Ethiopia stands at a critical juncture as it confronts the multifaceted challenges posed by climate change. With 75% of the population relying on agriculture, primarily through smallholder farming on about two acres, the economic ramifications of climate disruptions are severe. On average, these farmers earn just $707 per year, a precarious existence increasingly threatened by shifting weather patterns, droughts, and the loss of arable land. In this context, climate finance emerges not as a luxury but as an urgent necessity for safeguarding the future of millions. 

Ethiopia's agricultural sector is the backbone of its economy, accounting for 40% of GDP and 80% of exports. However, the effects of climate change threaten to undermine this foundation. Research indicates that climate change could reduce the country's GDP growth by 0.5% to 2.5% annually, with projections suggesting a potential decline of up to 10% by 2045, primarily due to impacts on agricultural productivity. The anticipated losses in the agricultural sector alone could reach $2 billion in the coming years, a staggering figure that represents 32.5% of real agricultural GDP. The increasing frequency of severe droughts has already led to significant herd mortality, with losses exceeding 26%. Such economic disruptions not only jeopardize food security but also push vulnerable populations into deeper poverty. 

The impact of climate change disproportionately affects the most vulnerable populations, particularly in regions heavily reliant on agriculture. The integrated vulnerability assessment indicates that states like Afar, Amhara, Oromia, Somali, and Tigray are among the hardest hit. These areas are not only agriculture-dependent but also some of the poorest in the country, making the need for climate finance even more pressing. 

Moreover, women and girls face unique challenges exacerbated by climate change. While Ethiopia has made strides in improving girls' education, many still do not finish primary school due to economic pressures and the need to perform household tasks, such as water collection. The time spent fetching water—up to eight hours a day—prevents them from pursuing education or engaging in productive activities, perpetuating cycles of poverty and inequality. Climate finance can help provide sustainable water solutions, easing this burden and empowering women and girls. 

Despite the challenges, Ethiopia is diversifying its economic base. The Home-Grown Economic Reforms (HERA) emphasize the importance of agricultural growth as a critical driver of economic advancement and poverty reduction. The government recognizes the need to work closely with smallholder farmers, cooperatives, and private actors to implement climate-resilient strategies. 

The Ethiopian Climate Resilient Green Economy (CRGE) strategy, launched in 2011, lays the groundwork for integrated climate-resilient development. It aims to "climate-proof" national development goals and highlights the importance of climate finance in achieving these objectives. By investing in sustainable agricultural practices, renewable energy, and improved water management, Ethiopia can build resilience against climate impacts while fostering economic growth. 

In conclusion, climate finance is not a luxury for Ethiopia; it is a fundamental requirement for survival and progress. The economic costs of inaction are far too significant, and the potential benefits of proactive investment in climate resilience are immense. By prioritizing climate finance, Ethiopia can secure a sustainable future, protect its most vulnerable populations, and create pathways for economic growth. 

As the global community prioritizes climate action, Ethiopia must seize the opportunity to mobilize resources for meaningful change. Climate finance is not just an investment in the environment but in Ethiopia’s future. ESG BI, in collaboration with Haile Mekonnen, will host a webinar, “Financing Africa’s Future: ESG, Investment, and the Road to Sustainable Growth,” exploring ESG adoption, the role of banks, and the regulatory landscape shaping sustainability in Ethiopia and beyond. Gain insights on attracting investors, overcoming challenges, and leveraging Africa’s growing sustainable finance movement. 

Haile Mekonnen 
ESG (Environmental, Social, and Governance) Division Manager 
Wegagen Bank S.C.