Investing in Resilience Climate Risks & Opportunities in Ethiopia’s Key Agricultural Value Chains This investor brief targets providers of commercial capital, offering potential investment opportunities in Ethiopian agriculture towards addressing climate risks while building resilient value chains. The brief is one of three in a series targeting different stakeholders, including policymakers, providers of concessional capital as well as commercial capital providers based on key messages from the Clim-ARM project report Investing in resilience: A guide to climate risks and opportunities in Ethiopia’s key agricultural value chains (full text here). The report underscores the importance of adaptive strategies and innovative financial solutions to safeguard Ethiopia’s agricultural value chains. Addressing climate risks and leveraging opportunities are critical to enhancing food security, boosting economic growth, and improving the livelihoods of millions of Ethiopian farmers. A summary of the project report provides further information on the intersection of climate risks and agricultural opportunities in Ethiopia as well as a roadmap for resilient investments that can withstand climate variability. INVESTOR BRIEF FOR COMMERCIAL CAPITAL PROVIDERS Investment Landscape & the Need for Commercial Capital Ethiopia’s agricultural sector is vital to the economy, representing 32.54% of GDP and providing jobs for 75% of the population. Despite its potential, the sector faces serious challenges such as climate variability, low productivity, and restricted access to financing. Ethiopian agriculture is particularly sensitive to climate risks such as droughts, floods, pests, and diseases. The report stresses the necessity of targeted interventions to enhance resilience. An assessment of adaptive capacity across regions shows differences in resource availability, https://cgspace.cgiar.org/items/e3a10822-23eb-411d-b126-3a3201ef0bd2 hdl.handle.net/10568/177046 INVESTOR BRIEF FOR COMMERCIAL CAPITAL PROVIDERS Investing in Resilience: Climate Risks & Opportunities in Ethiopia’s Key Agricultural Value Chains2 knowledge, and infrastructure. The report advocates for customized Agricultural Risk Management (ARM) solutions that cater specifically to regional needs. The Ethiopian Government has recognized agriculture’s comparative advantage and identified it as a key sector for attracting Foreign Direct Investment (FDI). It offers incentives such as 10- year income tax exemptions and loans, mainly from the Ethiopian Development Bank. Special Economic Zones and dedicated agri-economic zones provide incentives like tax breaks, market access, duty-free imports, and integrated agri-industrial parks to encourage investment. The Agricultural Growth Program (AGP II) under the Growth and Transformation Plan (GTP II) aims to enhance agricultural productivity by empowering smallholder farmers with research, support services, irrigation projects, and value chain schemes, ultimately creating compelling investment opportunities in Ethiopia’s agriculture. Investment Opportunities We highlight eight key value chains chosen due to their economic significance, scalability potential, and susceptibility to climate-related risks: maize, wheat, potatoes, chilies, mangoes, livestock, coffee, and hot pepper. Specific investment opportunities, designed to address identified risks and enhance value chain performance include: Irrigation to Address Water Deficit The intervention involves solar-powered sprinkler irrigation from boreholes, climate-smart practices with drought-resistant seeds, effective fertilizer use, and equipment sharing. Market Size and Return Potential: Ethiopia’s agricultural sector presents significant investment opportunities, particularly in maize, wheat, and teff production. Focusing on the Oromia, Amhara, and SNNP regions, which account for 96% of production, maize offers a manageable investment with a payback period of 4.5 years, wheat provides the highest returns with a 4.2-year payback, and teff, while profitable, has a longer payback period of 4.7 years. These investments align with Ethiopia’s agricultural growth strategy, emphasizing productivity, resilience, and sustainability, and incorporate risk mitigation strategies such as insurance, concessional capital support, and technical assistance. Alignment with Ethiopia’s Agricultural Growth Strategy: Investing in Ethiopia’s agricultural sector, particularly in maize, wheat, and teff, aligns with the national strategy to enhance productivity, resilience, and sustainability. With smart irrigation systems, intercropping high-value crops, and adopting climate- smart agricultural (CSA) practices, these investments promise significant returns and contribute to the long-term stability and growth of the sector by improving farm resilience and promoting sustainable agricultural development. Financing Structure: To unlock the potential of smart irrigation and climate-smart agricultural solutions in