ethiopia to achieve and surmount this minimum platform, giving due consideration to transboundary water resource issues. Incentives need to be identified to overcome the risk aversion of actors and encourage investment in a more di-versified, water-resilient economic structure.

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Insights for interventions

Given the challenges and opportunities outlined above, a number of lessons can be drawn that are of relevance to possible interventions in Ethiopia:

Water resource development and manage-ment is crucial to water security and economic growth, and capacity building is a continued priority.

Hydrological variability must be incorporated into modeling to give a true reflection of the economic gains from irrigation and drainage investments.

Multipurpose water infrastructure is a powerful investment, with benefits for water supply, regu-lation of flow, hydropower, irrigation, transport, fisheries, and environmental protection.

Parallel investment in irrigation and market infrastructure, including all-weather and inter-regional roads, has significant benefits for food security and marketing, with positive impacts on economic growth and diversity, investment, and poverty reduction.

Alternative means of obtaining water should be further explored, such as tapping groundwater and harvesting rainwater.

Improved water supply and sanitation are pri-orities for human health and productivity.

Watershed management is crucial for water re-sources, livelihoods, and the environment, and contributes to equitable development.

Proactive intervention outside the water sector, for example promotion of alternative livelihoods, is needed to increase the economy’s resilience to the impacts of hydrological variability.

Drought preparedness and agricultural resil-ience need further strengthening, supported by storage of wealth in forms other than livestock and increased availability of credit facilities and risk insurance.

Water Resources Assistance Strategy of the World Bank

This section examines current government and donor initiatives and seeks to define a strategy for World Bank assistance.

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WATER P-NOTES

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Government’s water resource program

The government of Ethiopia’s integrated approach to water resource development is reflected in its Water Resources Management Policy, followed by a strategy and a sector development program. It is undertaking a wide range of programs aiming to:

Promote efficient and equitable utilization and management of water resources at national level;

Promote international cooperation as regards transboundary resources, particularly the Nile;

Mitigate the impacts of hydrological variability on the Ethiopian economy.

World Bank assistance in Ethiopia

The World Bank’s broad engagement in Ethiopia is guided by a set of strategic documents, includ-ing the Poverty Reduction Strategy Paper, Country Economic Memorandum, and Country Assistance Strategy. The Bank currently supports a portfolio of projects that deal directly or indirectly with water re-sources, but interlinkages need strengthening in or-der to support Ethiopia’s integrated water resource management policy and strategy and to increase resilience to hydrological variability and associated economic shock.

Some realignment of the Bank’s portfolio is required to reflect these needs, for example by ex-amining the spatial distribution of projects to see whether synergies might be captured by adopting a growth pole approach, and by giving priority to road projects that will provide strategic intercon-nections between regions with potential trade op-portunities.

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Strategy for World Bank support in water resources

Four areas stand out as priorities for investment:

Multipurpose hydraulic infrastructure development

Schemes of various sizes can create storage capac-ity, regulate flow, generate power, support irrigation and provide fisheries. Parallel institutional develop-ment and capacity building are vital. Opportunities exist for regional synergy under the Nile Basin Initia-tive, of which the World Bank is the lead donor and facilitator. It is recognized that dam development schemes will receive close international scrutiny.

Water supply and sanitation

Attaining the Millennium Development Goal of halving Ethiopia’s unserved population by 2015 will require further support for the range of activities the government is already carrying out in this area. It is essential that water resource concerns, such as groundwater management, siltation, and watershed management, are integrated into water supply and sanitation projects.

Watershed management

Good watershed management can help moderate the hydrological cycle and sustain agricultural liveli-hoods and ecosystems. Innovative approaches are required to methodology, financing (including car-bon offsets), and alternative livelihoods. This area should be given priority in the Bank’s portfolio.

Transport, market infrastructure, and private sector development: Growth poles

Investment in fully functioning market cities (growth poles) with regional infrastructure and commu-nication interconnections is a powerful means of 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.