Arab Finance: At COP27 that was held in Sharm El Sheikh last November, the International Fund for Agricultural Development (IFAD) signed agreements with the Egyptian government to be the leading agricultural pillar of the Nexus of Water, Food, and Energy (NWFE) program investing around $3.35 billion to help Egypt in achieving its sustainable goals. IFAD has been funding rural investments in Egypt since 1980 and has invested nearly $520 million in 14 projects.

With all the discussion about water security, rural investments, and food shortage, Arab Finance sat down with Dr. Mohamed Abdelgadir, IFAD's Country Director for Egypt and the Head of the IFAD Multi-Country Office for the Near East, North Africa, and Europe Division to discuss these topics.

What can you tell our readers about IFAD’s investment portfolio in Egypt, projects, and funds in the past year?

Currently, IFAD is implementing three investment projects with a total financing of $176.264 million. With the Promoting Resilience in Desert Environments (PRIDE) and Sustainable Agriculture Investments and Livelihoods Project (SAIL), the Sustainable Transformation for Agricultural Resilience in Upper Egypt (STAR) is ratified and yet to be launched by the beginning of 2023, with a total budget of $269.640 million at design. PRIDE aims at reducing poverty and enhancing food and nutrition security through remunerative, sustainable, and resilient livelihoods in climate change-affected areas by improving the productive capacities of poor rural households and assisting communities in enhancing the productive potential of newly reclaimed lands. SAIL is designed to enable smallholder farmers to increase their incomes and profitability and diversify their livelihoods. The project aims to strengthen smallholder institutions, improve agricultural production and marketing, and build capacities for employment and enterprise development. STAR's goal is to contribute to improved living standards for smallholder farmers and poor and vulnerable women and youth in the rural areas of Upper Egypt.

As the development financial institution leading the food and agriculture pillar of the NWFE program, what plans do you have for this pillar and where do you see it taking Egypt in the short and long runs?

During COP27, IFAD signed a partnership agreement with the Government of Egypt to lead the food pillar of NWFE. The food pillar of NWFE addresses adaptation and resilience efforts through sustainable investment in water and food security. As for phase 1 (2023-2030), it includes five projects with a total cost of $3.35 billion. The plans are to enhance smallholder farmers’ adaptation to climate risks, increase crop yields, and improve irrigation efficiency to build resilience in vulnerable regions. Moreover, the program plans to develop water desalination capacity, establish a nationwide early warning system, and modernize farm practices. Choosing IFAD to lead on the food pillar is a strong signal of trust and recognition of IFAD’s leadership in the sector. It also reflects IFAD’s long-standing partnership with the Government of Egypt, not just as a key development partner, but also as an assembler of finance, bringing together partners, and as the main financier for the agriculture sector. I believe this program will change the lives of many smallholder farmers and transform the agricultural sector in Egypt. It will give hope to smallholder farmers and show how we can bring together action for climate, food systems, and food security. Currently, IFAD is planning climate-resilient on-farm water management in the Nile Valley and Delta (CROWN), with a total cost of $1.6 billion expected to benefit 15 million people directly and indirectly.

Beyond NWFE, what other flagship agreements has IFAD signed during COP27?

The Russia-Ukraine conflict posed tangible challenges to the Egyptian economy; it has led to a rise in inflation to about 21.3% in December 2022. It has also affected the tourism sector, the banking sector, and the ability of the Egyptian economy to attract foreign capital. More importantly, supply chain and logistical disruptions in Ukrainian and Russian grain and oilseed production and restrictions on Russia’s exports had significant food security repercussions. Out of its 13 million tons of wheat imports in 2021 (worth $4 billion), 85% come from Russia and Ukraine, as does 73% of its sunflower oil. The Russia-Ukraine conflict has catapulted prices to unsustainable levels for Egypt, increasing the price of wheat by an additional 44% and that of sunflower oil by 32%. In its 2022/2023 finance bill, the Government of Egypt allocates $4.8 billion for food commodities and bread subsidies (+2% compared to 2021/2022). In early 2022, the Egyptian government provided incentives to local farmers to increase production in light of Russia’s invasion of Ukraine, threatening about 80% of the country’s imports. IFAD and AfDB have supported the government in preparing a COMPACT to (i) increase food self-sufficiency ratios for wheat, (ii) create new job opportunities, and (iii) reduce the burden on the country’s balance of payments. The COMPACT seeks to promote the diversification and cultivation of heat and saline-tolerant varieties in key identified agriculture areas, increase the cultivated area through horizontal expansion on newly reclaimed lands, and support breeding programs in order to develop high-yield potential varieties that cope with the challenges of climate change. These objectives will be pursued through (i) enhancing irrigation infrastructure to improve water use efficiency and enhance productivity; (ii) increasing storage capacity by constructing 6 new silos; (iii) supporting the Agricultural Research Center to develop high-yielding and saline-tolerant varieties and (iv) improving the supply chain of seed production through seed quality control and certification. This COMPACT is an opportunity to increase the investments needed to fulfill the objectives of the Vision for 2030.