Ethiopia, a diverse financing mix is proposed, including local commercial debt providers, impact investors, and donor capital. The financing structure would combine debt, grants, and convertible equity, focusing on working capital and fixed investments. Given their stable returns and manageable risks, maize and wheat are best suited for commercial debt. Teff and high-value intercrops like potatoes and chilis are more appropriate for equity financing due to their longer payback periods and higher potential returns. Innovative CSA practices and solar-powered irrigation systems align well with blended finance, offering high growth potential and significant impacts on productivity and sustainability. This initiative requires an investment of approximately USD 83.9 million to strengthen the maize, wheat, and teff value chains in the Amhara, SNNP, and Oromia regions, reaching 48,400 farmers and targeting at least 30% female participation. Risk Mitigation: Several mechanisms have been identified to mitigate the inherent risks associated with agricultural investments in Ethiopia and ensure maximum potential for return while minimizing exposure to adverse conditions. These include implementing parametric insurance to protect against extreme weather events and unforeseen circumstances, leveraging blended finance structures that combine concessional funding with commercial debt to create a de-risked investment environment, and providing technical assistance to farmers on best practices for effectively utilizing climate-smart agriculture technologies and irrigation systems. 3INVESTOR BRIEF FOR COMMERCIAL CAPITAL PROVIDERS Investing in Resilience: Climate Risks & Opportunities in Ethiopia’s Key Agricultural Value Chains Resilient Practices for Livestock Ethiopia’s 10-Year Dairy Development Plan aims to improve milk yields by intensifying fodder production, transitioning to high-yielding breeds, and managing costs effectively. Blended financing and risk mitigation strategies strengthen resilience. Market Size and Return Potential: Ethiopia’s livestock sector represents a substantial market opportunity, given that the Oromia, Amhara, and SNNP regions collectively account for over 75% of the country’s total cattle population. The dairy sub- sector offers an impressive internal rate of return (IRR) of 27.8%, with a mean net present value (NPV) of ETB 35,602 and a payback period of just 3.9 years, highlighting the high return potential for investors. With targeted investments, productivity can be significantly boosted, supporting the livelihoods of approximately 76,000 farmers, including 21,000 female farmers. The improved herd management and feed production strategies will see notable increases in milk yields, further reinforcing the profitability of these ventures. Alignment with Ethiopia’s Agricultural Growth Strategy: Ethiopia’s agricultural growth strategy prioritizes the development of the livestock sector, recognizing its crucial role in the nation’s economy and food security. This investment plan aligns with the government’s focus on CSA, improved animal health, and enhanced market access. The strategy supports transitioning from traditional to high- yielding breeds, intensifying fodder production, and adopting modern irrigation systems. These measures are designed to increase productivity, enhance climate resilience, and ensure sustainable growth, reinforcing the relevance and strategic importance of investments in the livestock sector. Financing Structure: A balanced and strategic funding structure is vital for the growth of Ethiopia’s livestock sector. Leveraging various financing options such as commercial debt, equity, and donor capital can help investors address the sector’s diverse needs. Commercial debt is suitable for investments with predictable revenue streams, such as irrigation systems and improved forage crops. Equity financing is ideal for projects requiring significant upfront investment and high growth potential, like herd transitions and infrastructure development. With a total investment of USD 90.3 million, including USD 4.2 million in grants, USD 19.1 million in debt for working capital, and USD 66 million in debt and equity for fixed investments, the program aims to support 60,000 farmers, including 18,000 women. Risk Mitigation: Investing in Ethiopia’s livestock sector has inherent risks, such as climatic variability and market fluctuations. However, several risk mitigation strategies are in place to address these challenges. Concessional capital support, through grants and equity, reduces the financial burden on farmers and investors. Additionally, comprehensive insurance schemes protect against unforeseen climatic events, mitigating potential financial losses. On-farm practices, such as improved feed security and herd management, enhance farmers’ overall resilience and repayment capacity, ensuring more stable and predictable returns. A diversified financing structure comprising debt, grants, and