Disaster Risk Finance in Africa: Lessons Learned From Pioneering Disaster Risk Finance Solutions Over the Past Decade

January 27, 2022

African countries are among those most vulnerable to natural disasters and the impacts of climate change. In a sample of 30 African countries, 20 are warming faster than the global average - a trend expected to continue in coming decades. As natural hazards increase in frequency and severity and climate impacts continue to evolve, African countries are likely to experience more—and more dangerous—shocks in the future.

Every year Africa is affected by dozens of such disasters that vary in type, duration, and magnitude, with droughts accounting for the largest impact on populations. Over the past two decades, more than 1,100 disasters in Africa have killed 46,000 people and affected as many as 337 million lives. These crises have had a severe impact on the development progress of countries, hitting the poorest households the hardest.

Financial preparedness is closely linked with operational preparedness, as plans and systems are needed to ensure available funds can be distributed in a timely manner. Financial preparedness is crucial for fiscal stability and development progress in African countries and risk finance solutions support this. Without pre-arranged sources of finance for disaster response, governments must reallocate funds within existing budgets—a practice that risks disrupting other crucial long-term development eﬀorts or rely on humanitarian assistance, which can be underfunded and slow to materialize. Households, in particular women and girls, may resort to negative coping strategies devastating their welfare.

Of course, all development interventions must be tailored to the country context. That said, the World Bank’s Disaster Risk Financing and Insurance Program (DRFIP) and the Finance, Competitiveness & Innovation (FCI) Africa region have identified some patterns in how to best design, implement, and operationalize effective and sustainable risk finance solutions. In its recently published note Disaster Risk Finance: Lessons Learnt from Engagements, the DRFIP shares insights gained through implementing eﬀective and lasting risk finance solutions for governments in the Africa region.

Lesson 1: Strong country commitment is recommended for strategic initial investments

Developing suitable risk finance interventions, given their complexity and human capacity demands, entails high initial investment costs. Country engagements must therefore be selected based on highest impact potential, clearly defined policy priorities, and strong demand by country governments.

In the case of Niger, the government’s strong commitment to the disaster risk finance (DRF) agenda was evident in its appointment of a dedicated DRF Steering Committee. Made up of different agency representatives, this committee both championed the agenda within the government and laid the foundation for an effective and fruitful technical collaboration.

Strategic selection also depends on early analytical work, which enables initial fiscal and economic impact analyses, feasibility assessments of projects, and the subsequent policy design. In Lesotho—to name only one example—a DRF diagnostic proved vital in guiding the policy dialogue and project design.

Lesson 2: Multi-sectoral collaboration is required to create holistic, sustainable, and government-led projects.

The cross-cutting nature of risk finance requires a holistic approach across several policy sectors, technical fields, and impact areas. The World Bank team’s experience in Senegal confirmed that interventions to mobilize resources need to be integrated as part of a broader, comprehensive program design that leverages different expertise and skill sets within the World Bank.

The DRFIP, part of the FCI Global Practice, primarily works in close partnership with the FCI Africa region, has also collaborated on country engagements with a range of colleagues in other Global Practices: we have worked with Urban, Disaster Risk, Resilience, and Land (PURL) on disaster risk management; with Social Protection & Jobs (SPJ) on adaptive social protection; with Macroeconomics, Trade and Investment (MTI) on governance and macroeconomic considerations; and with Poverty (POV) on financial resilience measures. This cross–Global Practice effort has proved indispensable; for example, it allowed the team to advise the Senegalese Ministry of Finance and Ministry of Economy, Planning and Cooperation on climate and extreme event risk modeling—part of a holistic program built on sector-specific expertise and interventions.

Lesson 3: Strong pilot projects serve as a proof of concept and blueprint to increase the number and scope of interventions.

The cross-sectoral nature of the risk finance agenda often leads to novel, complex, and diverse project designs. When done well, successful project portfolios such as Kenya’s can have a multiplier eﬀect: strong-performing projects serve as a proof-of-concept to our counterparts and other governments alike, increasing interest in deepening and expanding risk finance engagements within and to new countries.

The operational success of the African engagements also makes them a blueprint for countries in other regions that face similar challenges. Global momentum on the risk finance agenda from multilateral partnerships and financial contributors have led to the mobilization of additional human, technical, and financial resources. The Global Risk Financing Facility (GRiF), for instance, provides grants for the creation or scale-up of pre-arranged crisis risk financing instruments.

