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African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation
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African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation

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African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation

African Union African Risk Capacity ARC Briefing Book Rockefeller Foundation

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  • 1. African Risk Capacity (ARC) Briefing Book AFRICAN UNION
  • 2. African Risk Capacity - ARC Sovereign Disaster Risk Solutions: A Project of the African Union ARC BRIEFING BOOK Contents Section 1 – An Introduction to the African Risk Capacity Project 1 What is the African Risk Capacity (ARC)? 2 Tanzania Brief 3 Chairperson of the African Union Commission H.E. Dr. Jean Ping’s Comments on the ARC “Sheltering the Most Vulnerable.” Editorial. Financial Times, This is Africa. Sept/Oct 2011: 68-69. Print. Section 2 – A Closer Look at the African Risk Capacity and Africa RiskView Software 4 ARC Summary Note 5 Africa RiskView Technical Bulletin 6 East Africa Brief 2011 Section 3 – Diplomatic Notes and Policy Decisions 7 Note Verbale on the ARC to All Member States of the African Union 8 Aide Memoire on the ARC 9 Decisions taken on the ARC by African Ministerials and Policy Organs of the African Union AFRICAN UNION Dr. Joanna Syroka Senior Programme Advisor E-mail: Joanna.Syroka@wfp.org Mr. Shadreck Mapfumo Head of Risk Management & Capacity Building E-mail: Shadreck.Mapfumo@wfp.org Dr. Richard Wilcox Managing Director, a.i. E-mail: Richard.Wilcox@wfp.org Ms. Fatima Kassam Chief of Governmental Affairs and Policy E-Mail: Fatima.Kassam@wfp.org African Risk Capacity Project Team Please feel free to contact us with any comments or questions. www.africanriskcapacity.org
  • 3. African Risk Capacity - ARC Sovereign Disaster Risk Solutions: A Project of the African Union SECTION 1 An Introduction to the African Risk Capacity Project 1 What is the African Risk Capacity (ARC)? This one-page document describes the ARC, which is envisaged as an African-owned, standalone financial entity that will provide African governments with timely, reliable and cost-effective contingency funding in the event of a severe drought by pooling risk across the continent. 2 Tanzania Brief This brief provides an overview of how Africa RiskView (ARV) can be used to analyse the potential impacts of drought in Tanzania and highlights the role the African Risk Capacity (ARC) risk pool could play in insuring against such risk. 3 Chairperson of the African Union Commission H.E. Dr. Jean Ping’s Comments on the ARC This Op-Ed was recently published in the Financial Times This is Africa magazine outlining the ARC as an African solution to one of the continent’s most pressing challenges that utilizes modern financial tools and cutting-edge technologies, while decreasing our dependence on external aid. AFRICAN UNION Dr. Joanna Syroka Senior Programme Advisor, Joanna.Syroka@wfp.org Mr. Shadreck Mapfumo Head of Risk Management & Capacity Building Shadreck.Mapfumo@wfp.org Dr. Richard Wilcox Managing Director, a.i., Richard.Wilcox@wfp.org Ms. Fatima Kassam Chief of Governmental Affairs and Policy, Fatima.Kassam@wfp.org African Risk Capacity Project Team Please feel free to contact us with any comments or questions. www.africanriskcapacity.org
  • 4. African Risk Capacity (ARC) Sovereign Disaster Risk Solutions: A Project of the African Union The African Union Commission’s Department of Rural Economy and Agriculture, with technical assistance from the UN World Food Programme (WFP), has initiated the African Risk Capacity (ARC) Project to design and establish a pan-African risk pool called the ARC. ARC is envisaged as an African-owned, standalone financial entity that will provide African governments with timely, reliable and cost-effective contingency funding in the event of a severe drought by pooling risk across the continent. In light of climate change and the rising potential for climate variability, developing mechanisms that prevent the escalating impact extreme weather events remains an urgent priority. Designed to improve the efficiency of current drought responses, ARC will enable countries to provide more timely assistance to affected vulnerable populations, protecting development gains and reducing the short- and the long-term costs of assistance. The key benefits would be to speed the early flow of funds to a country, based on objective triggers, enabling government response actions that reduce dislocation and the negative impact of a disaster on the lives and livelihoods of the vulnerable. It could prevent disruptions to other critical country programmes due to reallocation of limited budget resources and reduce dependence on international appeals for assistance. The ARC would be one of several tools available to governments to respond to disasters and would seek to only partially fund the disaster needs of countries. Each participating country, in advance of joining ARC, would create a contingency plan identifying how ARC funds would be optimized to assist those affected. How it Works. ARC’s objective is to capitalize on the natural diversification of weather risk across Africa, allowing countries to manage their risk as a group and secure funds from donors and the international risk market in a financially efficient manner in order to respond to probable but uncertain risks. ARC will utilize modern financial mechanisms like risk pooling and risk transfer to establish the contingency financing facility. These techniques, while not new, can be applied by African countries in innovative ways to lower the cost of the response to disasters, before they become humanitarian crises, and provide better services to those affected. If ARC is established:  Initial contributions from member countries and donors will form the capital in the pool and countries will pay an annual premium to participate.  ARC will use defined rules to calculate country premiums and allocate payouts to member countries based on predetermined and transparent rules for payment.  Countries can elect the level at which they wish to participate by selecting the amount of risk they wish to retain and financing they would want from ARC for droughts of various severity.  Contingency plans for how to optimize ARC disbursements will be a prerequisite for participation and take into account existing mechanisms, priorities and needs of each participating government.  ARC will implement a solvent and sustainable financing strategy by combining reserves with financing and risk transfer instruments from IFIs and international markets. Payouts from ARC. Rules for payout from ARC will be identified up front, accurately reflect losses faced by member countries, allow payouts to occur promptly as soon as it is clear the rains have failed, and be based on objective and transparent criteria. To establish these rules WFP has developed a software application, Africa RiskView (ARV), which translates satellite-based rainfall information into near real-time response cost estimates. Because of this ARV can serve as the technical engine for ARC providing guidance to governments on risk transfer level options, risks assessments to facilitate contingency planning and identifying, based on objective criteria and once ARC risk transfer parameters are set, when payouts are due to a country. In addition, quantification of risk and cost of participation can create better incentives and benchmarks for investment in DRR and other instruments to inform comprehensive and efficient national risk management strategies. Summary. ARC will provide an objective financing facility that can be used to quantity risk and provide immediate liquidity to countries affected by drought. By merging the traditional approaches of disaster relief and quantification with the concepts of risk pooling and risk transfer, ARC will help create a pan-African drought response system that meets needs of those affected in a timelier and more efficient way and provide an important step forward in creating a sustainable African-led strategy for managing extreme climate risks. Dr. Joanna Syroka Senior Programme Advisor E-mail: Joanna.Syroka@wfp.org Mr. Shadreck Mapfumo Head of Risk Management & Capacity Building E-mail: Shadreck.Mapfumo@wfp.org Dr. Richard Wilcox Managing Director, a.i. E-mail: Richard.Wilcox@wfp.org Ms. Fatima Kassam Chief of Governmental Affairs and Policy E-Mail: Fatima.Kassam@wfp.org African Risk Capacity Project Team Please feel free to contact us with any comments or questions. AFRICAN UNION
  • 5. AFRICAN UNION Country Brief: Tanzania Africa RiskView Drought Indicator Map (2010-2011) Seasonal Performance In Tanzania, more than 70 percent of the population lives in rural areas and depends on rain-fed agriculture. As such the livelihoods of millions of Tanzanians are vulnerable to droughts, which have been among the most common natural disasters in Tanzania in recent years. There have been significant drought events since 2000, with the most severe crisis occurring in 2005/06, when food and cash crop production fell by over 50 percent. Because of Tanzania’s dependence on rain-fed agriculture and traditional cultivation practices, risk management planning for drought remain a major food security issue The Government of Tanzania has made significant strides in climate resilience and disaster adaptation. The Government developed the National Operational Guidelines for Disaster Management in 2003 and the National Disaster Management Policy in 2004 to guide disaster risk reduction efforts. Interventions are currently led by the office of the Prime Minister through the Disaster Management Department and the National Disaster Relief Committee. These departments additionally work with the Ministry of Food Security and Co-operatives, which manages strategic grain reserves, and the Food Security Information Team, an advisory body which provides crop and vulnerability assessments. ARV could complement these existing and useful initiatives through additional data analysis and forecasting, further enhancing the Government’s ability to quickly and effectively respond to climate- related disasters. The map below, from ARV, illustrates what occurred in 2005/06 with Tanzania experiencing below average rainfall in 85 percent of its districts. A vulnerability assessment conducted in 2006 by the Government, non-governmental organizations, and UN agencies estimated that over 3.7 million people were affected in total by this drought. As the chart on the following page shows, these estimates are in line with the ARV estimates that showed 3.5 million people affected by this drought. Drought Indicator Map (2005-2006) The map shows the drought index deviation from normal during the October 2005 to April 2006 main rainfall season. The yellow/red portions indicate areas that suffered from drought, while the green areas experienced normal or above average rainfall. Introduction  This country brief aims to provide the Government of Tanzania an overview of how Africa RiskView (ARV) can be used to analyze the potential impacts of an adverse rainfall season on crop production and populations, as well as highlight ARV capabilities for determining appropriate risk transfer parameters for the African Risk Capacity (ARC) risk pool. This brief is divided into three primary sections:  Seasonal Performance: Recent climate, agriculture, and risk management trends in Tanzania  Vulnerability and Populations Affected: ARV’s estimations and historical data  Risk Transfer: Historical payouts and benefits of risk pooling  Disclaimer: All Africa RiskView products are a work in progress, subject to change at any time and shown for illustration only and are not to be shared further. WFP and contributing donors make no representation or warranty of any kind, whether express, implied or statutory, as to the accuracy or fitness for a particular purpose of the products and information contained within Africa RiskView or this brief. In no event shall WFP, nor contributing donors, be liable with respect to any subject matter presented here.  Poor rains Below average Normal Above average Far above average
  • 6. AFRICAN UNION Country Brief: Tanzania Africa RiskView Vulnerability and Populations Affected Based on ARV’s estimates, and shown in the chart below, 31% of the Tanzanian population is vulnerable to severe drought with smaller proportions vulnerable to mild and medium droughts. In addition, ARV’s estimates of drought affected people in Tanzania show a correlation of 60% with WFP historical data, which is presented in the chart on the right. More refined data, broken down by season, and covering non-WFP assistance – e.g. WFP only assisted 500,000 of the estimated total 3.7 million affected people in 2006 – and past drought assessments will further improve the model. WFP houses a repository of historical operations data, which is a good base to start comparisons, but other factors such as fund availability and pipeline breaks, as well as other non-drought related food security needs also impact operations. Additional information on progress made in other national risk management initiatives in recent years and updated population vulnerability data will also help to customize the model for Tanzania. Country-Level Vulnerability to Drought People Affected Estimated by ARV Risk Pool Discount and Potential Programme Costs and Payouts The table to the left illustrates the potential premium savings that Tanzania could enjoy by joining the ARC drought risk pool. The table assumes 12 other countries across Africa also participate with the same return period and cover the costs of droughts that occur with a higher frequency through other means. The maximum ARC payout is set to correspond to the cost of a 1-in-50 year drought, minus the cost of responding to higher frequency events not covered by ARC. As the return period increases, i.e. the probability of payout decreases, the premiums (as a fraction of the maximum payout) drop, with savings reaching 57% of the market premium rate. The graph to the left shows the potential historical payouts that Tanzania would have received had they been part of the ARC risk pool since 2000 and insured their main October-April rainfall season – this does not include the bimodal rainfall seasons in the north. The year on the x-axis indicates the starting year of the season. A 1-in-10 year payout period is assumed. Funding from ARC could be used to scale-up safety programmes in a predictable manner or support the effective operation of the country’s strategic grain reserve. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Vulnerability to Mild Drought Vulnerability to Medium Drought Vulnerability to Severe Drought - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 Estimated by ARV WFP Historical Record Return Period (Years) Max. ARC Payout Indicative Premium Indicative Savings 5 $470M 19% 17% 7 $350M 17% 23% 10 $250M 13% 33% 15 $160M 11% 41% 20 $110M 8% 57% Summary  Historically, Tanzania has suffered from droughts, which have severely impacted the population. ARV estimates that if a drought with the same severity of the 2005/06 drought occurred today it would still create some type of livelihood stress for over 3.5 million people.  ARV estimates of population affected have shown a relationship with historical emergency needs in Tanzania. This shows that ARV methodology could be appropriate for estimating future seasonal outcomes, but it needs to be customized by government and its partners.  The Tanzanian Government can select a risk retention level which best fits its disaster strategy, and reduce the overall cost of risk transfer by entering into a risk pooling arrangement through ARC. $- $20,000,000 $40,000,000 $60,000,000 $80,000,000 $100,000,000 $120,000,000 $140,000,000 $160,000,000
