Between July and November 2012, Nigeria experienced its worst floods in 40 years. During that period, 363 people were killed and over 2.1 million people were displaced. The floods cost the nation N2.6 trillion, according to the National Emergency Management Agency, with the housing and agriculture sectors taking the biggest hits.
On one hand, the huge financial loss highlights the scale of the natural disaster and the humanitarian efforts it required. On the other hand, the cost was so great that, given the fiscal constraints to meeting this need, the affected communities will bear the brunt of the disaster for many years.
In Africa, drought, flood and cyclones have been wreaking havoc on communities, and across countries. For example, a severe drought between 2011 and 2012 affected the whole of East Africa. As a result, over 9.5 million people experienced crushing food shortages; the disaster also resulted in a refugee crisis.
“The prospects of extreme weather shocks show that Africa is increasingly susceptible to climate risks. The grim reality is that some people will be traumatised by repeat experiences considering the large size of the areas that are prone, and the distressing experience of displacement.”
Climate disasters are likely to occur more frequently due to the rise in global temperatures and sea levels. Because of her very limited capacity for crisis response, Africa is especially vulnerable to climate disasters. With the certainty of natural disasters, the continent faces a challenge to build resilience in vulnerable communities and deliver timely assistance when the risks arise. These are no mean challenges at all, given my affinity to the Nigeria 2012 experience.
Many of us often underestimate Africa’s capability to rise to this and face many other daunting challenges on the continent, citing a lack of political will and effective policymaking, not least financing, as major shortcomings. But this is not always the case. African policymakers came together in 2012, under the aegis of the African Union (AU), and founded the African Risk Capacity (ARC) as a specialised agency for financing climate resilience and crisis response.
An initial returnable fund of $90 million was provided to the agency by the governments of Germany, through BMZ and KfW Development Bank, and the United Kingdom, through DFID. The objective is to provide African countries with early funds, linked to pre-defined national climate contingency plans, and for quick response in the event of climate disasters. This initial assistance is to reduce Africa’s reliance on external funding to address climate risks.
The ARC is a weather insurance mechanism for the member-countries of AU with a combination of a climate risk analytic, the Africa RiskView, and a financial arm, ARC Insurance Company Limited. Africa RiskView is a risk modelling platform, which provides early warning and parametric insurance tools that trigger the need for an insurance payout when the risk that is covered occurs. This automated process aids the objective of delivering a timely response.
The ARC is already off the ground. No less than 37 countries have signed up to the initiative, including Nigeria. The initial risk pool, which covered the 2014/2015 rainfall seasons, consisted of Kenya, Mauritania, Niger and Senegal. The drought insurance policies issued to the countries totalled an estimated $130 million in coverage for a total premium cost of $17 million.
The first set of insurance payouts – over $26 million – has been made under this initiative in January 2015, with Mauritania, Niger and Senegal benefiting as a result of drought conditions in these countries in 2014. Five other countries have since signed up. This has increased the drought coverage for the 2015/2016 rainfall seasons to over $190 million.
However, the ARC aims to do much more. It targets up to 30 countries for coverage of its drought, flood and cyclone policies, totalling approximately $1.5 billion by 2020. An estimated 150 million Africans will benefit from the risk covers. For this, however, only $300 million in premium payments is required. This underscores the cost-benefit of early intervention through the African Risk Capacity which guarantees that every dollar spent on its insurance saves nearly four and a half dollars that would be spent after a crisis happens. The question, therefore, is, how do Africans push towards the target coverage of the scheme? I’ve thought about this a lot, because we need to ensure that Africa does not continue to be a graveyard for good initiative, due to lack of awareness, cynicism and inability to put our money where our mouth is.
Irrespective of the cost-benefit of this risk insurance, it potentially faces the general apathy towards insurance in Africa, which makes the continent the least insurance-protected region in the world. This challenge can be surmounted, in part because of the governmental stakeholding in the ARC and because it can be a basis of peer review by the NEPAD (New Partnership for Africa’s Development) with regard to citizen protection from natural disasters. But this can also leverage local advocacy. Sufficient awareness needs to be raised at the national level about this scheme. Civil society actors can take this further by intimating local representatives, especially legislators, on the need to provide covers for the vulnerable communities they represent rather than having to face the challenges of responding to the humanitarian crises that often follow such disasters.
Nevertheless, as it has been identified in some countries, payment of the required insurance premium could be daunting. From a fiscal point of view, it is admissible that many African commodity-exporting economies are already facing challenges in meeting existing commitments, as commodity prices have remained depressed. However, the sheer impact of natural disasters as we have seen them in recent years can put more serious pressure on the fiscal regimes. When the governments are confronted with humanitarian crises, the financial and humanitarian costs of a crisis-response would very likely outweigh the insurance premium cost. Therefore, it becomes the case of setting smart financial priorities, leveraging the little amount in premium payment to deliver quick and effective assistance to citizens affected by natural disasters.
The African Risk Capacity also constitutes a real opportunity for African philanthropists to leverage their charitable giving, making it more impactful. In response to the 2012 flood crisis in Nigeria, the country’s billionaires were mobilised to raise money for the humanitarian needs of the affected people. This ad hoc approach cannot deliver assistance on a timely basis. However, the reactive model can significantly change if the private sector social funders help to contribute to the payment for insurance premium under the ARC.
Given the opportunity for public-private partnership provided by the initiative, it would be appropriate for each national government that has signed up to the ARC to set up a central office to coordinate resource mobilisation and private sector engagement. The point is that Africa can leverage its recent successes in private sector development, reducing the dependence on development assistance from governmental and private foundations from outside the continent.
The ARC has a governance structure that is representative of its stakeholders. Signatories to the initiatives make up the Conference of Parties, the main governance body for the Agency. Africa’s highly respected and influential global leader, economist, policy maker and thinker on finance and economic development, Nigeria’s Ngozi Okonjo-Iweala is the Chair of the Governing Board of ARC, with other executives of proven competencies running the Agency.
The ARC will likely show that, with little external assistance, combined with the resources of African governments and increased private sector prosperity, the continent can deliver disaster recovery to its vulnerable populations. This just has to be the case, given the outlook of climate risks.