convertible equity further balances the risk, promoting economic and social impact. Agroforestry for Coffee Ethiopia, a key player in global coffee production, faces challenges like climate change and fluctuating prices. Agroforestry offers solutions by mitigating climate risks, enhancing carbon sequestration, soil health, shade, biodiversity, and water conservation. Market Size and Return Potential: The Ethiopian coffee sector presents a significant investment opportunity, with high returns projected. The interventions outlined, such as climate resilience measures, integrated pest management, and agroforestry systems, offer substantial potential for financial returns. For example, the investment analysis shows an IRR of 15.04% and a mean NPV of ETB 7,190 (USD 123), highlighting the profitability of these ventures. Alignment with Ethiopia’s Agricultural Growth Strategy: The proposed interventions align closely with Ethiopia’s agricultural growth strategy, which emphasizes the importance of sustainable and resilient agricultural practices. Investing in climate- smart agriculture, integrated pest management, and agroforestry systems supports the Ethiopian government’s goals for enhancing agricultural productivity, ensuring environmental sustainability, and improving the livelihoods of farmers. This alignment reinforces the relevance of these investments within the broader context of national development priorities. Financing Structure: Identifying the appropriate funding structure helps attract investors and ensures sustainable growth in the coffee sector. Commercial debt supports climate resilience, pest control, and working capital needs. Equity targets long-term investments like shade management and infrastructure improvements. The investment plan for Ethiopia’s coffee sector includes a multi-revenue generation approach to attract private investors. The aggregated blended financing strategy targets three key areas: stabilizing production with climate resilience and pest control; generating ancillary revenue through carbon credits; and enhancing yields with shade management and replanting. With a total investment of USD 90.3 million, including USD 4.2 million in grants, USD 19.1 million in debt for working capital, and USD 66 million in debt and equity for fixed investments, the program aims to support 60,000 farmers, including 18,000 women. This phased approach integrates both immediate and long-term financing mechanisms to ensure sustainability and financial returns. Risk Mitigation: Investments in the sector are supported by several key risk mitigation measures, including insurance products, concessional capital support, and off-farm financial solutions. These mitigants are essential in managing the risks associated with climate conditions, pest resistance, and the long-term nature of agroforestry investments. The use of concessional funding helps de-risk these investments, making them more attractive to private sector investors. Investing in resilience with commercial capital Investors are presented with a unique opportunity to contribute to the growth and development of Ethiopia’s, irrigation, livestock and coffee sectors. These sectors offer substantial returns, significant market potential, and alignment with the nation’s agricultural growth strategies. Engaging in these investment opportunities allows investors to drive economic growth, support sustainable practices, and enhance the livelihoods of thousands of farmers, including a notable number of women. Considering the evident and compelling strategic and financial benefits, this is an opportune moment to invest in Ethiopia’s agriculture sector. Co-investment Opportunities: Investors are invited to explore co-investment opportunities in Ethiopia’s irrigation, livestock and coffee sectors, which include participating in equity financing for infrastructure development, commercial debt for irrigation systems and improved forage crops, and concessional capital support through grants. Leveraging a blended financing approach allows investors to maximize returns while mitigating risks associated with agricultural investments. Investors can engage by partnering with local and international financial institutions to access blended financing options that include grants, debt, and equity. They can collaborate with the Ethiopian government and relevant agencies to align investments with national agricultural growth strategies and climate-smart practices. Investing in Ethiopia’s agriculture presents opportunities for financial returns and positive impact. Now is the time for investors, policymakers, and stakeholders to collaborate and make decisive strides towards an equitable and sustainable agricultural future for Ethiopia. More info:  Full Clim-ARM report hdl.handle.net/10568/173562  Report summary hdl.handle.net/10568/177044  Investor brief for concessional capital providers hdl.handle.net/10568/177046  Investor brief for policymakers hdl.handle.net/10568/177047