  • 7. 68 This is Africa This is Africa 69 Perspectives Jean Ping sheltering the most vulnerable S ix months from now, the world’s leaders will gather in Durban, South Africa, for yet another round of negotiations on the challenges and opportunities posed by climate change – who is responsible for the phenomenon, what should be done to address its effects, who should pay for the necessary adaptation and mitigation measures, how much and to whom the bill is due? Every party will bring evidence it considers indisputable to support its own position as it enters the meeting rooms: a flurry of papers, an incessant flow of speakers, and the low din of sidebars from the corners of the room. It is easy for us to become detached in such an environment, but we must not forget the reason we are there. It is widely acknowledged that Africa, responsible for barely 4 percent of global greenhouse gas emissions, bears the brunt of climate change. But that burden is not borne by people like me and you. The most vulnerable populations on this continent, with the most limited capacities to cope, shoulder the burden of climate risk. For this silent majority, Africa’s agenda is “Development First” – inclusive, sustainable development. Across the continent, the agricultural sector still employs about 90 percent of the rural poor. Approximately two-thirds of the population of sub-Saharan Africa resides in rural areas and most are dependent on rain- fed agriculture and rangeland – subject to the vagaries of the weather. Strong links exist between the agricultural sector and other sectors of the economy, intertwining rural and urban poverty. Some studies even suggest that an additional dollar in farm income contributes to a two or three dollar increase in national per capita income. These people, often ignored, are, indeed, the engine of our economies. The increased frequency of extreme weather events driven by climate change and climate variability, we fear, will result in increased risk of hunger and malnutrition in Africa’s most vulnerable populations. As currently structured, the system for responding to natural disasters is not as timely or equitable as it could be. Funding is secured on a largely ad hoc basis after disaster strikes and only then can relief be mobilised toward the people who need it most. In the meantime, lives are lost, assets are depleted, and development gains reversed – forcing more people into chronic hunger, malnutrition and destitution across the continent. We must break out of this cycle. We now have empirical data about the effects of drought, the cost savings of well-timed responses, early warning technology, as well as basic rural social safety nets in many countries. There are modern financial tools that allow us to transfer the burden of climate risk away from the farmers and pastoralists least equipped to shoulder it, to the international financial markets that can handle it much better. We rely on cost- ineffective ad hoc charity for each disaster, while developed countries use insurance-like risk management systems. So why don’t we? The African Union has taken a decision to accelerate action in this regard under the African Risk Capacity project. ARC would provide participating governments with prompt funds in the event of a natural disaster. These contingency funds would be triggered by satellite readings rather than on-the-ground needs assessments, ensuring the quick disbursement of cash when and where it is needed most. African governments would then be equipped to respond to the most vulnerable, before they begin depleting their limited assets in order to cope. The World Food Programme has helped us develop Africa RiskView, which allows us to manage Africa’s drought risk as one financial portfolio. Based on Africa RiskView, the ARC demonstrates the efficiency of pan-African solidarity in approaching the challenges of climate change, in line with the continental agenda. By pooling weather risk across the continent, member states can illustration:richardallen take advantage of cost-savings resulting from diversification of the risk portfolio. Approaching the international risk markets as a group will save us up to 50 percent; savings that we can then invest in longer- term development projects. Innovative projects like the ARC go a long way towards ensuring the availability of adequate and predictable financial resources critical for development progress in Africa. We stand at a historical crossroads facing complex economic, social and technological choices that will allow us to “leapfrog” carbon- intensive phases of development to cleaner, greener, more advanced land-use solutions. Yet, climate change threatens both our pace of progress, and the assets we have already accumulated in the past decades of growth. Here on the continent, we are resourceful, resilient and positive, despite overwhelming challenges. I have a lot of hope and optimism about the negotiations that will occur on African soil. I believe we will move forward significantly on some of the important elements of the multilateral climate framework, building on what was agreed in Cancún in 2010. The African Risk Capacity is a central pillar of Africa’s climate change adaptation strategy. It promises to use existing disaster funds more effectively and can absorb climate-related disaster funding at scale and in a cost- effective manner. We are ready to face the challenges of climate change adaptation head on, and together with our partners, are looking forward to transitioning from managing crises to cost- effective risk management for the greater benefit of the citizens of Africa. Jean Ping is the chairperson of the Commission of the African Union. He was previously the foreign minister of Gabon, from 1999 to 2008, and served as president of the United Nations General Assembly from 2004 to 2005 PHOTO:corbis
  • 8. African Risk Capacity - ARC Sovereign Disaster Risk Solutions: A Project of the African Union SECTION 2 A Closer Look at the African Risk Capacity and Africa RiskView Software 4 ARC Summary Note The African Union Commission (AUC) is undertaking a study of design options for the African Risk Capacity (ARC). The study will explore institutional, legal and financial options for structuring such an entity, and present ideas about ways for countries to participate. The AUC has secured support for this risk sharing initiative from African Heads of State and Government and is beginning to discuss the ARC concept with its membership at the technical level. This thirteen-page note outlines the ARC design work to date and the concept behind this type of risk pool in order to facilitate discussion and feedback from experts during design phase consultation meetings. 5 Africa RiskView Technical Bulletin The objective of this seven-page note is to provide more detail on Africa RiskView (ARV), the technical engine for ARC. ARV is a software application, developed by the UN World Food Programme (WFP), that provides a transparent system to estimate crop losses and the impact on populations’ food security from future droughts for Sub- Saharan African countries. 6 East Africa 2011 Brief This three-page document provides an overview of how Africa RiskView (ARV) can be used to analyse the potential impacts of an adverse rainfall season on crop production and rangeland in East Africa including the Horn countries. In addition, the brief highlights the role the African Risk Capacity (ARC) risk pool could play in insuring against these risks using the 2010/2011 seasons as an example. AFRICAN UNION
  • 9. ARC Summary Note Prepared by African Risk Capacity Project Team African Risk Capacity - ARC Sovereign Disaster Risk Solutions: A Project of the African Union SUMMARY NOTE The Commission of the African Union’s Department of Rural Economy and Agriculture, with technical assistance from the UN World Food Programme (WFP), has initiated the African Risk Capacity (ARC) Project. ARC is envisaged as an African-owned, standalone financial entity that will provide African governments with timely, reliable and cost-effective contingency funding in the event of a severe drought by pooling risk across the continent. ARC could eliminate delays responding to disasters due to a lack of funding and prevent disruptions to other critical country programmes due to reallocation of limited budget resources. ARC would seek to only partially fund the disaster needs of countries, and each participating country, in advance of joining ARC, would create a contingency plan identifying how ARC funds would be optimized to assist those affected. The African Union Commission (AUC) (1) is undertaking a study of design options for the African Risk Capacity (ARC). The study will explore institutional, legal and financial options for structuring such an entity, and present ideas about ways for countries to participate. The AUC has secured support for this risk sharing initiative from African Heads of State and Government and is beginning to discuss the ARC concept with its membership at the technical level. This note outlines the ARC design work to date and the concept behind this type of risk pool in order to facilitate discussion and feedback from experts during design phase consultation meetings. a) Background Weather is inherently variable and weather shocks are an ongoing risk across the continent. The Horn of Africa, particularly Somalia, is currently experiencing its worst drought in decades and the impacts of recent widespread droughts (2009/10, 2004/5 and 2002/2003) have also not been forgotten. Policy makers are acutely aware of the risk of similar events in the future. Analysis suggests that a widespread catastrophic drought in sub-Saharan Africa today could cost upwards of US$3 billion in emergency assistance costs (2). In addition climate change is likely to introduce a higher incidence of erratic rainfall and high temperatures creating a risk that more droughts, with potentially stronger severity, may occur in the future. The current model for responding to drought is plagued by a number of challenges and the high and unpredictable cost of these events strain governments and donors. Paramount among these problems are the inefficiencies and delays in delivering funding for responses that lead to household asset depletion (i.e. selling livestock or other productive assets) which can make recovery much more difficult. In almost all cases some time lag occurs between the disaster and the availability of resources to deal with the impacts. Only after funds are raised, often through traditional appeals for aid, can a response be mobilized to reach those trying to cope with the impact of crop or other losses. In many cases, uncertainty about funding and timing of responses leads to the diversion of resources from other important programs. Finally, the donor-driven approaches to disaster financing crowd out national capacity and autonomy for managing drought-related issues. Given the desire of African governments to have greater ownership of disaster response and the continued constraints on aid budgets, there is an immediate need to increase the efficiency of emergency assistance. (1) This project benefits from technical assistance from the UN World Food Programme (WFP), and support from the Rockefeller Foundation, the UK Department for International Development (DFID), the Global Facility for Disaster Reduction and Recovery (GFDRR) and the International Fund for Agricultural Development (IFAD). (2) WFP staff analysis. AFRICAN UNION
  • 10. ARC Summary Note Prepared by African Risk Capacity Project Team To do this, it is not necessary to replace existing responses employed by governments and donors, but rather enhance these activities using modern technologies and innovations. Risk management techniques such as risk transfer and risk pooling, while not new, can be applied by African countries in innovative ways to lower the cost of the response to disasters, before they become humanitarian crises, and provide better services to those affected. Early, planned, reliable and appropriate interventions in the event of weather-related emergencies could help reduce the negative impact of a disaster on the most vulnerable, protecting human, social and economic development and reducing the short- and the long-term costs of assistance. When coupled with adequate contingency plans, quick-disbursing funding can help protect the lives and livelihoods of the most vulnerable, lowering the total cost of assistance and protecting development gains. Evidence suggests that helping people quickly before they sell assets creates five times more value to vulnerable populations than traditional aid, which is raised after the disaster strikes, and arrives much later. Using an indicative but conservative model, estimates show that a contingency fund of US$250million could save African countries and donors nearly US$1 billion in cash over 20 years (3). Given the potential benefits of quick disbursing funds, as part of its priority agenda, the AU has highlighted the need to develop Member States’ capacity to financially manage weather risks more effectively and independently. In light of this an initial concept for ARC, the African Union Commission is developing a pan-African risk pool, which would provide participating governments in Africa financial tools and funds to response to predictable natural disasters across the continent (4). The project builds on past work with African countries on national weather risk management (Annex 1). b) Objectives The goal of ARC is to create a facility that would allocate certain resources against probable but uncertain risks. These funds would be based on pre-defined rainfall related triggers specified by each country. In this way ARC would act as a pan-African contingency funding mechanism for extreme weather emergencies, initially providing coverage for severe drought, but expanding to other weather risks, such as flood, at a later stage. Contingency funds here are defined as quick- disbursing funds that are secured ex-ante – that is before hand – to be triggered and released by an event. There are three objectives of ARC, which taken together represent a new way of responding to drought-related emergencies across the continent:  African governments gain access to a set of tools that provide a summary of risks as well as a quantification of costs and impacts of drought at district, national, and regional levels.  African governments, through the risk pool, establish and manage a dedicated quick- disbursing contingent funding mechanism that strengthens the continent’s ability to respond and improve disaster planning.  African governments join in solidarity to pool risks across the continent, thereby reducing the cost of insurance coverage for severe and catastrophic events. (3) Economic Appraisal, ARC Project Memorandum, WFP. (4) The recent Conference of African Ministers of Finance on March 28-29, 2011 in Addis Ababa adopted Resolution L-5 that welcomed, “the African Union Commission’s proposal to work towards the establishment of the African Risk Capacity (ARC), an African-owned pan-African disaster risk pooling facility that would provide contingency funds to participating AU Member States in the event of extreme weather shocks” and endorsed consultation with AU Member States on the findings of the ongoing ARC feasibility design study.
