Greater climate resilience through African Risk Capacity (ARC)
News from 2020-12-07 / KfW Development Bank
Through the Emergency COVID-19 Support Programme, the Federal Ministry for Economic Cooperation and Development (BMZ) is providing EUR 19.5 million of funds to finance insurance premiums for protection against climate risks. This first bilateral insurance premium subsidisation programme will protect up to 20 million people in Sub-Saharan Africa against the impact of drought in the current agricultural season.
The intensity and frequency of climate change-related natural disasters is constantly increasing and these disasters represent one of the greatest threats to humanity. Many parts of the world already feel their negative effects – which include droughts, flooding and hurricanes. Sub-Saharan Africa experiences extreme weather events particularly frequently due to its geographical location.
Action, not reaction
To enable countries to prepare proactively for climate-related disasters and be able to act fast and efficiently in an emergency, African Risk Capacity (ARC) was established in 2013 on the initiative of the African Union member states and with assistance from KfW. ARC offers African countries insurance covering natural disasters, along with comprehensive technical support for disaster preparation and disaster risk management. If a crisis occurs and areas fall below certain precipitation levels, ARC immediately pays out funds to enable emergency aid to be provided to affected countries.
ARC Replica, established in 2018, uses a similar mechanism but offers insurance to humanitarian actors rather than countries, and these actors then coordinate with the African countries. What makes ARC and ARC Replica unusual is the fact that governments and humanitarian actors must first develop an emergency plan as a prerequisite for taking out the policy. The plan sets out how the funds will be used in the event of a payout. This requires proactive preparation for natural disasters. With the insurance, they guarantee emergency financing ex ante rather than hoping for ad hoc support from international donors.
BMZ financing through the Emergency COVID-19 Support Programme
The impact of the COVID-19 pandemic has massively reduced the fiscal flexibility of many African countries, meaning that it is no longer possible to guarantee financing for the insurance premiums that are due. The BMZ has recognised this issue and in 2020 it provided humanitarian actors and African countries with EUR 19.5 million of COVID-19 one-off funding for ARC premium payments. KfW implemented the COVID-19 support through ARC and ARC Replica in nine countries. As at 2020, a total of twelve African countries benefit from ARC insurance protection: Burkina Faso, Côte d'Ivoire, Gambia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Niger, Zambia, Zimbabwe and Togo.
These countries are facing a double challenge, with climate-related risks and the pandemic: a natural disaster during the current pandemic would have a severe impact on food supply. For up to 20 million people in Sub-Saharan Africa who are in need and particularly vulnerable to crises, the BMZ support will offer protection against the impact of drought in the current agricultural season. The ARC insurance helps to prevent a more severe crisis in the economy, food supply and healthcare in these countries.
ARC – fast emergency assistance in disasters
The innovative approach of ARC and ARC Replica combines proactive climate risk management with ex ante climate risk financing and emergency aid plans laid out in advance. This approach is proving itself: since ARC was established in 2013, around USD 65 million of insurance payouts have been made in response to natural disasters in Mauritania, Senegal, Malawi, Niger, Côte d'Ivoire and Zimbabwe, making it possible to help more than 3.2 million people during acute droughts.