As Egypt is one of the most water-scarce countries in the world, what do you think is the most sustainable and affordable approach to this predicament?

Water scarcity is the defining environmental phenomenon throughout the Arab world. Despite the region accounting for more than 5% of the world’s population, it has less than 1% of global water resources. Since 1970, Egypt's per capita share of renewable water resources has decreased by 60%, to around 560 m3/capita1, well below the water poverty line. This issue is further exacerbated by population growth as well as climate change, and further declines in water resources are expected. To address water scarcity issues, Egypt's government has developed a strategic plan to manage water resources until 2037, with an initial estimated budget of $50 billion that is expected to be increased to $100 billion. The plan is based on four main pillars: 1) improving water quality; 2) developing new water resources; 3) rationalizing the use of available water resources; and 4) raising the efficiency of the Egyptian irrigation system to maximize the efficient use of limited water resources. The most sustainable approach for the Egyptian government is increasing the efficiency of its water infrastructure, catalyzing the shift towards modern on-farm irrigation systems, promoting drought-resistant varieties that consume less water, harvesting rainwater in coastal areas for irrigation purposes, and training farmers on the rational use of water resources. In line with the government’s new approach, Egypt should not address water issues as separate from food and energy but rather utilize the nexus approach to maximize water efficiency linked to food security while harnessing renewable energy (e.g., solar energy) for irrigation and other farm uses.

Can you elaborate on how climate change is altering the agricultural scene in Egypt and what IFAD is doing to counter the damage?

Climate change impacts on the agriculture sector in Egypt will have severe socio-economic consequences. The projected rise in temperature and change in its seasonal pattern, coupled with an increase in the frequency, intensity, and duration of extreme weather events—such as heat waves—due to climate change, would decrease the productivity of some crops and livestock, have a negative impact on marginal agricultural areas, and potentially increase desertification rates. Projected sea level rise threatens Egypt's most fertile land in the Nile Delta with increased soil salinity as well as groundwater salinization. In addition, the increased annual rainfall variations in the Ethiopian highlands and adjacent eastern Nile basins due to climate change will lead to an increase in the inter-annual variability of the Nile flow. Different estimates predict an overall decline in national food production of between 11% and 51% due to climate change, which will have serious implications for food security. Egypt's Third National Communication to the UNFCC predicts a decline for strategic crops such as wheat and maize of 11–12% and 40–47%, respectively, under a 1.5°C increase scenario. Through its projects, IFAD is supporting the government of Egypt in building the capacities of rural communities to adapt to climate change. The interventions targeting water resources focus on improving irrigation efficiency through canal lining, modernizing on-farm irrigation through buried pipes and drip irrigation networks, harnessing clean energy in irrigation through electricity-powered pump houses and solar-powered drip irrigation networks, developing rainwater harvesting systems in Marsa Matrouh; setting up and supporting Water User Associations to manage water resources; and piloting new technologies such as hydroponic and aquaponics systems. IFAD also promotes better agricultural practices through training on climate-smart agriculture using the farmer field school approach, demonstration sites, and pilot fields for good agricultural practices; and the introduction of new and hybrid varieties that are adapted to local climatic conditions, including heat-tolerant varieties. IFAD is also ensuring that farmers have up-to-date weather forecasts and digital extension information through an Early Warning System. In addition, the support that IFAD projects give to marketing through building marketing associations and digital marketing contributes to the reduction in post-harvest losses. Finally, through lines of credit, IFAD channels finance directly to smallholder farmers to invest in irrigation efficiency or diversify their incomes, with a special focus on women and youth.

What areas and locations in Egypt do you think need the most agricultural funds, and why? Furthermore, how are you promoting resilience in that area?