  • 11. ARC Summary Note Prepared by African Risk Capacity Project Team The ARC would be one of several tools available to governments to respond to disasters in a timely and planned fashion helping governments to build comprehensive national disaster risk management and disaster risk reduction (DRR) strategies. ARC funding for responses to drought risk could complement investment in climate change adaptation, agricultural production and market development. The key benefits of ARC will be to speed the early flow of funds to a country following a disaster, based on objective triggers, enabling government response actions that reduce the dislocation caused by such events and the dependence on international appeals for assistance. c) Risk Pooling ARC will enable African countries to secure contingency funds for drought events by capitalizing on the natural diversification of weather risk across the continent through a risk pool. A risk pool is a mechanism where individual risks are transferred and combined. That pool then takes on the risk profile of the group rather than the risk profile of each individual risk, combining the uncertainty of individual risks into a calculable risk for the group. By looking at the probability that an event will occur in a year, the correlation of risks, and the likelihood that a drought event will happen at multiple countries in the same year, it is possible to determine the probability of payouts for the entire pool and therefore the funds required to service those payouts. Using health insurance as a model, if the cost of treating a person with influenza is $50 per illness, and an insurance company expects 1 in 10 people to get the flu in a year, an insurance company can insure a 100,000-member group of people against flu if they collect $500,000 (i.e. $50 x 10,000 sick people), or $5 per person in that group. By agreeing to pay the cost of each sick person in exchange for the $5 payments from everyone in the group, the insurance company has effectively pooled the risk of the group and reduced the insurance costs of all its participants. Similar to the example, AU member countries can pool resources to compensate countries that are affected by drought, when others are not, in a given year, which would reduce significantly the risk management costs faced by countries and donors who support them. Initial analysis shows it is unlikely that extreme weather events, such as drought, will happen simultaneously in the same year in every country since there is some diversification in the performance of rainfall seasons across Africa. Therefore, the sum of the contingent funds each country would need to have in reserve in order to be able to respond to an extreme drought emergency that year is substantially greater than the contingency funds required by a group of countries to respond to its worst case scenario. Preliminary findings indicate a 50% saving from diversification of drought-related losses across Africa, i.e. a 50% reduction in the contingent funds needed if the risk is pooled among nations and managed as a group rather than borne by each country individually. The Caribbean’s risk pool (see Annex 2) saved participating countries 45-50% in risk transfer costs by approaching the international risk market as a group. 1. Overview In principle a risk pool for Africa is feasible. However, whether a pool can be established cannot be determined a priori and depends on the outcomes of several interactive and interrelated processes with the national governments and other stakeholders involved. In particular to be feasible two key components are required: 1) a method to assess risk and then the tools to devise a solvent and, 2) sustainable financial strategy to manage that risk. These components are already available and are outlined below. In order to move forward with implementing these components and actually establishing a risk pool, other information on country participation and donor support is required, which will be discussed in the next section.
  • 12. ARC Summary Note Prepared by African Risk Capacity Project Team Figure 1. Illustrative example of risk pooling potential for drought risk across Africa using Africa RiskView estimates for the worst-case drought response cost for each country by season (see below). As more country drought risks, by season, are added to the pool (across the x-axis of the graphic) the difference between the estimated worst-case drought scenario for the pool, versus the cumulative worst case drought scenario of each country in the pool, becomes more evident. The difference between the red and blue lines at any point, expresses the degree of risk pooling for that group of countries/seasons. When all countries by season considered by Africa RiskView are included in the pool (42), the risk pooling factor is 52%, i.e. the risk pool worst case drought response costs estimate is less than half the size of the cumulative sum of the worst case drought response costs estimates for each country included. However it is clear from the graph above that risk pooling of a similar magnitude is evident when only a few countries are added to the pool, and remains above 35% after four countries added to the pool. To create the figure above, countries have been added to the pool alphabetically and worst-case drought response costs are estimated on the basis of 15 years of historical Africa RiskView data. Further work is ongoing to stress the robustness of these results with additional data and statistical techniques. a) Financial Strategy The financial strategy envisioned for ARC, once it is established, focuses on two major criteria: solvency and sustainability. Solvency means a risk pool that can, in nearly all cases, make the required payouts to participating countries in full should a catastrophic drought scenario occur where many of the pool participants have been impacted by severe drought in the same year and are all due large ARC disbursements. For the purposes of the feasibility study, a recommended solvency target is a pool that 99% of the time has enough funds to payout each country due a payment in full. This is a minimum threshold that is usually required for a financial entity like the pool to be considered solvent. In addition, in order to be considered sustainable, the risk pool would have to be able to remain functioning for many years in a row despite making ongoing payouts. As an example, the pool would have to be able to make the payouts to countries affected by several serious drought events but without depleting its own reserves. For the
  • 13. ARC Summary Note Prepared by African Risk Capacity Project Team purposes of the feasibility study, the recommended sustainability target will be a pool that has a 50% probability of having the same level of reserves, or capital, after 10 years in operation. In other words, it has the same probability of survival for another 10 years after the first 10 years is completed (5). ARC will need to deploy a financial strategy to ensure the pool can honor disbursements to countries in any given year and is able to project a clear path to self-sustainability beyond donor and international organization support over several years. The pool will have funds from contributions of the participating countries, in the form of annual participation fees or premiums, and from initial contributions to the pool from donors to execute this strategy. ARC payouts would be based on a set of objective rules that are country specific to ensure these contributions are fair, equitable and sized appropriately for the risk ARC is to cover. Each country would define the severity of drought, as defined by a rainfall-based formula specific to their country, for which they want compensation and the amount of compensation they would need in each case. To ensure that the potential liabilities of the risk pool are clearly defined going into each risk season, these rules must be identified up front. Participating country contributions will be linked to these rules and the probability of the country receiving a payout in the season ahead. These solvency and sustainability objectives can be achieved using a variety of different financing approaches and instruments which already exist and are being used for risk management around the world, for example in the Caribbean risk pool (see Annex 1). These can include the coordinated use of risk retention, risk transfer and contingent financing from international financing entities to create a layered financing structure within the pool and also within participating countries themselves: A Layered Approach to Risk Management  Layer 1: Retention by Country Participants – Members could retain risk by choosing to only receive compensation from ARC for drought events that are more extreme and less frequent. Members would use existing resources and programs to manage the impact of less severe, localized or frequent events in country.  Layer 2: Risk Pool Reserves (ARC Retention) – It is anticipated that reserves layer of the pool could be based on contributions of the participating countries in the form of annual premiums, in addition to initial donor capitalization. These funds could create a pool of resources available for payouts in the same ways that insurance premiums provide a pool of funds for insurance companies to pay insured client claims. A simple way to think about these reserves as part of the pool’s layered financial risk management strategy is that they could be used to finance expected pool outlays every year across all participating countries and those events with medium levels of severity that are more infrequent, e.g. including a large payouts for a single member or mid-level losses to a group of countries.  Layer 3: Risk Pool Contingent Financing (ARC Risk Transfer) – The ARC risk pool would transfer risk that it believes it would be inefficient to hold as reserves within the pool to international financial entities which are interested in holding this risk, such as reinsurance companies, through instruments such as insurance, derivatives and catastrophe bonds. These instruments would provide the pool with a market-based source of contingent funds. Contingent lending could also play this role. Initial capital and/or replenishment capital after larger payout events could be borrowed on pre-agreed terms from International Financial Institutions (IFIs) and repaid over a long period of time (i.e. 25-30 years). (5) This same benchmark was used by the Caribbean Catastrophe Risk Insurance Facility (see Annex 1) in its initial dynamical financial analysis.
  • 14. ARC Summary Note Prepared by African Risk Capacity Project Team b) Risk Assessment and Quantification To enable discussions about country participation in a risk pool, and therefore to enable the financial strategy outlined above, ARC relies on the objective quantification of drought risk from each participating country in order to determine how to manage the risk transferred to ARC and how to make payments to member countries. The AUC has worked with the World Food Programme to develop a software application called Africa RiskView that can quantify drought risk by country and region in dollar terms. Africa RiskView combines models on agricultural drought in Africa with data on vulnerable populations to form a standardized approach for estimating response costs. This information can help governments prepare for drought but has also been designed to be used as the basis for establishing the risk pool and allowing countries to define their participation in it (5). ARC payouts would be based on a set of objective rules that are country specific to ensure these contributions are fair, equitable and sized appropriately for the risk ARC is to cover. Each country would define the severity of drought, as defined by a rainfall-based formula specific to their country, for which they want compensation and the amount of compensation they would need in each case. To ensure that the potential liabilities of the risk pool are clearly defined going into each risk season, these rules must be identified up front. Participating countries premiums will be linked to these rules and the probability of the country receiving a payout in the season ahead. To be effective the rainfall-based rules must accurately reflect drought events and appropriately allocate resources to participating countries for managing their drought response costs. In this way, payouts from ARC would function like a parametric or index-based insurance policy where defined parameters act as a proxy for the anticipated actual response costs. Parametric insurance (5) The current Africa RiskView model performs well against WFP’s historical drought-related operations in Africa and forms a solid basis for further customization and refinement by countries wishing to use it to assess and potentially manage drought risk at a country level. SEVERITY Figure 2. Simplified Graphical Illustration of a Possible ARC Risk Transfer Structure for a Single Year Highlighting a Layered Risk Management Approach
  • 15. ARC Summary Note Prepared by African Risk Capacity Project Team is possible when a relationship between measurable objective parameters such as rainfall can be correlated to drought-related losses. In the context of ARC, payouts would be optimized to address the most vulnerable through appropriate response plans. The first step towards selecting objective triggers and determining how much risk countries wish to transfer to ARC is to estimate countries’ required response costs for different drought events in dollar terms. Africa RiskView, described in detail in the related technical note, translates satellite-based rainfall information into near real-time drought response cost estimates and is a flexible tool that can be used by countries to select accurate proxies for their drought related losses and response costs needs. It can also be used by countries to determine the level of risk they wish to retain and the risk they wish to transfer, essentially establishing ARC payout rules for each participating country. While Africa RiskView settings would be customized by each country they would be objective and transparent for all participants, clearly defining parameters on which payouts would be made to each participant. Countries would receive payouts based on those rules. Because payouts would be based on objective parameters there would be no need to observe the actual impacts of the drought on the ground. This will allow payouts to be made quickly to member countries once the event occurs, i.e. the rains fail. Since these funds will be available almost immediately after the drought occurs, it will be critical for member countries to have predefined contingency plans for the use of these funds – plans that will be a prerequisite for participating in the pool. This will allow participating governments to most efficiently allocate ARC funds and ensure that services reach those affected by drought quickly. 2. Requirements for Establishment Although the key components for feasibility exist, whether a pool can be established cannot be determined a priori through a study and depends on extensive engagement with national governments and other stakeholders involved. For example, before an appropriate financial strategy can be defined, information on the size and scope of country participation and the funds available to create initial reserves in the pool is required. These two aspects are discussed below. a) Country Participation In order to establish ARC, participation guidelines will be required to reflect the technical criteria required for ARC and policy objectives of the pool. Initial results indicate that at least five to six countries from distinct geographical regions would be required in order to make the risk pooling concept financially viable. Because participation will be voluntary and the risk profile of participating countries will have significant influence on the operation of the pool, identifying these five or six initial participating countries will be one of the first steps in establishing the entity. In addition, participation in the risk pool will require contributions both for initial capitalization, as discussed below, and ongoing participation fees. Once countries indicate their initial interest, further consultations will be necessary to discuss their objectives in participating. In terms of policy objectives, already established country-led progresses on disaster preparedness strategies and the willingness to develop of contingency plans linked to national delivery mechanisms, to ensure ARC payouts translate to timely and effective assistance, will also be necessary for participation. Box 1 below outlines, in simple terms, the activities ARC participation would require from a country and its partners.
  • 16. ARC Summary Note Prepared by African Risk Capacity Project Team Box 1. Country ARC Participation Activities For countries working towards ARC participation, a dedicated in-country ARC team will assist countries in: 1. Using Africa RiskView to research the level of risk that a country wishes to transfer 2. Identifying contingency plans for those funds should they become available 3. Working to determine appropriate participation fees for that transfer and how to budget and pay for them 4. Monitoring the performance of the season by using Africa RiskView to track the parameters that determine payout 5. Utilizing resources from ARC to implement individual contingency plans should an extreme drought occur and a payout triggered 6. Repeating the process above for the next risk season These working groups will be focal points for ARC coordination and training for host countries, tasked with moving from stakeholder buy-in to full participation. Where inter-ministerial/partner structures already exist, such as CAADP Partnership Platforms, ISDR’s DRR National Platforms or other national platforms and groups, in-country groups could use and align with these platforms. This engagement with countries will feed into the work required for ARC to be established and operational for a first phase, including:  Developing an Operations Manual for the risk pool to enable the establishment of a legal ARC entity in an appropriate jurisdiction and defining its operating procedures accordingly;  Establishment of an ARC Management Team, headed by a Managing Director, to execute the functions outlined in the Operations Manual and ARC’s financial and operational strategy;  Securing initial capitalization support from donors and IFIs (see below);  Performing the final analysis to identifying the optimal solvent and sustainable financial risk management strategy for ARC (6) and therefore establishing the actual participation fees levels for countries;  Developing an approval process for contingency plans, that respects the potential heterogeneity of response plans at the country level while establishing ARC-wide standards and guidelines;  Defining monitoring procedures for ARC disbursements and the monitoring and evaluation criteria for ARC and its impact on the most vulnerable and food insecure. b) Initial Capitalization As discussed above, the combined contributions of the African countries, in addition to donor contributions, would create reserves from which ARC would compensate member countries for drought-related costs and provide funds to replenish ARC after payments are made. Initial (6) Until the ARC has firm commitments from Member States and donors we will not have real numbers at hand and will therefore, in the ARC feasibility design study for example, be conducting simulations that will only act as a guide in determining premium levels.
