12 March 2013

Rwanda: Govt Fund to Test International Appetite for Financing Climate Adaptation

analysis

Rwanda is facing a serious threat to its development. The costs of adapting to or mitigating the impacts of climate change, which will result in more landslides, floods and drought, may rise to $300 million a year by 2030.

The Rwandan government is hoping that this risk will also provide the country with an opportunity to secure additional climate finance and develop innovative solutions to address the challenges facing the country, through its new climate finance mechanism, FONERWA. But will international donors make the dream a reality?

Following the genocide and civil war in 1994, Rwanda has made significant progress in establishing and meeting key development goals. The small 'land of a thousand hills' aims to become a middle-income country by 2020. But it still ranks 152 out of 167 nations in the Human Development Index, an international measure of national development.

Most people in Rwanda live in rural areas and work on the land in small-scale agriculture, although tea and coffee exports are also an important source of revenue. As most agriculture is rain-fed, people rely on the rains to survive. This, combined with the country's current level of development and mountainous landscape, makes Rwanda particularly vulnerable to climate variability and change.

There is very little detailed information on how the climate in equatorial Africa will change. But the projections suggest Rwanda will have a warmer climate (with a projected temperature increase of 2.5C by the 2050s), with more intense rainfall during the rainy seasons.

Rwanda already experiences floods and droughts, and is also vulnerable to landslides. These events are likely to increase, which could have significant impacts on crop yields and rural livelihoods. Food security will be an issue, as staple crops like maize are particularly sensitive to changes in climate.

Tourism is a major industry for Rwanda, and so preservation of biodiversity hotspots such as the Nyungwe and Gishwati forests, home to mountain gorillas and chimpanzees respectively, are crucial for continued development.

It is notoriously difficult to estimate the costs of adaptation as this depends on what is classified as "development" and what is classified as "adaptation" - when often these costs could fall into either category depending on who is deciding.

A study by the Stockholm Environment Institute estimates that adaptation to climate change will cost between $50 million-$300 million a year for Rwanda by 2030. This amount would help build resilience for years after 2030 when climate effects may be more significant. But costs may be even higher (over $600 million/year) if development activities that underpin climate change adaptation are also included.

SPECIAL FUND FOR CLIMATE CHANGE

Despite the costs and challenges, Rwanda is a dynamic and adaptable country with strong leadership. The Rwandan government knows it will need extra funds to address the risks of climate change and to continue on its path of economic development, which will make it less reliant on farming and more resilient to the increasing impacts of climate change.

So it has developed a specialised fund to mobilise this finance called FONERWA (Sustainable Financing Mechanism for Environment and Climate Change Initiatives in Rwanda).

Through this mechanism, Rwanda will access international climate finance, as well as extra climate funds from elsewhere, which will be distributed to the government, the private sector and civil society. A fifth of FONERWA funds will be set aside for the private sector, and ten percent for the local districts.

The fund will have "windows" when groups can apply for financing that will reflect government priorities, many of which have been laid out in the Rwandan Green Growth and Climate Resilience Strategy.

It is hoped that FONERWA will make up the funding shortfall in Rwanda for these priorities, but this will require considerable resources from Rwanda's development partners (such as the UK's Department for International Development), international climate funds and the private sector. The government also intends to raise domestic capital for the fund through a proposed local tax.

The first priority for adapting to climate change is to address "no-regret measures" - measures that will be advantageous even without the impacts of climate change. Examples include strengthening local institutions, or encouraging better farming practices.

"Low-regret measures" come next and include measures that will only have very low costs. These could include providing better weather information to farmers or water conservation measures.

The next priority after this is to address those long-term investments and decisions that could be significantly affected by the impacts of climate change, including infrastructure and other large investments such as the location of a bridge or the durability of a new road.

While the Rwandan government is developing this sophisticated mechanism to attract and disburse climate funds, it needs funds to work. Whether there is sufficient interest and commitment in the international community to use a national tool such as this remains unclear.

FONERWA is due to start operating in the next few months, and Rwanda will become an early test for both the commitment of the international community and for how national mechanisms such as this one work in practice.

All eyes on Kigali in 2013.

Susannah Fisher is a researcher in the climate change group at the International Institute for Environment and Development (IIED). This blog post first appeared on the IIED website.

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