The IFAD's support is conditioned on robust targeting criteria. These include: 1) the highest incidence of poverty and food insecurity; 2) synergies between both old and new land investments; 3) geographic vulnerability; 4) climate and environmental risks; 5) opportunities for productive inclusion; 6) capacity of rural economic organizations; and 7) high local-level risks. The strategy will ensure that efforts are clustered and concentrated to maximize operational efficiencies, with the potential for scaling up and replication. Target group: Investments will target rural households that have poor inhabitants who are currently or potentially economically active. Within this group, special measures will be taken to ensure the inclusion of smallholders cultivating less than one feddan (0.42 hectares), landless laborers, unemployed youth, and women-headed households. Gender strategy and action plan: Gender equality and women's empowerment, addressed as a priority under all new investments, will be promoted by: 1) enabling the full participation of women in project interventions, including rural finance; 2) providing an enabling environment for agricultural opportunities with higher levels of female involvement; and 3) building the capacities and skills of rural women to enable them to reach their employment potential. The IFAD gender strategy will build on interventions such as the adoption of the gender action plan under the National Strategy for the Empowerment of Egyptian Women 2030 as well as the IFAD gender action plan.

How do you view the health of the agritech industry in Egypt today, both in terms of investment and demand? And how can the industry unlock its full potential?

While Egypt has both high-level enabling policies as well as a flourishing digital ecosystem, it needs: i) Coordinated Actions: Synergizing knowledge and investments into co-creation, partnership, and creating an enabling environment for developing a digital ecosystem IFAD had an interesting governmental task force formed for its first AgriTech Meet in Egypt 2022; building on this task force that brought together the various ministries and IFAD, a joint taskforce was formed to bring key industry players together on a regular basis to enable knowledge exchange, innovation, and partnerships or investments into flagship programs, pilots, and scaling up technology solutions in agriculture. ii) Removing Silos: To avoid duplication of efforts, the existing platform from MCIT may be upgraded to develop a common platform for digital initiatives to bring key players together. IFAD and other members of the taskforce will regularly feed data to the existing platform and identify potential synergies with other agencies. iii) Mapping of agricultural data for natural resource and water management: Synergize investments and capacities to develop open data platforms for agriculture data and the usage of precision technologies to promote efficient soil management, agroecology, yields, water availability, etc. Satellites, remote sensing, and spatial data and imagery will be crucial to enabling useful methods for land use management and water accounting. engaging with local agritech, IFIs, and other development institutions through coordination platforms (taskforces). IFAD can provide technical advisory support to mapping processes for Precision Technologies adoption in collaboration with other development agencies and the private sector. iv) Develop a digital agriculture strategy/action plan combing requirements on Data governance and ownership- This will support a full in-depth landscape review of solutions, and partners and recommend actionable steps related to data use, ownership, and security as highlighted during the agritech conference thereby promoting move engagement among stakeholders. V)Human and Social Capital- Digital literacy can be mainstreamed as part of IFAD investment projects, IFAD) and other development agencies projects supporting the vision of Haya Karima and Digital Egypt. As part of IFADs ICT4D strategy and corresponding action plan, we also aim to support capacity development of in country implementing partners including farmer organizations, lead farmers, and other civil society organizations supporting smallholder farmers on digital adoption. vi) Fostering Innovations- Through engaging with Agritech/Fintech under IFAD-supported projects, IFAD can support both in bringing forth lessons and investment-ready partners to engage with MCIT- and MALR-promoted incubation programs as well as venture capital funds. Through the taskforce other development partners Co-creation of digital and farm infrastructure to Increase local production and productivity: The agritech meet brought forth smallholder voices indicating need for both digital and farm gate infrastructure to enable agriculture transformation. Enabling contract farming but also storage facilities, collection centers, Private financing De-risking solutions, and Agribusiness development.

What can we expect from IFAD investments in the coming period?

IFAD is working jointly with the Egyptian government on designing its investments to better answer Egypt’s needs for development. Its new mega-investment flagship project with Egypt in the context of the NWFE program focusing on Climate-Resilient On-Farm Water Management and Agricultural Production under Water Scarcity Conditions in the Nile Valley and Delta (CROMAP) is being designed to revolutionize the irrigation system in Egypt with a development objective to modernize the water management network (upstream and on farm parts), improvements in land use, agricultural production adaptation to climate change, and farmers’ resilience and rural livelihoods. Meanwhile, IFAD is working on its mainstreaming issues, including promoting better nutrition for its rural communities, gender equality and women's empowerment, youth empowerment, and better natural resource management.

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