  • 17. ARC Summary Note Prepared by African Risk Capacity Project Team KEY MESSAGES  ARC provides immediate, short term liquidity to participating governments after a drought has occurred  ARC would provide economic gains from early assistance to avoid adverse coping mechanisms of vulnerable populations  ARC’s regionally diverse risk pool would make funds available at a reduced cost  ARC acts as an African contingency funding mechanism for extreme weather emergencies  To be effective, ARC needs to be linked to defined contingency plans within a national risk management framework capitalization from donors is critical as these funds would form the initial reserves in the pool as new reserved are built by country contributions over time. Many donors have signaled their interest in supporting initial risk pool capitalization. The ARC Project Team is assisting the African Union in raising at least US$300 million for initial capitalization. Annex 1: Relevant Experience from Africa A notable example of using contingency financing to respond to food security shocks in Africa comes from Ethiopia. Ethiopia pioneered the use of a drought weather derivative as a form of risk financing to support timely and effective emergency responses in 2006 with the support of WFP, and began work on developing a broader drought risk management framework in the context of the Productive Safety Net Programme (PSNP) in 2007 to complement the future use of risk financing instruments to manage catastrophic risk (7). Although the PSNP offers a vehicle for delivering timely livelihood protection to the chronically food-insecure, the transiently food- insecure remain subject to the vagaries of the emergency relief system. However, early and predictable assistance focused on the special needs of these households—preventing household asset depletion as well as increased levels of destitution in this segment of the population—is central to the overall sustainability of PSNP (8). Therefore, the second phase of the PSNP (2010- 2014) introduced a drought risk financing component to the program. This approach proposes to facilitate predictable disbursement of resources for non-chronic, i.e. emergency situations, in effect allowing the immediate scale-up of PSNP activities in response to localized, intermediate, or severe drought events. The concept is to coordinate a pool of contingent resources – including eventually index-based risk transfer products as piloted in 2006 – that can be readily and appropriately allocated in the event that many more households become food-insecure, or existing beneficiaries require additional months of assistance following weather shocks. ARC, (7) Hess, U., W. Wiseman and T. Robertson, “Ethiopia: Integrated Risk Financing to Protect Livelihoods and Foster Development”, Discussion Paper, November 2006 (8) Hess, U. and S. Y. Im, “Saving Livelihoods Through Weather Risk Management: The Role Of Insurance And Financial Markets – A Case Study of Ethiopia.” Afro-Asian Journal of Rural Development, 40 (1), 21-30, 2007.
  • 18. ARC Summary Note Prepared by African Risk Capacity Project Team once established, could allow Ethiopia to efficiently supplement this national contingency reserve and leverage its existing risk financing budget. Approximately US$160million has been secured in contingent financing to support this new element of the PSNP from the World Bank, DFID and other partners. The risk financing component went live in 2011 and coincided with the Horn of African drought that severely impacted the south of the country, testing the risk financing mechanism and disbursement criteria in its first year. In order for a region to be eligible for risk financing, each woreda (fourth-level administrative unit) within a region must have received training on risk financing and have developed contingency plans to scale up PSNP/response activities. The criteria for disbursement are not parametric but do include drought and deficit or adverse rainfall evidence within LEAP, Ethiopia’s drought risk modelling software (9), as well as evidence of an impending crisis from other food security and early warning indicators. As a result, the triggering of resources is not automatic in the event of a disaster however a process for government requesting funds from the mechanism has been established and was tested this year. Given the similarities of the initiatives, the Ethiopia example serves as an important case study for ARC and offers important lessons for consideration in the design phase. In 2008, the World Bank Treasury expanded its product line to include sovereign-level weather derivative products for client countries and, for the first time, offered derivative solutions for countries that qualify for International Development Assistance (IDA) loans. Malawi was the first client for this new service. In 2008, the Bank intermediated a transaction between Swiss Re and the Government of Malawi for up to US$5 million in catastrophic drought risk coverage that could be used to manage the import of maize in the case of a national drought-related shortfall in production (10). Similar transactions were repeated in 2009 and 2010 and a fourth is planned for 2011. To date no payouts have occurred from these transactions to test the planned use of these funds to manage the price of maize imports. Annex 2: Caribbean Catastrophe Risk Insurance Facility (CCRIF) Hurricane and earthquakes can cause substantial financial losses to the island nations of the Caribbean. Following the devastation of Hurricane Ivan in Grenada, Jamaica, and the Cayman Islands, the Caribbean Community and Common Market (CARICOM) Heads of Government requested World Bank assistance in establishing a regional government insurance programme in order to respond in a more timely and efficient manner to hurricanes and earthquakes. In 2007 the creation of the Caribbean Catastrophe Risk Insurance Facility (CCRIF) established a Caribbean- owned, regional institution to do just that. CCRIF provides member governments with immediate liquidity after a hurricane or earthquake. It is the first regional disaster insurance facility in the world and highlights many of the steps needed to establish ARC. In contrast however, as it is designed to support governments in providing enhanced assistance to vulnerable, food insecure populations, ARC would need to be modified to take into account the linkage of payouts to contingency plans and national delivery mechanisms, to ensure timely funds are translated into effective assistance to those that need it most. CCRIF is based on the idea of parametric insurance, which makes payments that are objective, timely and transparent. Like ARC potentially could for its member governments, CCRIF uses objective triggers to determine payments for catastrophic events. In the case of the CCRIF, payments are based on the intensity of earthquakes and hurricanes rather than an assessment of damage incurred. (9) Developed by WFP and the World Bank with the Government of Ethiopia and a prototype of Africa RiskView (10) Syroka J., and A. Nucifora, 2010. “National Drought Insurance for Malawi” World Bank Policy Research Working Paper No. 5169, The World Bank, Washington, DC
  • 19. ARC Summary Note Prepared by African Risk Capacity Project Team This allows quick payments to countries in order to fill the liquidity gap that arises immediately after hurricanes and earthquakes before reconstruction and development funds are available. This allows governments to more efficiently cope with the impacts of the event and continue functioning. A similar liquidity gap, which could potentially be addressed by ARC, arises after a drought, as government works with donors to raise money to fill emergency appeals. The concept for African Risk Capacity (ARC) is roughly based on the CCRIF. Modified for the particularities of African multi-seasonal weather risk in its financial design and based on Africa RiskView, the pool’s governance structure could mirror the CCRIF as an African-owned, AU-led stand-alone entity. However, the purpose of the two entities is very different. The CCRIF was created to provide contingent funds to governments in the case of a hurricane or earthquake thereby allowing public facilities to continue to function. Payments from the pool go directly in to the General Fund account of the affected countries and is not tracked or monitored thereafter. Payouts from the ARC, while based on a parametric model like the CCRIF, are meant to finance early and timely responses to food insecure populations affected by extreme weather events. In order to retain the integrity of the pool, participating member states will need to develop contingency plans in the event of a payout and the ARC governing body will need to develop a process for ensuring that monies in the pool are protected and spent in a way that optimizes the cost efficiency, and therefore reach, of funds to address the pressing issues facing the most vulnerable populations. ARC would be one of many tools available to governments for risk management and early preparedness, and until the pool can grow over time, WFP's services will still play a critical role in Africa's food security architecture. One of the first steps in the development of CCRIF was identifying a template for its structure. In addition there are a number of other steps that were carried out before CCRIF was established that would need to be carried out in order to set up ARC including:  The design of a suitable ownership and governance approach,  Putting together a set of service providers to manage the day-to-day operations of the facility,  Raising funds with which to capitalize the facility,  Securing support from the international reinsurance markets, and  Persuading a critical mass of Caribbean governments to purchase policies. Initial capitalization of CCRIF was carried out jointly by donors and participating countries. In addition to capitalization of the pool itself, ongoing participation fees are required from member countries. In order to participate in the CCRIF, countries must contribute a membership fee proportionate to the risk being transferred to CCRIF. For CCRIF, participating countries determine the level of coverage at which they wish to participate based on their exposure to risk and risk transfer appetite. For the first three years of its existence (through 2010), those countries that qualified for International Development Assistance (IDA) were granted the ability to apply a portion of these funds towards the entry fee and subsequent contributions to the CCRIF. The CCRIF is backed by donor funds held within a World Bank Multi-Donor Trust Fund (11) combined with the financial capacity from the international markets. In the first year of operation 2007/8, US$ 110 million of risk capacity was secured from the reinsurance markets in addition to country contributions to cover risk retained by the pool. To date this arrangement has aligned the CCRIF to (11) Holding an initial US$ 50 million capitalization by donors to support claims-paying capacity and operational costs of the CCRIF, while the pool build its own reserves. Source: Young, S. and Pearson, M. (2008), “The Caribbean catastrophe Risk Insurance Facility as a Technical Model”, Natural Catastrophe Risk Insurance Mechanisms for Asia and the Pacific Conference, 4–5 November 2008, Tokyo, Japan.