The recent DRFIP note contains other lessons as well: on the importance of closely integrating individual risk finance projects into World Bank country portfolios; on the benefits of prioritizing continuous capacity strengthening with implementing counterparts; on the need to have a flexible project implementation set-up; and on the contribution of cross-country knowledge exchange to global knowledge on disaster risk finance.

Each of these lessons is significant for the endeavor to expand the risk finance agenda and further increase the financial resilience of countries most at risk of disasters. In addition to these lessons, two further points are important to note: First, both risks and technical solutions are quickly evolving; and second, strategic approaches should take advantage of new tools to tailor dynamic solutions that can adapt to these changing circumstances.

Photo Credit: Stephan Gladieu / The World Bank

Financial Resilience Around the World | Blog Series

Evie Calcutt

Financial Sector Specialist

World Bank Group

Evie is a Senior Financial Sector Specialist at the World Bank Group where she has worked globally on disaster risk financing. Key activities include leading policy dialog and developing customized financial solutions with Ministries of Finance to improve their financial resilience to disaster shocks; leading the development of analytical tools which support Ministries of Finance in their selection of financial instruments, including insurance, to protect their fiscal position against disaster risk, and; developing disaster risk financing for scalable safety net programs, which looks to develop mechanisms that enable social protection programs to rapidly increase assistance to the poorest and most vulnerable under disaster conditions. Prior to joining the Bank, as a qualified actuary with experience of insurance and investment projects in the public and private sector, Evie worked at KPMG and the UK Government. She also worked as a statistician analyzing social research before completing the actuarial qualification. As an actuary at the UK Government Actuary’s Department, she advised government departments on how to better understand and communicate uncertainty, perform quality assurance, and manage their contingent liabilities. Evie holds a First-Class Bachelor’s Degree in Mathematics and a Masters in Statistics both from the University of Bristol.

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CO-AUTHORS

Barry Maher

Senior Financial Sector Specialist

World Bank Group

Barry is a senior financial sector specialist working in the Finance, Competitiveness, and Innovation (FCI) Global Practice based in Pretoria, South Africa where he coordinates the work of the World Bank on Crisis and Disaster Risk Financing in the Africa region. Barry is a qualified actuary with experience in the non-life insurance sector, the carbon and renewable energy markets, financial inclusion, social protection, the MSME sector, and disaster risk financing. His career includes experience working with a Lloyds of London reinsurance syndicate, as a chief actuary in an insurance agency, and with the UN where he led the expansion of micro-insurance in the Pacific. Since joining the World Bank, Barry has led the work on developing public-private sector partnerships to support agriculture insurance in Kenya, Bangladesh, Uganda, Rwanda, South Africa and India. He spearheaded the work on developing financing strategies to support shock-responsive safety nets, which has now grown into a global portfolio in Africa, Asia and the Pacific. He also provided technical support to actuarial work of Crisis and Disaster Risk Finance Global Team of the World Bank, including the financial modeling of the Pacific Catastrophe Risk Assessment and Financing Initiative, which provides Pacific Islands with insurance protection against tropical cyclone and earthquake events. More recently in the Africa region, Barry has been expanding the use of risk financing tools and principles in FCI and more broadly the Equitable Growth, Finance and Institutions Vice Presidency unit of the World Bank. As countries emerge from the health and fiscal impacts of the Covid-19 pandemic, Barry is focusing on strengthening the resilience of key sectors for economic growth and job creation to shocks, including in particular MSMEs. Barry holds a Bachelor’s Degree in Actuarial and Financial Studies from the University College of Dublin and a Masters in Statistics from the University of Oxford, both with distinction.

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Simeon Abel

World Bank Group

Simeon is a Consultant at the World Bank Group where he has worked on the disaster risk financing agenda in Sub-Saharan Africa. His engagements focus on establishing and scaling financing mechanisms that increase the resilience of households and businesses against climate shocks as well as mitigate the impact of displacement events on refugee and host communities. Simeon’s other professional engagements include working for the United Nations on their FCV agenda in Rwanda, an agriculture venture in Nigeria, and an education charity in Ethiopia. Simeon holds a Bachelor’s Degree in Business Administration from WHU – Otto Beisheim School of Management and a Master in Public Administration from Columbia University.

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