Given projected increases in global temperatures, which are likely to give rise to longer and more intense droughts, in addition to greater weather variability across parts of sub-Saharan Africa, the risks facing many of the world’s most exposed households – those that rely on rain-fed agriculture for their livelihood – are more pressing than ever.
The fundamental risk-pooling mechanism that underlies the ARC has been recognized at the highest levels of climate negotiations as a new and important adaptation tool for countries to utilise. The eighteenth session of the Conference of the Parties (COP 18) of the United Nations Framework Convention on Climate Change’s (UNFCCC) Decision on loss and damage, taken in 2012 in Doha, emphasizes the importance of risk transfer and risk sharing through regional collaboration as a crucial element to climate change adaptation. The ARC specifically addresses a number of related aspects of the Decision, namely in that it,
- Implements a regionally-driven risk transfer and risk-sharing mechanism;
- Supports comprehensive climate risk management approaches, including scaling up and replicating good practices and pilot initiatives;
- Addresses the loss and damage associated with the adverse effects of climate change, including slow onset events and extreme weather events; and,
- Strengthens and promotes regional collaboration, centres and networks on strategies and approaches.
In a decision taken at COP 19 in 2013 in Warsaw, Poland, the Parties established the Warsaw international mechanism for loss and damage, under the Cancun Adaptation Framework. While many of specifics of the Warsaw mechanism will only be established in the coming years, ARC is well positioned to play a role as a concrete regional risk management tool within the institutional framework to be established.
In addition, ARC is in the process of establishing the Extreme Climate Facility (XCF), a new financial mechanism that will secure direct access for African governments to climate finance to respond to the impacts of increased climate volatility. Over the next 18 months, the ARC Agency will lead the XCF Research and Development program, working with African States and their partners. More information about Extreme Climate Facility can be found here.
Africa RiskView: Climate and Impact Modelling
Africa RiskView (ARV) is the technical engine behind ARC. It is a software application, developed by the United Nations World Food Programme (WFP), which provides a transparent system to estimate crop losses and the impact on populations’ food security from past and future droughts for sub-Saharan African countries. ARV 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 standardised approach for estimating drought response costs systematically across a large number of African countries.
Understanding the expected and variable costs of weather-related events that can occur in the coming season not only allows for better preparation in the short term, through mechanisms such as the ARC, but also creates opportunities for understanding future climate risk and its impacts better. By using climate change scenarios as an input to ARV it is possible, in principle, to evaluate the future impact of climate variability and changes on critical issues such as food security and the overall performance of an envisaged risk management system, such as ARC. The knowledge of African climate variability has increased considerably over the past decade, as researchers now have a significantly improved understanding of the mechanisms that determine specific characteristics of climate patters in vulnerable parts of the continent.
ARC’s contribution to long-term resilience and growth
Coupled with other climate change adaptation measures, ARC can contribute substantially to building resilience in sub-Saharan Africa. For many countries in Africa, a small shock in terms of a rainfall deficit or elevated food prices can precipitate a call for a major humanitarian intervention and emergency response. The resilience in such countries is significantly low such that they struggle through most years, let alone during a drought. For example, in a country such as Niger, where households currently display very low resilience, the ARC team has calculated that to withstand a 1-in-5 year drought event, the income of the most vulnerable households would have to grow by an annual average of 3.4% over the next five years in real terms to build sufficient resilience in order to adequately cope without requiring external assistance.
In the meantime, insurance is not the correct tool to deal with this chronic risk. In order to improve such countries’ resilience to natural disasters, thereby enabling sustained growth on the continent, two key elements are required: risk management and investment. Investments that support long-term resilience against food insecurity can address chronic risks and provide a base of predictable on-going assistance that can support poor and vulnerable households to build assets and livelihoods, which will in turn develop resilience to cope with normal and somewhat frequent, mild shocks (e.g. every two to four years) without external assistance.
This does not mean that ARC offers no value to countries that lack investments into a framework to deal with frequent risks; however the mechanism can provide greater benefits where there are existing systems that can be quickly scaled-up to address transient needs. From this base level of investment, in which chronic risks are addressed and households are able to begin to accumulate assets and secure livelihoods, sound risk management becomes critical.
In order to protect the resilience achieved through investments, countries need to ensure that future shocks, mild or severe, do not erode such gains, and that the number of households falling into poverty, or depleting their assets, does not grow. This is where a tool such as ARC can offer the most value, providing dedicated contingency funds that can scale up safety net systems in a reliable, timely manner, allowing them to remain solvent and sustainable, protecting hard-won gains for households, and reducing the country’s reliance on emergency appeals.
When countries achieve these key components of investment and risk management, they can enjoy the benefits of a virtuous cycle of attracting further investment by always protecting the benefits investment brings with prudent risk management. A country with a stable social protection system, not relying on emergency appeals every year or diverting national resources frequently to deal with emergencies, can focus rather on additional investments into agriculture and food security to increase productivity and resilience to shocks (e.g. irrigation schemes), alongside other investments that will diversify the country’s economy away from reliance on rain-fed agriculture. The stability fostered by investment and sound risk management will crowd in private sector investment, in addition to creating space for donors to back programmes that focus on long-term growth, rather than supporting costly humanitarian interventions.
All of this will drive increased resilience, whereby households become less vulnerable to shocks, enjoy increased productivity and subsequent food security, and the country as a whole develops a more diversified economy and an associated taxpayer base. As the process continues in the long run, resilience at the national and household level will be increased, the safety net programmes reduced and ARC can be phased out as countries suffer setbacks only from less frequent shocks, which can be more affordably managed via the commercial market. Countries would also be able to utilise growing and diversified revenue streams to employ contingent loans and other innovative products to manage these risks.
A more in-depth analysis on how ARC builds resilience to climate change is featured in our article From Managing Crises to Managing Risk.