How the private sector can fund forest landscape restoration - Opportunities in Rwanda and Kenya

Many countries around the world are beginning to restore degraded and deforested land. Nora Nelson, water resource specialist at Terra Global Capital, considers how the private sector can play a role in restoration, using examples from Rwanda and Kenya.

Forest and agricultural landscape, Western Province, Rwanda

In Rwanda, one of the world’s least developed countries, the problem of land degradation is extreme: farming on steep hillsides and fragile lands has resulted in the degradation of nearly 80% of agricultural land (as measured by risk of erosion and soil loss). After a lack of land, the erosion of soil is said to be one of the strongest drivers of the enduring poverty of farmers in Rwanda.

The good news is that these lands can be restored, with farmers as the beneficiaries – and the government of Rwanda has committed itself to this course of action. But public funds (domestic and international) for restoration cannot begin to meet the large demand for intervention. In a recent desk-based study commissioned by IUCN, Leslie Durschinger, Luz Abusaid, and I asked whether the private sector could be engaged in revitalizing Rwanda’s degraded land and, if so, whether such engagement could form a model for other countries.

Our answer to both, found in the soon to be released report, Opportunities for Private Investment in Rwanda’s Forest Landscape Restoration, was yes.

Two potential players in Rwanda: hydropower and tea

Analysis of restoration opportunities in Rwanda has identified 120,000 hectares of land suitable for the establishment or restoration of protective forests in sensitive areas like steep land, ridge tops and along waterways. Restoration in these areas promises a return on investment in the form of increased ecosystem services like soil erosion control and improved soil health and stability, resulting in reduced siltation and sedimentation of waterways and improved water quality throughout the region.

This could directly benefit two of Rwanda’s largest users of watershed services: tea estates and hydropower producers. Both are big industries. Tea is one of the country’s top foreign currency earners, with 90% of domestic production used for export. Hydropower, meanwhile, provides more than half of Rwanda's current output and is slated to more than double its capacity if government goals for rural electrification are realized.

Both industries stand to benefit from reduced siltation and sedimentation of waterways, stabilized water flows, and improved water quality. For example, export-oriented tea estates in the Nyungwe watershed in southwestern Rwanda require 60 million cubic meters of water a year. Without adequate water supplies, a recent study suggests this industry could incur $US 82 million in additional costs related to water treatment. Too much water, meanwhile, ruins crops. Floods on fewer than 100 hectares of tea plantations can result in losses of more than $500,000 USD. For tea producers in Nyungwe, flood risk reduction has thus been valued at approximately $14 million USD annually. In the hydropower sector sedimentation is the primary concern, as this reduces reservoir capacity and power generation ability. When eroded soil ends up in dam reservoirs and turbines, costs of generation go up and obligations for production may be hard to meet. Watershed protection services from restored forests also reduce economic losses associated with required maintenance: partial or complete shut downs may be required when infrastructure becomes blocked with sedimentation. The annual cost associated with excess sedimentation of just one hydropower plant in Gishwati, in the north of Rwanda, is approximately $1.5 million USD, with an associated energy loss of approximately 40% of total production.

Take Home & Recommendation: Water-reliant industries like hydropower and tea could be encouraged to invest in restoration activities. Rwanda has a mechanism in place to engage public and private interests in restoration: FONERWA, an environmental and climate change fund for investment in green growth. With a focus on public-private development initiatives, FONERWA funds projects focused on micro-hydro and micro-grids, rainwater harvesting and reuse, agroforestry, biogas and fuel switching, and more. While tea and power producers should be encouraged and supported in engaging in restoration on their own lands, FONERWA can align funding to promote restoration among “upstream” smallholder tea producers and, more broadly, at the watershed scale.


The business case in Kenya


A recent feasibility study on using investments from a Water Fund for restoration in Kenya highlights the potential business case for private sector investment in restoration. The study considered three priority sub-watersheds in the Upper Tana-Nairobi region, which were characterized by forests on steep hillsides and wetlands that have been converted to agriculture. As in Rwanda, sedimentation of waterways resulting from soil erosion has resulted in decreased reservoir capacity and increased water treatment costs. (In the wet season, water treatment costs often increase by more than 33% due to sedimentation). Like Rwanda, most farmers cultivate maize, coffee, tea, green beans, and bananas, own small parcels (72% of smallholders possess two hectares of land or less), and report active erosion and loss of land.

The feasibility study asked: where would a hypothetical restoration investment of $10 million disbursed over ten years go and what would the results be? Restoration interventions considered include improved riparian management, agroforestry, terracing of steep and very steep farmlands, reforestation of degraded lands at forest edges, grass buffer strips on farmlands, and mitigation of erosion from dirt roads. Similar to the benefits considered in the economic analysis included in the Restoration Opportunity Assessment for Rwanda, the main benefits considered for three primary stakeholder groups – famers, Nairobi’s main water and sewerage service providers, and KenGen, Kenya’s leading power company - in the region included: increased agricultural yields for upstream farmers, decreased water treatment costs, and increased hydropower production.

The findings are telling. According to the report, a conservative $10 million investment to implement restoration activities would result in a decrease of sediment loading in waterways across the three sub-watersheds by more than 50%, resulting in up to 15% more water in the dry season. Restoration interventions would bring up to $3 million/year in increased agricultural yields for smallholders and generate more than $600,000 in additional annual revenue for KenGen. Water utilities would receive a cost savings of approximately $250,000 annually from avoided filtration, decreased energy consumption, decreased sludge disposal costs, and fewer shutdown days due to sedimentation. On a per-hectare basis, economic benefits for general agriculture production could increase by $68 per hectare, while tea producers could see an increase of $479/hectare. In all, an initial investment of $10 million would result in $21.5 million in economic benefits to these three stakeholder groups in the three priority sub-watersheds after 30 years.

Conclusion: lessons for the region?

Our studies are consistent in their findings: investments in landscape restoration in East Africa bring strong ROI and real benefits for rural famers, including increased crop yields, more water in dry seasons and fewer floods, and lower energy and water treatment costs. A similar study by the Rwanda Environmental Management Authority concluded that investments in watershed management can expect to receive a 7% annual ROI and would result in an increase in household incomes from agriculture by about 30%. By 2020, investments of $1.5 million USD in watershed management in Rwanda are anticipated to return three times that amount.

If the private sector can be engaged in funding restoration, they will benefit. Innovative funds like Rwanda’s FONERWA and Kenya’s Upper Tana-Nairobi Water Fund should serve as a lightening rod for private sector investment by making the business case for investors, and matching those investments with appropriate landscape restoration activities. These investments will contribute to food, water and energy security while enabling people around the world to continue to enjoy Rwanda and Kenya’s most popular exports a bit more sustainably.

The report Opportunities for Private Investment in Rwanda’sForest Landscape Restoration will be available from IUCN by July, 2015.

Work area: 
Business
Economics
Ecosystems
Forests
Forests
Forest Landscape Restoration
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