  • 20. ARC Summary Note Prepared by African Risk Capacity Project Team exceed market requirements, such as the Solvency II regime (12), allowing the facility to respond to events that may occur only once every 1000 years or more. In terms of the operational structure, CCRIF was set up as a for profit “captive” insurance company in the offshore jurisdiction of the Cayman Islands. While CCRIF is for profit, it is 100% owned by a trust benefiting member governments. CCRIF has a board of directors made up of representatives from CARICOM, the Caribbean Development Bank, a finance expert, an insurance/reinsurance expert, and an executive chairperson appointed by the other four board members. This board of directors sets and approves CCRIF policy, develops and implements strategic plans, and carries out strategic planning for the organization while working to maintain its solvency. In addition to the Board of Directors there are a number of additional key roles in operating the pool:  Facility Supervisor: Responsible for all technical operations including modeling, risk transfer, pricing, dynamic financial analysis, claims and marketing.  Captive Manager: Responsible for all back-office operations including corporate secretary, accounting, audit management and regulatory liaison.  Asset Manager: Responsible for investing CCRIF capital in accordance to the CCRIF investment guidelines.  Reinsurance Broker: Responsible for implementing the risk transfer strategy developed by the Facility Supervisor. -African Disaster Risk Pool Figure A: Liquidity Gap Following a Catastrophe Event (13) CCRIF has been active since 2007 and between 2007 and 2010 has paid US$ 20 million in payouts to six different countries (14). (12) Solvency II is the updated set of regulatory requirements for insurance firms that operate in the European Union, specifically requirements on capital adequacy and risk management with the aim of increasing protection for policyholders. It is scheduled to come into effect on 12 November 2012. http://www.fsa.gov.uk/Pages/About/What/International/solvency/background/index.shtml (13) Source: Young, Simon, “Climate Risk Management and Risk Transfer: Utilising insurance industry tools to underpin cost-effective adaptation”, presented at the Seventh African Development Forum, 10-15 October 2010, Addis Ababa, Ethiopia. (14) www.ccrif.org
  • 21. ARC Summary Note Prepared by African Risk Capacity Project Team Risk Retention Risk Pooling Risk Transfer Contingency Funds Parametric The establishment of a reserve fund for the purpose of offsetting unexpected financial claims or costs. Sometimes referred to as self-insurance, these reserves are often used to finance frequent and not severe losses or in the case of ARC, country drought response costs. The aggregation of individual risks to manage the consequences of independent risks. Risk pooling is based on the law of large numbers. In insurance terms, the law of large numbers demonstrates that pooling large numbers of roughly homogenous, independent exposure units can yield a mean average consistent with actual outcomes with a smaller standard deviation. Thus, pooling risks allows an accurate prediction of future losses and helps determine insurance premium rates or in the case of ARC, annual participation fees. Takes a defined risk and passes it from one party who does not wish to have this risk (the insured) to a party who is willing to take on the risk (the insurer) for a fee, or premium. Funds secured ex-ante – that is before hand – to be triggered and released by an event. These contingent funds can come in the form of reserves, financing instruments such as loans or grants or risk financing instruments such as insurance, reinsurance, derivatives or CAT bonds. Parametric insurance-like instruments make payments based not on an assessment of the individual loss, but rather on measures of a parametric index that is assumed to proxy actual losses. Basing payouts on such an objective index allows for timely payments, without relying on potentially lengthy and subjective loss assessments or evidence of incurred costs. Parametric approaches can be used with all risk transfer instruments and contingency financing approaches. In 2007, CCRIF paid out almost US$ 1 million to the Dominican and St Lucian governments after the 29 November earthquake in the eastern Caribbean, and in 2008, CCRIF paid out approximately US$6.3 million to the Turks & Caicos Islands after Hurricane Ike made a direct hit on Grand Turk. In 2010, its fourth year in operations, it issued 29 annual policies to 16 CARICOM countries. One of the biggest tests of CCRIF’s functionality came on January 12, 2010 when a magnitude 7.0 earthquake struck outside Port-au-Prince, Haiti. Less than 24 hours after the earthquake occurred, CCRIF determined that the full payout (US$ 7,753,579 USD), based on its catastrophe insurance policy for earthquakes for the 2009/10 policy year, was due to Haiti and the funds were transferred to the Haitian Government, following the required 14-day waiting period for calculation verification. This value represents approximately 20 times the premium of US$ 385,500. The payout determination was made based on the strength and location of the earthquake as outlined in Haiti’s policy. Following the passage of Tropical Cyclone Tomas on 30- 31 October 2010 three countries received a CCRIF insurance payout: Barbados, US$ 8,560,247; Saint Lucia, US$ 3,241,613 and St Vincent & the Grenadines, US$ 1,090,388. While focusing on hurricane and earthquake rather, this pool provides a concrete example of how a regional risk pool can be established and implemented. It also provides valuable insight into the steps required to establish a similar entity for drought in Africa. Annex 3: Technical Terms
  • 22. Fig.1: ARV Main Interface African Risk Capacity - ARC Sovereign Disaster Risk Solutions: A Project of the African Union AFRICA RISKVIEW TECHNICAL BULLETIN Introduction The Commission of the African Union’s Department of Rural Economy and Agriculture, with technical assistance from the UN World Food Programme (WFP), has initiated the African Risk Capacity (ARC) Project. ARC is envisaged as an African-owned, standalone financial entity that will provide African governments with timely, reliable and cost-effective contingency funding in the event of a severe drought by pooling risk across the continent. ARC could eliminate delays responding to disasters due to a lack of funding and prevent disruptions to other critical country programmes due to reallocation of limited budget resources. ARC would seek to only partially fund the disaster needs of countries, and each participating country, in advance of joining ARC, would create a contingency plan identifying how ARC funds would be optimized to assist those affected. The objective of this brief is to provide more detail on Africa RiskView (ARV), the technical engine for ARC. ARV is a software application, developed by the UN World Food Programme (WFP), that provides a transparent system to estimate crop losses and the impact on populations’ food security from future droughts for Sub- Saharan African countries. It then translates that impact into equivalent financial terms to provide an estimate of the total response costs required to assist those populations that are potentially affected. In this way ARV provides member governments with a tool that can be used to estimate their financial drought risk and therefore to determine the appropriate amount of risk to transfer to the ARC risk pool. This brief should be considered a follow-on document to more general briefing documents on ARC1 and will focus on the key components of ARV – estimating losses in staple crop production due to rainfall deficit, identifying the population affected, estimating the cost of the event, and determining parameters for risk transfer to ARC. This brief is divided into five basic sections:  Technical Overview – Describes how ARV has been designed and the key components of ARV  Operational Applications – Identifies the tools available to member countries through ARV and how these tools can be used as part of ARC  Case Study on Country X – Provides an example of how a country would apply ARV  Key Terms and Messages – Summarizes the key terms used throughout the document and the critical messages discussed  Frequently Asked Questions – Provides a few of the most commonly asked questions about ARV and how it could benefit African Union Member States At the end of this brief, readers should have a good understanding of the purpose of ARV and how it functions. They should also have a better understanding of the core components of Africa RiskView, the platform, and the underlying methodology. Finally, the brief will summarize how member governments can use ARV to estimate the risk they wish to transfer to the ARC and monitor how the rainfall season is developing and whether a payout from ARC is due. 1 Background documents on ARC are available to provide a fuller picture of the rational, background, and components of ARC. This document provides detail on ARC’s technical engine Africa RiskView. AFRICAN UNION
  • 23. Technical Overview Africa RiskView combines a number of different disciplines including crop monitoring and early warning, vulnerability assessment and mapping, financial planning and risk management into one software tool that provides a standardized approach for estimating drought response costs systematically across a large number of African countries. ARV uses data from leading operational sources (e.g. FAO, FEWSNET, NOAA, WFP) for 32 countries to estimate high-level food security needs and response costs. It has been built in an additive structure with each component building on the previous step. ARV’s capabilities can be divided into four components which will eventually lead countries to determine their risk and the level of risk they wish to transfer to ARC, given their risk management strategy. The first three of these components are discussed in the technical overview section while the fourth will be discussed in the operational overview: 1. Rainfall and crop monitoring 2. Populations affected 3. Estimated response costs 4. Determine risk management needs Component 1: Rainfall and crop monitoring. In order to determine the potential impact of rainfall on a crop in a given year it is critical to understand how weather will affect food crops and pasture for livestock grazing. Measuring total rainfall at the end of a season has proven to be too crude of an indicator for estimating the potential impact of rainfall deficits on production and therefore on livelihoods. So instead of relying on seasonal estimates, ARV allows users to view, calculate, and download historical and current Water Requirements Satisfaction Index (WRSI) values. The WRSI is a simple water balance model developed by the Food and Agriculture Organization (FAO) which compares the amount of water available throughout the season to how much a plant needs in its different stages of growth. This model is transparent and has shown to more accurately reflect growth patterns. The WRSI has proven to be a meaningful indicator of how the shortage of rainfall may impact yields and the availability of pasture by monitoring water deficits throughout the growing season, capturing the impact of timing, quantity, and distribution of rainfall. African countries have already been applying WRSI in a variety of contexts and WRSI models currently serve as the foundation for most early warning methodologies as well as the basis for analysis of many international expert organizations like FEWS-NET, the Joint Research Centre of the European Commission (JRC) and FAO. One of the advantages of the use of WRSI in ARV is that it allows member countries to enter crop parameters and through the generation of the WRSI to build a basic picture of how a crop or crops would perform in a country under different rainfall conditions. By varying the type of rainfall season in the WRSI model, ARV can estimate how changes in rainfall will affect yield outcomes for a given country region or district. Output: Estimate of seasonal performance at the district, regional, and national level under different rainfall conditions. Fig.2: East Africa 2 nd Season –Final Index WRSI 2009 for maize (right) & “Compare to Normal” image (left)
  • 24. Fig.3: In-season response costs estimates Component 2: Population Affected. While an index indicating the performance of a crop is useful to determine how the crop fared in a given season, the second component of ARV indicates how drought has impacted the needs of households vulnerable to food insecurity. Since individuals and households are able to cope with droughts with varying levels of success, ARV estimates the population affected by overlaying drought index information with sub-national data about the percentage of population vulnerable in case of drought occurrence. The latter is generated based on two variables: a) exposure and b) resiliency. Exposure to drought risk is defined by the weight of agricultural activities (in terms of production, casual labour and livestock) in the household’s total annual income. Resiliency is measured in terms of household’s distance from the poverty line. In this way ARV estimates the direct impact of drought on vulnerable households. The percentages of the population vulnerable to mild, medium and sever drought can be changed by the user at different administrative levels. Once this process is complete, ARV users can see not only how different rainfall seasons will affect yield outcomes but will also have a picture of how these losses will impact populations with different levels of vulnerability to drought. While there are different approaches that could be used to determine this vulnerability estimate, using ARV’s exposure and resiliency approach, the correlation between the estimated number of people potentially affected by drought through ARV and historical operational response data is approximately 90% for all drought-related WFP operations from 2000-2010 in sub- Saharan Africa, with scope for further improvement at the individual country level as the model is refined. Output: Population affected estimates for current and historical rainfall seasons weighted to account for differing exposures and resiliency to drought risk. Component 3: Response Costs. The first components of ARV provide an index-based estimate of seasonal performance and the impact of that performance on populations in the affected areas. However to make this number useful for policymakers in finance and disaster planning and preparedness, it is necessary to use the populations affected estimates to determine a monetary approximation of response costs. Africa RiskView estimates the expected and potential (variable) response costs at the continental (sub-Saharan Africa only), regional, country and first administrative levels by multiplying the population affected by a cost per beneficiary number. The cost per beneficiary can be adjusted by the user to reflect the cost of various types of responses to food insecure populations (e.g. food aid, cash vouchers, social safety net scale-up). This process will provide an estimate of financial needs for drought events of varying magnitudes. The tool also allows users to look back in time at past rainfall seasons and observe how they could have impacted today’s populations with today’s response costs. Studying historical data can help with contingency planning and emergency preparedness for future shocks in the country. Output: Response costs will provide a financial estimate of the resources needed to meet early emergency needs for different seasonal outcomes based on an estimated cost per beneficiary.
  • 25. Fig.4: Annual response costs estimates (top right) graph. ARC risk transfer parameters editing window (center left). In-Season response costs estimates graph (bottom right). Operational Applications ARV is a very useful tool for analyzing and determining monetary losses from drought events of different magnitudes. However, ARV was designed to be the technical foundation for the ARC, a risk pool that has specific operational objectives. ARC is envisioned as a parametric risk pool which means it is being developed on the basis that objective triggers will be used to allocate resources to participating governments in times of drought. A critical component of a parametric system is to define those rules and to determine if and when countries receive a payout at the end of a rainfall season. This is where the analytical power of ARV described above can be used to both establish these rules and then monitor the season as it develops and determine if a payout is due. Specifically ARC would disburse funds based on the WRSI index used in ARV. Significant negative deviations in the index indicating a severe drought would result in payouts to member countries. ARV is necessary to establish and manage a parametric risk pool like ARC and provide member governments the opportunity to select a transparent risk management strategy that matches their needs. Therefore looking specifically at the context of ARC, ARV can accomplish three things: 1. Analyze the impact of rainfall on vulnerable populations in dollar terms. 2. Allow member countries to determine what level of risk they wish to retain and what level of risk they wish to pass to ARC. 3. Act as a contract monitoring and settlement tool for ARV contracts by providing ongoing estimates of potential losses as the season develops and at the end of the season, as explained below. By working through all three components of ARV, member governments could determine how changes in rainfall would ultimately result in changes in the WRSI index, the population affected, and estimate the ultimate cost of different events. Quantifying risk through ARV in this way and identifying the financial losses associated with different drought events can assist governments in understanding the funds they require, given their contingency plans, to respond to drought events of varying magnitudes. They can select the level of the index beyond which they would want coverage through ARC to support these plans and in this way countries would establish objective triggers for payouts from the risk pool if such droughts occurred. Specifically governments can edit these preferences using ARV’s Risk Transfer Parameters function and define their desired level of participation in ARC. This would include selecting the deductible (the risk the country wants to retain and manage using other resources), the limit (the maximum payout a country can receive in the case of an extreme drought), and the ceding percentage (the percentage of the total modeled risk the country wishes to transfer to the pool) to specify a country’s participation. The participation fee or premium a country will have to pay to transfer this risk to ARC will depend on how these parameters are selected. Finally, if governments do choose to participate in ARC, ARV allows governments to monitor how the WRSI is developing through the season and provides an estimate of potential payouts at each point in the season based on the risk transfer parameters selected. Rainfall data in ARV is updated every ten days and with this input ARV can allow governments to see, in near real-time, the likelihood that there could be a payout from ARC and, more generally, the likelihood of a potential need for an emergency response. This can lead to better planning for responses and taking steps to address a potential crisis even before it begins.
