African Risk Capacity

Drought is a recurring threat across Sub-Saharan Africa: since 1980 there have been over 200 drought events. About two thirds of the area’s population work in agriculture, 80% as smallholder farmers. This means millions of people not only depend on farming for their food, but also for their incomes and livelihoods. A drought can thus have devastating consequences. In addition to the human suffering caused by famine, the costs of aid relief and a fall in revenues can wipe out years of development gains.

Woman handling vegetables next to a market stand (photo)

In Sub-Saharan Africa, most people depend directly on farming for their food and income. Working with our partners in programmes such as the African Risk Capacity, we have recently helped to insure 2 million smallholder farmers against weather risks that may threaten their harvests.

This is why we supported the launch of the African Risk Capacity, ARC ( Set up by the African Union and drawing support from the public and private sectors, ARC is the continent’s first natural disaster insurance pool. In the inaugural 2014/2015 risk pool, drought insurance of USD 129 million has been offered to four governments – Kenya, Mauritania, Niger and Senegal. Mozambique also participated in the pool originally, but withdrew later.

When there is too little rainfall in the countries protected by the scheme, ARC will estimate the adverse impact on local crop production and the resulting response costs, using an innovative software that combines satellite-based rainfall estimates with crop models and local vulnerability profiles. When the response costs exceed a pre-defined threshold, the affected countries receive a payout within a few weeks, provided that their implementation plans have been approved. This move from “post-disaster aid” to “pre-disaster risk management” allows governments to significantly reduce the cost of emergency contingency funds.

We support ARC as a major capacity provider and by contributing our expertise to make it a commercially attractive and affordable solution. ARC is only the third sovereign risk transfer pool worldwide, after the Caribbean Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Insurance Pilot. We have played an instrumental role in both of these, too.