Valuing Water Investments, Upper Tana Watershed, Kenya
Developing a business case and return-on-investment analysis for investing in watershed services, securing clean water and hydropower for the city of Nairobi while improving local farmers' livelihoods. Partners: Stanford University, The Nature Conservancy. Collaborators: FutureWater, the Upper Tana-Nairobi Water Fund Steering Committee.
The Challenge
Across the world, people are facing the intersecting challenges of water scarcity, population growth, and the need for innovative approaches to increasingly complex water issues. For decades, the forests in the Congo Basin, often situated on steep hillsides, have been converted into cropland. Over 300,000 small-scale farmers grow maize, coffee, tea, and bananas across the Tana River watershed. This has resulted in the removal of natural areas that had previously retained runoff water and soil. Thus, when it rains, soils increasingly wash into the river, building up sedimentation and disrupting water treatment facilities, exacerbated by the valley's steep slopes. The Tana River not only supplies 95 percent of the water for the city of Nairobi’s 4 million residents, and for another 5 million people in the watershed, but it is also a key water source for the country's most important agricultural areas, generating half of the country's hydropower output. Today, 60 percent of Nairobi’s residents do not have access to a reliable water supply.
Our Solution
To stem the decline in both water quality and quantity in the Tana River (and thus for Nairobi), public and private partners worked together to establish a watershed management plan, beginning with a study and business case to assess the impact and economic viability of a water fund. The analysis evaluated the impact of conservation interventions to reduce soil erosion from farmland, reduce suspended sediment in waterways, and increase dry season water flows, key issues affecting water supply and community sustainability. The business case established an evidence-based link between upstream conservation efforts by farmers and the economic benefits for downstream users, incentivizing private sector contributions.
Through modeling the potential economic benefits of a fund supported by downstream beneficiaries, this study provided evidence that supporting upstream farmers in doing land conservation measures was a good investment, while providing guidance for implementation. This collaborative approach involved input from a diverse range of stakeholders, including farmers, municipal water supply representatives, and hydropower producers, ensuring that only feasible locations and land management activities appropriate to local conditions were considered.
This work supported the development of the Upper Tana-Nairobi Water Fund, launched by the Nature Conservancy (TNC) in 2015. Downstream water users, such as businesses, utility companies, and local governments, invested in the Upper Tana-Nairobi Water Fund Trust, while building relationships with tens of thousands of farmers upstream, enabling the implementation of conservation measures that support upstream water and soil conservation.
Due to its success, by September 2021 the trust became an independent Kenyan-registered entity, now managed by local leadership, rather than as a program within TNC. With Coca Cola and other beverage companies such as East African Breweries PLC (EABL), a local electricity generation company, and Nairobi’s water and sewerage company, all partnering to support upstream interventions for water resource protection, this water fund is a clear example of a blended finance solution. Blended finance allows scaled investments in the water sector while generating widespread benefits for downstream and upstream beneficiaries, resulting in increased funding for restoration projects and significant cost reductions for the companies.
For more information, visit the water fund website: https://nairobiwaterfund.org/.
Banner image photo credit: Michael Gichane, iStock