This paper identifies NBS financing models that offer promising pathways for larger and more sustainable investments in conservation in Ethiopia, with a focus on water-related benefits. It is primarily intended to provide valuable information to Ethiopian policymakers, project developers, and practitioners. A collaboration between authors from the World Resources Institute and the Ethiopian Institute of Water Resources at Addis Ababa University, the paper reviews the history of watershed management in Ethiopia; illustrates innovations in NBS finance and enabling factors through three international case studies; provides insights into potentially replicable measures for Ethiopia; and presents recommendations on ways forward.

The paper examines three mechanisms offering promising avenues for accelerating conservation and water-related NBS in Ethiopia: water funds, payments for ecosystem services, and debt-for-nature swaps.

Executive Summary

Land degradation is a widespread problem in Ethiopia and a major cause of low agricultural productivity, rural poverty, and persistent food and water insecurity. In response, successive governments and development partners have promoted sustainable land and watershed management programs since the 1970s. However, implementation challenges, unsustainable interventions, and lack of adequate financing are major constraints to tackling land degradation and ecosystem loss in Ethiopia.

Combating the rate and scale of natural resources depletion requires funding far beyond that provided by government and donors. There is an urgent need to explore new sources of funding and pilot innovative mechanisms for conservation and NBS. Conservation finance must increasingly look to new strategies that can incentivize long-term, sustainable natural resources management, helping secure conditions for continued investment in ecological protection and complementary livelihood benefits. In this, Ethiopia could learn from the environmental protection experiences of other countries.

Funding for NBS can be increased by redirecting public and private capital allocations to include NBS and by diversifying funder sources. Globally, growing commitments for nature from the financial and economic sectors signal an increasing awareness about the links between natural capital, inclusive growth, and sustainable development. Ethiopia can utilize tested or emerging NBS financing strategies to secure these nature-focused investment commitments and attract new funders, including from the domestic private sector and international climate and impact investors.

Key Findings

In Ethiopia, finance and policy incentives are critical for scaling conservation efforts and achieving sustainability. To meet the required pace and scale, these key considerations and needs must be addressed:

  • New and diversified sources of funds from public, philanthropic, and private actors, with a greater role for private and blended finance.
  • Long-term funding that can sustain projects from initial capitalization, to operations and maintenance (O&M), through monitoring, evaluation, and learning (MEL).
  • Strong governance frameworks that can increase resource allocations, decision-making transparency, and partner collaboration.
  • Community-led engagement and participation to ensure NBS deliver direct benefits to resource-dependent communities and to increase adoption and upkeep.
  • Landscape-scale interventions that alter the trajectory of watershed and environmental degradation in a meaningful way, while advancing equitable livelihood opportunities.