  • 26. Case Study This section will present the steps that a country would need to take to use ARV as an information and decision making support tool for ARC and general emergency preparedness. Imagine a sub-Saharan African country where the agricultural growing season has yet to begin. The government has elected to participate in ARC but has not decided how much risk it will transfer to the ARC pool. It needs to make an informed decision and select an amount for risk transfer that accurately represents its risk profile and the potential losses for the country and its risk management strategy. To do that the member government decides to access ARV to try and determine the appropriate level of risk transfer. Step 1: To use ARV, the country will be given a unique UserID and Login to access the software tool. Once logged on, the country should start by looking at the potential seasonal outcomes due to variations in rainfall. They can do this by adjusting the seasonal WRSI model to better reflect conditions in their country (or use the default parameters for their country) to see estimated yield outcomes in average rainfall years. The country experts could then compare this to WRSI in years when there were significant droughts or other events. This would provide information on the frequency and magnitude of these extreme droughts on different regions. Step 2: Next the government could use these WRSI estimates to see the impact of these droughts on populations in different areas. By incorporating data to indicate the exposure and resilience of different populations within in a country (along with basic population data), ARV can provide estimates on the number of people that would be affected by droughts of different magnitudes. The default data in ARV, derived from household surveys by WFP, can be used or users can edit this data if they have better information on vulnerable households available. Step 3: After the WRSI numbers for any given year are combined with the vulnerability data to estimate the population affected, ARV can estimate the response cost for different events by multiplying the population affected by an estimated cost per beneficiary. Because cost per beneficiary can be edited in ARV, it is possible for the government to change these costs as needed to ensure that the estimates accurately reflect needs by population group and type of planned response to assist them. Step 4: Finally, the government can then use this information to determine their desired risk transfer parameters. By looking at the financial impacts of events of different magnitudes the government can select the deductible, limit, and percentage of risk they wish to transfer to ARC. The government will have its own preferences depending on its national risk management strategy and other available resources and ARV allows it to edit its preferences in order to select a risk management strategy that best suits its needs and risk retention preferences. Step 5: As the season progresses the government can login to ARV to see how the season is progressing. Since rainfall is recorded in ARV every ten days, governments can anticipate the outcome of crop season before it is completed. They can see how the current weather conditions and seasonal forecasts are affecting the WRSI and, therefore, see if it is likely or unlikely that an emergency response will be needed at each point in the season. In addition this will allow the government to see if the risk transfer parameters selected would result in a payout as the season develops. This will allow for response planning even before the harvest comes in allowing governments to make sure the appropriate responses are in place and that contingency plans are ready to be activated.
  • 27. MESSAGES  ARV was designed based on the Water Requirements Satisfaction Index (WRSI), which is a crop model that can be used to isolate the effects of deficit and excess rainfall on crop yields.  ARV is the technical engine for ARC and provides the analysis to determine when and in what amount payouts from ARC are due to a participating country.  ARV was designed to be highly transparent and the different parameters in ARV can be changed and customized based on country, regional and local conditions.  ARV will be an essential tool in determining the rainfall-based rules for payouts to participating countries (which will be done on a country-by-country basis) as well as risk transfer of the risk pool to the international risk markets.  ARV can allow countries to monitor how the season is developing as the season progresses since it is updated with rainfall data every ten days, which then indicates the probability of different seasonal outcomes. TERMS WRSI Deductible Ceding Percentage Limit WRSI stands for Water Requirement Satisfaction Index. It is a simple crop model which isolates the impact of water (moisture) stress on yields. The model is used to index crop yield to water provision and therefore determine the relationship between crop production and rainfall variability, assuming other factors affecting production are held constant. In insurance terms it is the amount of money that the policy holder must pay themselves to cover losses before receiving a payout from an insurer. In the context of ARC, it is the risk a country retains before a payout is triggered from ARC. Generally speaking the higher the deductible the lower the cost of the premium (ARC participation fee) and the lower the deductible the higher the cost of the premium. It can also be thought of as the drought severity level beyond which ARC starts disbursing funds, with high frequency, low severity drought retained by the country and managed using other resources. The percentage of total modelled drought risk that a country wishes to pass on to ARC. For example, if ARV estimates a worst case drought scenario in a country may cost $US50 million and a country chooses a 50% ceding percentage, it will receive US$25 million if that worst case drought scenario comes to pass. Refers to the point in a risk transfer contract beyond which no further compensation will be received, i.e. it is the maximum possible payout that contract will permit. In the context of ARC it is related to a level of drought beyond which further payouts stop. For example, if ARV estimates a US$30 million drought response cost, but a country has selected a US$25million limit, then it will only receive US$25 million from ARC. Key Terms and Messages
  • 28. Frequently Asked Questions Who owns ARV? ARV is owned, managed and maintained by WFP. The software program was designed by the WFP on behalf of the African Union for the purpose of supporting ARC and will be used by ARC, its participating countries and their partners under a software license agreement at no cost to the countries or the African Union Commission. The rainfall data that is used to run ARV is accessed from a third party (the US. National Oceanic and Atmospheric Administration, NOAA) for free every ten days and entered into ARV automatically via the internet. Can anybody use ARV? No, ARV was designed for use by African governments and their partners who are participating in or are working towards participation in ARC. Users will sign a license agreement with WFP before using the tool. Because of the benefits that ARV could have to other parties such as NGO’s and those working in food security and agriculture in developing countries, the legal team is working to make it available in the future to additional users as a separate product. What are the biggest benefits of ARV? Beyond providing the technical infrastructure for the ARC risk pool, ARV allows governments to quantify the potential financial costs associated with different rainfall seasons. ARV provides governments with information about the magnitude of potential losses and allows them to begin planning for potential responses due to drought events and to refine their national risk management strategy. How can ARV help me determine how the rainfall season is developing? Because the rainfall data in ARV is updated every ten days, it is possible to determine as the season is progressing the potential outcomes due to deficit rainfall. While it cannot forecast the outcome for the season with complete certainty until the season ends, ARV can give the probability of different outcomes for the season as rainfall information becomes available. To do this ARV uses historical rainfall data and also incorporates seasonal forecasts for the months ahead to develop a probable distribution of how the rest of the season could evolve. For instance, after the first two months of a rainfall season ARV will likely be able to identify if the crops in a given area had sufficient rainfall to germinate. This would then allow ARV to narrow the number of potential outcomes for the season by ruling out a season where the crops did not germinate and then focusing on the seasonal performance for the remainder of the season in the remaining areas. What special training is needed to utilize ARV? There is no special training needed to use ARV. ARV is designed to be a user-friendly software that can be used on a desktop or laptop. It is beneficial to have a good understanding of a number of different subject areas to fully take advantage of all ARV has to offer including crop modeling, agronomy, statistics and insurance. There is an online version for decision makers and a desktop version for more advanced users who may want to edit ARV settings and perform deeper analyses. For some government staff, it will be beneficial to participate in a training program in order to see all the key features of ARV and how to best utilize all of the different layers of analysis built into ARV. Why can’t I use the other loss estimates to determine payouts from ARC? The concept behind ARC is that it can used to facilitate payouts to clients based on objective rules. These rules then signal when a payout from ARC is due or is not due and the magnitude of that payout. The system for paying out therefore needs to be an objective, standardized, and transparent quantification of risk. While there are many ways to quantify the risk associated with drought for governments, in order for ARC to function as a risk pool and for this risk to potentially be transferred to the international market, it is important that this risk is quantified in a similar way across countries. ARV provides that platform by utilizing the same methodology across countries in order to provide an estimate of potential losses. Countries will be able to review and customize model settings before joining the pool.
  • 29. AFRICAN UNION African Risk Capacity Regional Brief: East Africa Drought Indicator Map (2010-2011) Overall Regional Performance ARV has shown that the bordering pastoral areas of northern Kenya, south-eastern Ethiopia, and southern Somalia have been affected by severe drought for more than a year. For these pastoral areas, particularly in Somalia, the September 2010 to January 2011 minor rains failed or were significantly below average. The in-season tracking functionality of ARV showed this rainfall deficit in November 2010 and even with improved rains it was too late for the rangeland pasture to recover in some areas. The major rains from March until June 2011 were also below average. It is these consecutive poor seasons that have led to the current humanitarian crisis. The images below from ARV show the level of cumulative rainfall in the region from June 2010 to May 2011 – an appropriate rainfall accumulation period for the rangeland areas. As can be seen, for this border region, this period has been one of the driest in the software’s 15 years of available data. Southern Somalia has been hardest hit with little rainfall received in the area since May 2010 and ARV has shown this period to be the driest in the 15 years of available data for Somalia. Other regional prolonged rangeland droughts can be seen in the images for 1996/1997 and 1999/2000 with more localized agro meteorological droughts occurring in other years. Introduction This regional brief provides an overview of how Africa RiskView (ARV) can be used to analyse the potential impacts of an adverse rainfall season on crop production and rangeland in East Africa including the Horn countries. In addition, the brief highlights the role the African Risk Capacity (ARC) risk pool could play in insuring against these risks. The brief begins by discussing the seasonal performance in the region and then looks specifically at the three areas described below to demonstrate the potential role of ARC for Kenya and Ethiopia:  Seasonal Performance – ARV uses FAO’s Water Requirements Satisfaction Index (WRSI) to determine if the rainfall received during a season arrives during the key growth periods of the crop and in sufficient amounts. It can also be used to monitor the status of rangeland for grazing. ARV then compares the outcome of the current season to the WRSI in a “normal” year.  Vulnerability and Populations Affected – ARV determines populations affected across different rainfall seasons by dividing households into groups based on their level of exposure to drought and resiliency to shocks. For those seasons where performance is poor, the total number of people affected will be defined based on these indicators. In addition to risk transfer, the output of this analysis can be used for early warning.  Risk Transfer – Since the goal of ARC is to transfer the risk associated with drought events of different magnitudes away from the country and to the pool, this section provides an example of the type of coverage that could have been secured had the risk associated with this season’s rainfall been transferred to ARC.
  • 30. AFRICAN UNION African Risk Capacity Regional Brief: East Africa Seasonal Performance – Kenya Kenya has two rainfall seasons which affect the pastoral north of the country which borders Ethiopia and Somalia and has two additional rainfall seasons in its agricultural areas. For the pastoral areas, based on ARV’s analysis, the 2010/11 short rains (August – January) failed last year and the 2011 long rains (February – July) have been below average. Based on ARV’s analysis, the short rains in the agricultural area were also below average for the marginal districts in the north bordering the pastoral areas. This year in the core agricultural areas, Kenya’s long rains have been average. Vulnerability and Populations Affected – Kenya According to ARV, which looks at the vulnerability and resiliency of different populations to drought, the poor 2010/11 short rains in both the agricultural and pastoral areas impacted 2.2 million people, with the pastoral populations affected again by the failed long pastoral rains in 2011. LONG RAINS – PASTORAL 2011SHORT RAINS - PASTORAL 2010/11 SHORT RAINS - AGRI 2010/11 Risk Transfer – Kenya In order to illustrate the role that ARC could play in providing risk coverage for these poor seasons, it is possible to simulate what would have occurred if part of this risk had been transferred to ARC. To do this, hypothetical risk transfer parameters have been selected. These include a payout that would provide $50 dollars per person affected to support response costs and a transaction that would cover drought events that occur with a payout frequency of once every five years on average in both rangeland rainfall seasons. A maximum payout of $100 million per season was also chosen. If this risk had been transferred to ARC using these parameters, Kenya would have received a payout from the pool for the two poor rainfall seasons in the pastoral areas. The first payout would have been received in the first week of February 2011 to respond to affected populations following the failed short rains with another small payout at the end of July as a result of the poor long rains. Using the in-season tracking functionality of ARV, the poor performance of the short rains was visible from November 2010. Since there is some flexibility in defining the length of the pastoral rainfall seasons, it would have been possible to set the risk transfer parameters so that a payout would have been received even earlier in the season. The tables below (from left) show the cost of transferring this risk to ARC as a percentage of the maximum possible payout, the total modeled response costs for both pastoral seasons, had today’s population experienced that same past rainfall, and the potential payouts from ARC for these years based on the parameters selected. Premium Table (% of max payout) Total Modeled Response Costs Estimated Historical Payouts Frequency (Years) Stand Alone ARC Pool 1-in-5 16% 12% 1-in-7 16% 8% 1-in-10 15% 5% 1-in-15 15% 4% Note: Savings are based on estimates from a 13-country pool assuming all countries have elected the same payout frequency. S impact of observed weather data on vulnerable populations requires an understanding of how weather of weather shocks into number of people affected and the appropriate response. kView results here for Kenya focus exclusively on drought risk during the long and short rains, from April d from September onwards respectively, and for the two rangeland seasons. The model is designed to mber of people directly affected by drought in these areas by looking at their exposure to drought and at to cope today with drought events of different magnitudes that happened in the past. It does not ider the indirect impacts of drought on those not actively employed in agriculture and/or livestock ws that there have been significant drought events in these areas since 1996, in particular the drought of devastating impact where WFP responded to 3.6 million beneficiaries who were among the people in kind of assistance (see figure below). vities and poverty, the model predicts that a drought like the one experienced in 2005/6, which affected and rangeland areas of the country, would affect over 7 million people through some sort of livelihood refinement of the model is needed to give estimates for the number of those affected that would need e. 2010 long rains were good, the later short rain seasons have been below average, particularly in the , estimating nearly 2.3 million people could be affected. Other sources (such as FEWSNET and Arid Lands agement Project) have confirmed that there is trouble in the region for the 2010-2011 short rain seasons, nts estimating numbers of drought affected people of the same order of magnitude. Brief: Kenya kView Disaster Risk Solutions April 2011 1 ry Brief: Kenya iskView d Disaster Risk Solutions April 2011 d Impact (Population Affected EA2+EAR1) Modelled Impact (Population Affected EA3+EAR2)
  • 31. AFRICAN UNION African Risk Capacity Regional Brief: East Africa Seasonal Performance – Ethiopia Similar to Kenya, Ethiopia also has four distinct rainfall seasons. In the pastoral areas, which are located in the southeast of the country bordering Kenya and Somalia, there are two rainfall seasons – the minor deyr rains that occur between August and January and the major gu rains which occur between February and July. It is these pastoral areas that are currently being affected by drought. ARV has shown that last year’s deyr rains were poor and this year’s gu rains have also been below average. There are also two agricultural rainfall seasons – the belg short rains (Feb-July) and the meher long rains (April-October). The belg season was below average in the southern agricultural areas that border the pastoral region. To date, the current meher season in the main agricultural areas have been good. Vulnerability and Populations Affected – Ethiopia According to ARV, which assesses the impact of drought by looking at the vulnerability and resiliency of different populations, the poor 2010/11 deyr rains impacted 1.4 million people, with an additional 4.3 million affected due to the poor 2011 gu and belg rains in the south. GU 2011 BELG 2011DEYR 2010/11 Risk Transfer – Ethiopia To demonstrate how ARC could have provided risk coverage for the pastoral areas, the same hypothetical parameters as for the Kenyan example above were chosen. Based on this risk transfer selection, Ethiopia would only have received a payout from the pool immediately following the poor gu rainfall season in July. As above, the tables below (from left) show the cost of transferring this risk to ARC, the total modeled response costs for both pastoral seasons and the potential payouts from ARC based on the parameters selected. Premium Table (% of max payout) Total Modeled Response Costs Estimated Historical Payouts Frequency (Years) Stand Alone ARC Pool 1-in-5 18% 14% 1-in-7 17% 9% 1-in-10 16% 6% 1-in-15 15% 4% Note: Savings are based on estimates from a 13-country pool assuming all countries have elected the same payout frequency. In Ethiopia, the biggest impact in the pastoral areas for the past 12 months has been the cumulative effect of two poor rainfall seasons as pastoralists can use traditional coping mechanisms to manage their herds following a single poor period. The payout chart on the right for Ethiopia is only based on the impact of a single season’s rainfall, transferred to ARC individually, and therefore does not take into account the aggregate losses of two consecutively bad seasons. Had Ethiopia chosen to transfer risk to ARC over a longer period, which encompassed both poor seasons (as shown by the middle chart above), the payout could have been significantly higher, although it would only have been received following the end of the gu rains in July. While this brief focuses on risk transfer, it is clear that droughts in both Kenya and Ethiopia are frequent and reoccurring in the pastoral areas. For these countries risk transfer could help manage only the more infrequent, extreme risks. For risks which are chronic and recurrent using annual budgetary allocations and other instruments such as safety net investments and strategic grain reserves will be more suitable and, together with longer term investments in DRR and climate change adaptation, will contribute to a more comprehensive national risk management strategy. BELG 2011 GU 2011DEYR 2010/11
  • 32. AFRICAN UNION African Risk Capacity Regional Brief: East Africa Disclaimer  All Africa RiskView products are a work in progress, subject to change at any time and shown for illustration only and are not to be shared further. WFP and contributing donors make no representation or warranty of any kind, whether express, implied or statutory, as to the accuracy or fitness for a particular purpose of the products and information contained within Africa RiskView or this brief. In no event shall WFP, nor contributing donors, be liable with respect to any subject matter presented here. 
