Fostering Collaboration to Reduce the Financial Protection Gap against Climate Shocks in Francophone Africa

October 19, 2023

Last month, we were privileged to participate in the Symposium for Index and Disaster Risk Financing for Francophone Africa in Dakar. This crucial convening for the region was fueled by the presence of over 100 delegates. These representatives gathered with a common purpose - to exchange innovative ideas and insights on resilience and collaborative efforts. It was a space where experiences, challenges, and solutions were shared, sowing seeds for a future where disaster risk financing is integrally woven into the fabric of national development agendas.

Francophone Africa is transitioning from climate vulnerability to a position of emerging strength and resilience. The region’s countries are among the most vulnerable to natural hazards and climatic risks. The impacts of these phenomena threaten to undo developmental gains and hinder poverty reduction. By 2050, we could witness an upswing in the poverty rate in the Sahel from 27% to 34%. Despite their minimal contribution to global greenhouse emissions, West African nations bear an oversized burden of the climate crisis. Rising temperatures and unpredictable precipitation patterns have led to more frequent and intense disasters. Many West African governments face budgetary constraints; climatic shocks can severely jeopardize public finances. In 2022, average annual losses due to drought and floods among the West African Economic and Monetary Union (WAEMU) countries were estimated at USD 2 billion or around 1.5% of the region’s gross domestic product.

The World Bank is committed to bolstering climate resilience in the region, actively working in numerous countries to analyze and understand their specific challenges and opportunities. West African nations are being equipped with detailed technical products like the Country Climate and Development Report (CCDR). When CCDRs are informed by Disaster Risk Finance (DRF) diagnostics, they can provide valuable guidance on how to tailor national Disaster Risk Finance (DRF) strategies. This approach is underway in Benin, Togo, Senegal, Cabo Verde, and Guinea. Policy recommendations and concrete strategies to enhance financial resilience including the completion DRF diagnostics in Benin and Burkina Faso provide groundwork for informed, effective action. Practical initiatives, such as Benin's disaster response fund, FONCAT, backed by approximately US$ 5 million from the national budget, and ongoing feasibility studies on livestock in the Sahel, and crop insurance in Niger and Guinea demonstrate the region’s holistic approach to climate resilience.

The World Bank Group has announced a series of new measures including a comprehensive toolkit to support countries after natural disasters, which includes a suite of actions focused on crisis preparedness, response, and recovery through five key measures. These include: 1) Pausing debt repayments, empowering nations to concentrate on urgent needs; 2) Facilitating the rapid reallocation of resources for immediate crisis response; 3) Initiating emergency anticipation systems for rapid response; 4) Providing innovative and quick insurance to backstop development projects, allowing work to get back on track quickly; and 5) introducing enhanced catastrophe insurance to marshal resources without escalating debt. The toolkit is a stepping stone towards a future where countries are resilient, resourceful, and ready to withstand climate and natural disasters.

Several countries in West Africa have financial protection strategies in place that could inform how the WBG toolkit could be used to reduce their financial protection gap. Senegal was one of the first countries to subscribe to an insurance policy offered by African Risk Capacity (ARC), a continental sovereign insurance pool. Since 2019, through ARC’s REPLICA product, claim payouts worth US$ 39 million have been made to two million households and for approximately one million livestock. This wave of financial protection isn’t confined to Senegal: Niger, Mali, Togo, and Côte d'Ivoire are also enveloped in this safety net. Illustrative of these efforts, Senegal’s crop insurance program, supported by the Global Index Insurance Facility, extends its protective reach to over 600,000 farmers, while Benin’s new Catastrophe Deferred Drawdown Option (Cat DDO) is a testament to the proactive measures in place to combat climate-induced catastrophes.

Programs like the Global Shield against Climate Risks; an initiative launched by the G7 and the Vulnerable Twenty (V20) Group of Ministers of Finance, can help them test and implement innovative financial solutions. Senegal has been identified as one of the priority countries. This is a testament to the global community's commitment to weaving a safety net that guards against the economic and social upheaval triggered by climate disasters.

Moving forward, the challenges of the climate crisis are apparent, but the recent symposium highlighted a strong commitment to resilience and joint action.

Key insights from the country representatives in the Dakar Symposium included:

The need for stronger collaboration with the private sector. Financial constraints are a reality, and countries can’t bear the brunt of disaster costs alone. Insurance needs to be more accessible and inclusive, demanding reforms, investments in reliable products, and technical training to build expertise.
An integrated approach to financial resilience is necessary. The whole financial sector, including savings and credit services, must be leveraged to strengthen our defense against climate shocks. We are confronted not only with climate issues but also with conflicts and internal displacements. Overcoming these challenges requires a collaborative, regional strategy where risks and resources are jointly managed, fortifying our collective strength and resilience.
We need to enhance our data systems. Current infrastructure is weak, and the quality of data is not up to par. Universities and research centers have a significant role to play here. We need them to step up, enhance our skills, and drive innovation. The cost of disaster risk tools is a hurdle, but united, we can scale this, aiming for cost reductions and increased access to resources like GSFF to mitigate losses.

The climate crisis is a shared challenge that demands a shared solution. The symposium underlined a collective readiness to turn these challenges into stepping stones for a stronger, more resilient Francophone Africa. The collective effort is not just about surviving the climate challenges but using them as a springboard for shared growth, increased resilience, and stronger regional ties.

CO-AUTHORS

Douglas Pearce

Practice Manager for Financial Infrastructure & Access, Finance, Competitiveness & Innovation

World Bank Group

Douglas Pearce is Practice Manager for Financial Infrastructure & Access in the Finance, Competitiveness, and Innovation Global Practice at the World Bank Group. Previously he was Global Lead for Payment & Market Infrastructures and Responsible Financial Access. He also jointly leads (with an IFC co-Head) the Universal Financial Access 2020 initiative. He was previously Practice Manager for Financial Inclusion. He manages the global Financial Inclusion Support Framework program, and the global Financial Consumer Protection program. Previously he led financial inclusion operations and technical advisory work for the World Bank in the Middle East and North Africa region. Prior to joining the World Bank he was Country Manager for DFID, led DFID’s global financial sector team, was Deputy Head of the Growth and Investment Group, and chaired the FIRST Initiative steering committee. While at CGAP as Senior Financial Sector Specialist he led CGAP's work in the Eastern Europe and Central Asia region, and introduced a program of innovation funding and research in agricultural finance. Before joining CGAP he set-up and managed a successful microfinance institution (Bosnia), and was a senior economist at the Natural Resources Institute (UK).

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