Water investments in the Arab region: a new policy agenda
By Edoardo Borgomeo, Mohamed Manssouri and Nuno Santos, Tuesday 11 Feb 2020



How can public and privatefinance contribute tosustainablewater investments? This is an increasingly relevant question given thepressures on water resources posed by population growth, climate change and changing lifestyles. Thisquestion is even more relevantin the Arab region, wherewater resources are scarce,public finances stretchedand unemployment high.The Arab region is a global hotspot of unsustainable water use, with at least30 percent of current water consumptionexceeding sustainability limits.Fiscal challenges have also arisen, with overall fiscal balances (tax revenue and proceeds from assets sold minus spending)having deteriorated in the region since 2008.Finally, large and persistent levels ofyouthunemployment–hovering at about 25% for the past 25 years- present an urgent challenge for most Arab countries.





As theneed to attract private investorstocreate jobs andmove towardssustainable developmentbecomesincreasinglyclear,we needto identify a new policy agenda that enables sustainablepublic andprivatesector investments in water.





Not enough financing



Thewater financingchallenge is daunting.Despite enormous efforts, most Arab countries are not spending enoughin water.And the issue is not just with the quantity of spending, but also with its quality.To address thisshortfall, private capitaland know-howneed to be mobilizedatan unprecedented scale.This is trueforwater, but alsoforother sectors. The region needstrillions of USDin quality investmentsof all kind toprogress towards theSustainable Development Goals.





Private finance is alreadyplaying an increasing role inrespondingto global environmental change. Through green bonds,for example,investors around the world are directing more and more resources to finance projectsfocused onclimate resilience and environmental sustainability. The green bond market has seen an exponential growth in the last years, reaching$180 billion in 2019.





Ongoing innovation processes in financial products –tying them to environmental performance - seem to hold promise for improving the quantity and quality of water investments in the Arab region.In the last two years,sustainability-linked loans haveemergedas a new instrument of sustainable finance. Contrary to green bonds, which tie funds to investments specifically targeted at climate resilience and sustainability, these loans tie interest rates to sustainability performance targets,including water conservation. Hence, an improvement in the borrower’senvironmental performanceas measured by specific performance indicatorstranslatesinto lower borrowing costs.These mechanisms hold great potential, and are being adopted by large corporations, includingwater technology giant Xylem.Nonetheless,theirscope and depth differ considerably, meaning thattheir applicationcan bechallengingin practice.Development finance is also increasingly used to support low-emission,climate resilient projects,however, thepool of climate finance available for water projects remains smalls compared to other flows of development-relevant finance.More can be done tomobilizefinancing for water-centered adaptationon the grounds that these investments build resilience while abating emissions, for instance throughimproved efficiency in water and energy usein irrigation.





Fourfoundations





While financial innovations can help harness private investment forsustainable development and food security, the benefits will only be reaped if the enabling policies are in place.This is the key message of“Towards a new generation of polices and investments in agricultural water in the Arab region: fertile ground for innovation”,a reportwepresented at the League of Arab States earlier this year.Prepared forthehigh-level ministerial meeting on agricultural water policiesheld on April 4thin Cairo, the report highlightsfourfundamentalpolicy prioritiesthatneed to be pursuedto leverageprivateand publicfinance and innovation for water sustainability.Unless these priorities are pursued, it will be difficult to build the necessary foundations for successful financing.





The first priority is to value water.Valuing water means protecting its quantity and quality, so thatitcan be allocated to the areas of highest social, environmental and economic value. Unless water’s value is properly recognized, we won’t be able to protect thehuman right to water, norharness water’sproductive potentialtosupport the right to food.Cost recovery for irrigation is onewayto value water,with several Arab countrieshaving recently introducedwater pricing inpublic irrigation schemes.Taking into consideration the lessons for past initiativesand new available technologies, further attempts can be made at involving the private sector in development, operations and maintenance of irrigation and drainage infrastructure.Measurement underpins valuation,sopolicies are needed to close the data gap, in particular, to enhancewater accounting and modellingcapabilities.With theglobalValuing Water Initiativeofficially launched in 2019, now it’s the time to bring systemic change to the way water is valued.





Second, policy needs to accelerate thefood system transformation.Water isat the heart of thistransformation, with more reliable, transparent and sustainable management ofthiskey resourcerequired foragrifoodsector development and higher value agriculture.Policies should aim at promotingclimate-resilient agrifood value chains, reducing food loss and waste, building capacity,and fostering market competitiveness.Thiswill help increase the productivity of competitive staple crops and crops with exportpotential.Technology has a key role to play here. Water saving agricultural technologies such as hydroponics canimprove well-being, including nutritional status,for farmers and groups of people that are less integrated into the labor market, especially refugees.Achieving this transformationalso meansreassessing support policies for specific crops for whichthe region has no comparative advantage.Unlesspolicy instruments that distort agricultural marketsarereplaced with more market-friendly support measures, it will not be possible to createsupportive business environments for investment in modern, high value-added agriculture.Finally,the food system transformationhinges on improved governance of water resources, notably of groundwater, to address equityand sustainabilityissues between uses and users. This is perhaps the most challengingtask, as existing state-centredgroundwater governance models have not halted depletion, andsuccessful cases ofparticipatory andcommunity-centred governance are rare too.





Third, digital technologies need to be put at thecentreof agricultural water management. Digital is not just about IT infrastructureor mobile phones. It is ratheran integrated set of opportunities leveraging technologies ranging fromremote sensing to monitor evapotranspiration, the Internet of Things, and advanced analytics, through tofarmer-centricservices to guide irrigation applicationsand other water management.In theGezira Irrigation Scheme in Sudan, geospatial analytics using remote sensing monitor crop water requirements and advise farmers through SMS on plant health and water needs. This led to yield increases of as much as 200% to 250%.





Finally, decisive action is needed to better target social protection measures. Cash transfers andsocial safety netsare instrumental to the region’s social cohesion and progress.Ourreporthighlights that current policies focusedon lowering consumer prices for specific food products have notcontributed to the region’s agriculture competitiveness, and they have not helpedtackling the region’s high rates of malnutrition and obesity.Targeted measures such ascash transfers, on the other hand, can empower individuals and reinforce social protection policies, while contributing to positive food security outcomes. Asevaluations of Egypt’s first cash transfer program,Takaful and Karama,show, better targeting can make a positive difference in the lives of poor beneficiaries exposed to food price fluctuation.





Towards sustainable Arabagrifoodsystems





Since the earliest times, the Arab region’s spirit of agricultural enterprise has helped societies to thrive despite challenging environments. From the seventh to the eleventh century, this spiritradicallytransformed water management practicesinavastarea,spanning present-dayIndia all the way to Spain. Thisprocessnot only affected agricultural production and incomes, but also urban growth, job markets and other spheres of life.





If the region’s spirit of agricultural enterpriseis to surviveandrespond totoday’s challenges, then local and global players must be willing to transformwater management in food systems.This starts from sound policies, which will help mobilize much needed private finance and reduce existing inequalities and imbalances in access towater.This will help achieve thetransformation of our food systems, the central theme of the recentlyannouncedUN Food Systems Summit in 2021,needed to achieve the Sustainable Development Goals.


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