  • 33. African Risk Capacity - ARC Sovereign Disaster Risk Solutions: A Project of the African Union SECTION 3 Diplomatic Notes and Policy Decisions 7 Note Verbale on the ARC to All Member States of the African Union 8 Aide Memoire on the ARC 9 Decisions taken on the ARC by African Ministerials and Policy Organs of the African Union a. Third Joint AU Conference of African Ministers of Economy and Finance, Planning and Economic Development and ECA Conference of African Ministers of Finance, Planning and Economic Development held in Lilongwe, Malawi on 30 March 2010 (Resolution L-7 and EX.CL/586(XVII)) – endorsed at AU Summit of African Heads of State and Government in Kampala, Uganda July 2010 b. Second Africa Ministerial Conference on Disaster Risk Reduction held in Nairobi, Kenya on 16 April 2010 (EX.CL/589(XVII)) – endorsed at AU Summit of African Heads of State and Government in Addis Ababa, Ethiopia January 2011 c. Second Africa-Arab Summit held in Sirte, Libyan-Arab Jamahiriya on 10 October 2010 (Assembly/Africa-Arab/Res.2(II)) d. Decision on Disaster Risk Reduction taken by the African Union Executive Council at the AU Summit in Addis Ababa, Ethiopia on 27 January 2011 (EX.CL/Dec.607(XVIII)) e. Fourth Joint AU Conference of African Ministers of Economy and Finance, Planning and Economic Development and ECA Conference of African Ministers of Finance, Planning and Economic Development held in Addis Ababa, Ethiopia on 29 March 2011 AFRICAN UNION
  • 34. AFRICAN UNION UNION AFRICAINE UNIÃO AFRICANA Addis Ababa, ETHIOPIA P. O. Box 3243 Telephone : 011-551 7700 Fax : 011-551 7844 website : www. africa-union.org African Risk Capacity: A Pan African Disaster Risk Pool Information Note Africa Must Transition from Managing Crises to Managing Risks The increased frequency of extreme weather events driven by climate change will result in increased risk of hunger and malnutrition in Africa’s most vulnerable populations. As currently structured, the system for responding to natural disasters is not as timely or equitable as it could be. Funding is secured on a largely ad hoc basis after disaster strikes and only then can relief be mobilized toward the people who need it most. In the meantime, lives are lost, assets are depleted, and development gains experience significant setbacks – forcing more people into chronic destitution across the continent. Establishing contingency funding, or monies that become available automatically if an extreme drought, flood or cyclone occurs in a vulnerable area, ensures a more timely, appropriate, objective and transparent response. Because extreme weather events do not happen in the same year all across the continent, pan-African solidarity in the creation of a disaster risk pool could be financially effective. Such a facility would provide participating Member States readily available cash in the event of a natural disaster. The African Union already has a Special Emergency Assistance Fund for this purpose. However, it is too small to adequately cover the risks facing the continent, in need of constant replenishment and therefore unsustainable. Disbursements are made according to the best information available to the Member States administering the fund, however, decision-makers are not always presented with the most objective and comprehensive data available during an emergency. The AUC, with technical assistance from the UN World Food Programme, has been working to improve this system by using best-of-breed technologies and innovative financing mechanisms in order to build the capacity within the continent to finance humanitarian assistance when and where we need it, while reducing our heavy reliance on external aid in emergency situations. Support from the Policy Organs of the African Union On 25 March 2010, the Department for Rural Economy and Agriculture convened a meeting of stakeholders in disaster risk reduction at the continental level. Participants included representatives from the regional economic communities, technical institutions (e.g. ACMAD, ICPAC, AMESD) as well as UN agencies and partner organizations concerned with disaster response and management. This group evaluated multiple programs and referred their recommendations including one in support of a risk pool to the Second Africa Ministerial Conference on Disaster Risk Reduction (DRR) in Nairobi, Kenya. On 16 April 2010 Ministers passed a declaration which “Calls Upon Member States to explore the feasibility of continental financial risk pooling in working towards the creation of an African-owned, pan-African Disaster Risk Pool for Food
  • 35. 2 Security.”1 The Conference of African Finance Ministers gathered on 29-30 March in Lilongwe, Malawi adopted a similar endorsement in Resolution L-7 in which they resolved to “Support efforts towards enhancing national and regional capacities to mitigate exposure to disaster risk through institutionalizing effective financial and other instruments such as strategic grain reserves, budgeted contingency funds as well as through sharing risk across regions.” The latter was adopted by the Executive Council in its report of the Ministerial2 and subsequently approved by Heads of State at the July 2010 AU Summit in Kampala, Uganda. Africa RiskView Fund Management Software The first step towards establishing such a pool is quantifying the risk in dollar terms. Climate and Disaster Risk Solutions, funded by the Rockefeller Foundation at the UN World Food Programme (WFP), has developed a methodology using leading technologies to assess the impact of weather events on food security across Africa – information critical to financial preparedness for natural disasters. One of the endeavour’s principal products is Africa RiskView, a software application that translates satellite-based rainfall information into near real-time needs estimates. Africa RiskView provides decision-makers with expected and probable maximum costs of weather-related responses before an agricultural season begins and as the season progresses for every first-level administrative district for every country in sub-Saharan Africa. To date the software has focused on drought, but other weather risks can be included in the future. The software enables management of Africa's weather risk as a whole in one financially optimized continent-wide risk portfolio. The Africa RiskView model performs well against historical drought-related assistance in Africa, with loss estimates correlating at nearly 90% to actual WFP responses over the past decade. The model is flexible and can be customized and refined for each country, using the best data available. Aggregating Risks Across Regions Creates Savings While each country may use this information to build a national risk profile and contingency financing strategy, there is a clear financial incentive to pool different types of weather risk across countries and regions. National contingency funds or national weather insurance contracts, such as those pioneered by Ethiopia and Malawi, can be expensive propositions for a single national government. Evidence suggests that a scheme involving several governments using a single instrument, pooling their risk and then approaching donors and/or the market as a collective to manage this risk stands to save African governments significant amounts in risk management and emergency response costs. It is unlikely that extreme weather events will happen simultaneously or in the same year in every country. This diversification means risks do not accrue in an additive fashion, lowering the probable maximum costs that a group of countries may incur together to a more manageable amount than the sum of each country’s individual probable maximum cost. Preliminary findings indicate a 50% savings from diversification of drought-related losses across Africa. This means that if African countries were to pool their drought risk, the pool’s capital requirement would be half the sum of each country creating their own reserves – making a Pan-African Disaster Risk Pool an attractive financing mechanism in support of African food security. 1 See Report of the Experts’ Meeting Preceding The Second African Ministerial Conference on Disaster Risk Reduction (DRR), which took place in Nairobi, Kenya 16 April 2010 2 See Executive Council Report (EX.CL/596(XVII)) of the Third Joint AU Conference of African Ministers of Economy and Finance and ECA Conference of African Ministers of Finance, Planning and Economic Development, which took place in Lilongwe, Malawi 25-30 March 2010
  • 36. 3 Risk Pool in Action: Relevant Experience from the Caribbean Following the devastation caused by Hurricane Ivan in the Caribbean in 2004, CARICOM Heads of Government requested World Bank assistance in establishing a contingent fund in order to respond in a more timely and efficient manner to hurricanes and earthquakes. This Caribbean-owned, regional institution is the first regional disaster insurance facility in the world and serves as a model that could be adapted for Africa’s more complex food security requirements. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) provides 16 CARICOM member governments with immediate liquidity after a disaster. CCRIF uses a parametric instrument to trigger payouts, which means that payment is triggered by measurements of the intensity of the event rather than an assessment of damage incurred, thus ensuring quick release of funds at times when affected countries need it most. CCRIF has been able to efficiently diversify its portfolio, thereby reducing risk management and risk transfer costs for participants. Participation in the CCRIF is voluntary and country governments determine the level of coverage at which they wish to participate based on their exposure to risk. In order to subscribe to the CCRIF, participating countries contribute an entry fee proportionate to their own specific risk exposure. For the first three years of its existence (through 2010), those countries that qualify for International Development Assistance (IDA) have been granted the ability to apply a portion of these funds towards the entry fee and subsequent contributions to the CCRIF. The facility is backed by donor funds held by the World Bank in a Multi-Donor Trust Fund combined with the financial capacity of the international markets. This means that CCRIF offers a high level of resiliency by international standards. A board comprised of participating country and relevant international organization representatives makes major decisions affecting the CCRIF. African Risk Capacity The concept for African Risk Capacity (ARC) is roughly based on the CCRIF. Modified for the particularities of African multi-seasonal weather risk in its financial design and based on Africa RiskView, the pool’s governance structure could mirror the CCRIF as an African-owned, AU-led stand-alone entity. The AUC, with technical assistance from WFP, has undertaken a study of design options including the institutional, legal and financial architecture of such an entity and participation guidelines. The structure, size and scope of an initial ARC entity, the role of stakeholders in the pool and the requirements for participation will be determined though this design and consultation process.
  • 37.    EX.CL/589(XVII) Annex 1 DECLARATION OF THE REPORT OF THE SECOND MINISTERIAL CONFERENCE ON DISASTER RISK REDUCTION NAIROBI, KENYA, FROM 14 TO 16 APRIL 2010
  • 38. EX.CL/589(XVII) Annex 1 Page 1   DECLARATION OF THE SECOND AFRICAN MINISTERIAL CONFERENCE ON DISASTER RISK REDUCTION HELD IN NAIROBI, KENYA, FROM 14 TO 16 APRIL 2010 We, the Ministers and Heads of Delegations responsible for Disaster Risk Reduction in Africa having met in Nairobi, Kenya on 16 April 2010 at the Second African Ministerial Conference on Disaster Risk Reduction, concurrently with the First Conference of Ministers Responsible for Meteorology in Africa held from 15 – 16 April 2010 in Nairobi, Kenya. We express our sincere condolences and solidarity with the people and communities seriously affected by disasters in all its manifestations across Africa and other parts of the world and commend the efforts made by them, their governments and the international community to respond to and overcome those tragedies. We are convinced that disasters seriously undermine the results of development and poverty eradication and prosperity. Development efforts that fail to appropriately consider disaster risk could seriously increase vulnerability of people and their livelihoods. We therefore believe that coping with and reducing disaster risk to build resilience for sustainable development is a most critical challenge facing governments, communities and the international community. African countries, cognisant of our joint endeavours to build our disaster risk reduction efforts, believe it is our collective responsibility to support each other. I. Take note of the proceedings of the Second Africa Regional Platform on Disaster Risk Reduction consultative meeting held in Nairobi from 5-7 May 2009, at which Governments, Regional Economic Communities (REC), the African Union Commission (AUC), NEPAD Planning and Coordinating Agency (NPCA), and United Nations (UN) and non-UN partners, discussed and proposed a draft extended Programme of Action (2006-2015) for the implementation of the Africa Regional Strategy for Disaster Risk Reduction, in line with the Hyogo Framework for Action (HFA) 2005-2015: ‘Building the Resilience of Communities and Nations to Disasters’; II. Endorse the Executive Summary of the Proceedings of the Second Africa Regional Platform for Disaster Risk Reduction Consultative Meeting, which includes the recommendations of the Africa Platform to the Global Platform for Disaster Risk Reduction held in Geneva from 16-19 June 2009; III. Endorse the Proceedings of the Second Session of the Global Platform for Disaster Risk Reduction “Creating Linkages for a Safer Tomorrow” which contains the Chair’s Summary; IV. Recall the African Union Assembly Decision on the Revised 1968 African Convention (Algiers Convention) on the Conservation of Nature and Natural
  • 39. EX.CL/589(XVII) Annex 1 Page 2    Resources and the Action Plan of the Environment Initiative of the New Partnership for Africa’s Development (NEPAD) at the Second Ordinary Session, held in July 2003, in Maputo, Mozambique; V. Recall also the African Union Executive Council Decision on the Programme of Action for the Implementation of the African Regional Strategy on Disaster Risk Reduction (2006 – 2010) adopted at the Eighth Ordinary Session of the AU, January 2006 held in Khartoum, Sudan; VI. Recall further the African Union Executive Council Decision on the Special Session of the African Ministerial Conference on Environment (AMCEN) on climate change held at Nairobi, Kenya, May 2009, adopted at the Thirteenth Ordinary Session of the African Union Summit held in Sirte, Libya, June 2009. VII. Recall all previous decisions on climate change. VIII. Recall the decision of African Ministers of Finance in Lilongwe, Malawi (29-30 March 2010), to “support efforts towards enhancing national and regional capacities to mitigate exposure to disaster risk through institutionalising effective financial and other instruments such as strategic grain reserves, budgeted contingency funds as well as through sharing risk across [sub]regions”. IX. Acknowledge the positive efforts that many national governments in Africa have made in integrating disaster and climate risk reduction in their development policies and planning processes, as well as into emergency response and recovery activities and recognise the difficulties of many States to institutionalize, enact and decentralize these efforts and turn them into action; X. Stress the need for the Africa Regional Platform to continue to advocate and provide technical advice and support mechanisms by Regional Economic Communities, national governments and partners, for the implementation of the Africa Regional Strategy for Disaster Risk Reduction and its Programme of Action (2006-2015); XI. Stress the fact that there is a need for assessing the progress made by the African Union Commission, NEPAD Planning and Coordination Agency, Regional Economic Communities and Member States in order to accelerate the implementation of the Africa Regional Strategy for DRR through its Programme of Action (2006-2015); XII. Call the attention of African leadership to the urgent need to strengthen sub-regional mechanisms in order to achieve the objectives of the HFA and the Africa Regional Strategy for Disaster Risk Reduction, through the implementation of the Programme of Action (2006-2015);
  • 40. EX.CL/589(XVII) Annex 1 Page 3    XIII. Emphasize the need for Member States, to promote the creation of partnerships with institutions dealing with disaster risk reduction, such as National Meteorological and Hydrological Services (NMHSs), the health and financial sector institutions, academia, specialised centres, research and scientific institutions, NGOs and civil society organisations, for purposes of achieving the objectives of the Africa Regional Strategy and Programme (2006-2015) and form part of a multi-sectoral National Platform for Disaster Risk Reduction; XIV. Recognise the negative impacts of climate variability and change, including the increase in the occurrence and severity of disasters and increased competition over natural resources; XV. Stress the special needs of most vulnerable countries and Small Island Developing States and recognise their aspirations for sustainable development and need for cooperation; XVI. Recognise also that poorly planned urbanisation increases vulnerabilities which calls for concerted actions by local governments and communities. XVII. Stress the need for Member States to leverage new entry points for disaster risk reduction by taking advantage of new developments since the inception of the Africa Regional Strategy for DRR, and integrate them into existing mechanisms. Hereby recommend to the African Union Summit: 1. To request the African Union Commission to continue mobilising political support, and to advocate for international community, institutions and development partners to support Member States to institutionalise multi-sectoral National Platforms for disaster risk reduction, or similar coordinating mechanisms, that integrate disaster and climate risk management, emphasising the mainstreaming of disaster risk reduction in planning and finance, the health, education, urban development, infrastructure, energy, water and sanitation, industry, agriculture and food security sectors, among other national priorities; 2. To call on the African Union Commission to reconstitute the Africa Working Group on Disaster Risk Reduction to provide coordination and technical support to Member States for the implementation of the Africa Regional Strategy for Disaster Risk Reduction and its Programme of Action; 3. To call upon the African Union Commission, NEPAD Planning and Coordination Agency, Regional Economic Communities (RECs) and Member States to create a network of capacity development institutions for training, research, and information management and exchange at country, sub-regional and regional levels in collaboration with international and regional partners;
  • 41. EX.CL/589(XVII) Annex 1 Page 4    4. To request African Union Commission, NEPAD Planning and Coordination Agency, regional and sub-regional organisations and Member States to continuously monitor the implementation of the Africa Regional Strategy for Disaster Risk Reduction and its Programme of Action in line with the HFA and to assess and report biennially on the progress made; 5. To request Member States to decentralize and implement local and community- based disaster risk reduction strategies and programmes, supported by adequate, realistic and predictable funding mechanisms, with an enhanced role for local governments and empower local and regional NGOs, including volunteers; 6. To strongly call upon Member States to incorporate gender equity and empowerment considerations in implementing the Programme of Action; 7. To strongly urge Member States to increase their investments in disaster risk reduction through the allocation of a certain percentage of their national budgets and other revenue dedicated to disaster risk reduction and report to the next Ministerial Conference, considering other related African Ministerial resolutions; 8. To call upon development and humanitarian partners to ensure that disbursement of one percent (1%) of development assistance and ten percent (10%) of humanitarian assistance, in line with the Chair’s Summary of the Second Session of the Global Platform, supports disaster risk reduction, preparedness and recovery, including from violent conflicts and/or severe economic difficulties; 9. To call upon Member States, under the auspices of the African Union Commission, to explore the feasibility of continental financial risk pooling in working towards the creation of an African-owned Pan-African disaster risk pool, building on existing and emerging tools and mechanisms for financing disaster risk reduction; 10.To call for a study into the establishment of a regional funding mechanism for disaster risk reduction which allows Member States to access existing, and future, regional and global funds for climate change adaptation and disaster risk reduction; 11.To make disaster risk reduction and climate change adaptation a national education priority, through their integration into the educational system, including the development of curricula, and the training of teachers; 12.To call upon Member States to undertake vulnerability assessments of schools, health facilities and urban centres, and develop and implement plans to ensure their safety and resilience; 13.To encourage the development of capacities of, and partnerships among, Member States to access and utilise existing traditional knowledge, space-based and other technologies for disaster risk reduction;
  • 42. EX.CL/589(XVII) Annex 1 Page 5    14.To call on the African Union Commission and the Regional Economic Communities to establish and/or strengthen, within their organisational structures, functional, sustainable, affordable and dedicated disaster risk reduction units for coordination and monitoring; 15.To call on the Regional Economic Communities to enhance the implementation of their roles and responsibilities as stated in the Africa Strategy and Programme of Action; 16.To call upon the Member States to adopt the revised Programme of Action for the Implementation of the African Strategy for Disaster Risk Reduction (2006-2015) and to monitor progress; 17.To invite the United Nations International Strategy for Disaster Reduction (UNISDR) and partners to engage with African Union Commission, Regional Economic Communities and African countries to support the implementation of this Declaration, as appropriate; and 18.To request the African Union Commission to take note of this Ministerial Declaration, and to submit to the African Union Summit.
  • 43. THE SECOND AFRICA-ARAB SUMMIT SIRTE, GREAT JAMAHIRIYA 10 OCTOBER 2010 Assembly/Africa-Arab/Res.2 (II) RESOLUTION FOR THE ESTABLISHMENT OF THE JOINT AFRICA-ARAB FUND FOR DISASTER RESPONSE
  • 44. Resolution for the Establishment of the Joint Africa-Arab Fund for Disaster Response We the Kings, Leaders and Heads of State and Government of the Arab and African countries gathered at the Second Africa-Arab Summit in Sirte, Libyan- Arab Jamahiriya on October 10, 2010; Guided by the provisions of the Constitutive Act of the African Union and the Charter of the League of Arab States; Aware that the threats posed by natural or man-made disasters such as: earthquakes, floods, drought, desertification and the spread of epidemics and disease cannot be addressed by any State individually and that facing these requires mobilization of necessary resources in the framework of collective effort and solidarity; Convinced of the need to establish a joint mechanism to assist our countries in mitigating the effects of such calamities, 1. Decide to establish a joint Africa-Arab Fund for Disaster Response; 2. Decide Also that the resources of the Fund shall be from the following sources: Funds allocated from the budgets of the African Union and the League of Arab States; Contributions from Arab and African countries, civil society organizations, the private sector; Contributions from international partners and regional and international organizations; 3. Mandate the Chairperson of the African Union Commission and the Secretary General of the League of Arab States to prepare the Statutes of the Fund and determine its objectives and modalities of its operation.
  • 45. Resolution L5 African risk capacity: a Pan-African disaster risk pool The Conference of Ministers, Recognizing the vulnerability of food-insecure populations as well as national economies to weather shocks, the effects of which may be exacerbated by climate change, Recalling the resolution for the Establishment of the Joint Africa-Arab Fund for Disaster Response (Assembly/Africa-Arab/Res.2 (II)) adopted at the Second Africa-Arab Summit in Sirte, Libyan-Arab Jamahiriya on October 10, 2010 to establish a fund for disaster response, the Statutes, objectives and modalities of which are to be defined by the AUC and the league of Arab States, Acknowledging that the current system of ad hoc unpredictable funding for disaster response causes the depletion of critical assets and the reallocation of government resources from planned investment in times of crisis, slowing economic growth and creating significant setbacks to development, Recognizing the decision taken by the Third Joint African Union Conference of Ministers of Economy and Finance and ECA Conference of African Ministers of Finance, Planning and Economic Development, held in Lilongwe, Malawi, in March 2010 (EX. CL/596(XVII)), to “support efforts towards enhancing national and regional capacities to mitigate exposure to disaster risk through institutionalizing effective financial and other instruments such as strategic grain reserves, budgeted contingency funds as well as through sharing risk across regions”, 1. Welcomes the African Union Commission’s proposal to work towards the establishment of African Risk Capacity, an African-owned pan-African disaster risk pooling facility that would provide contingency funds to participating African Union member States in the event of extreme weather shocks and appreciates the Commission’s leadership in exploring the feasibility and design of such a facility, that would complement and not duplicate existing structures and initiatives; 2. Supports the proposed consultation to be held with African Union member States in South Africa in early May 2011, where the findings to date will be shared and discussed, and the results of which will inform the Commission’s report to the Executive Council at the June 2011 African Union Summit, to be held in Malabo, Equatorial Guinea; 3. Invites African Union member States to support the Commission’s efforts through contributions to the design phase of the Risk Capacity project; 4. Endorses the interactive process in question and commits to providing support to the above-mentioned discussions at the country and regional levels.

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