1.6 million pastoralists in the Horn of Africa to benefit from a regional scheme to protect against drought

The Horn of Africa is amongst the poorest and most fragile regions in the world and pastoralist communities are the most vulnerable. The region is exposed to climate shocks with severe droughts fueling poverty and conflicts.

Pastoralism and livestock production are the main sources of livelihood and contribute to over one-third of the agricultural GDP in most countries and approximately 80 percent of the GDP in Djibouti and Somalia.

When drought hits, livestock either die or are sold at rock-bottom prices. Evidence shows that when pastoralists lose half of their livestock, it can take up to 10 years to rebuild, during which they incur losses in welfare, nutrition, and income. The current drought in the Horn of Africa is the worst seen in 40 years.

The HoA DRIVE Project: A regional approach to deal with a regional challenge

The De-risking, Inclusion and Value Enhancement of Pastoral Economies in the Horn of Africa (DRIVE) project was launched jointly by the Republic of Djibouti, the Federal Democratic Republic of Ethiopia, the Republic of Kenya, and the Federal Government of Somalia in late August 2022.

It will enable the region to adapt to the impacts of climate change with access to financial services, commercialize livestock production in pastoralist communities, and ensure inclusion for women, as well as marginalized and vulnerable groups. These countries have decided to take a regional approach to deal with a regional challenge.

The project is structured around two inter-linked components:

Component One — Financial resilience to climate shocks

While emergency aid is a crucial part of the response, it can take time to reach the most vulnerable and often arrives after livestock have perished. It is essential to improve the long-term resilience and adaptation capacity of affected populations.

Improving the financial inclusion of vulnerable households has proven to be a very efficient solution to build resilience: savings on deposit accounts can help individuals cope with the smaller struggles, while insurance and emergency credit can provide liquidity during major shocks. Digital tools can accelerate access to emergency cash.

A small payout from an insurance product at the onset of a drought or access to savings allow pastoralists to buy water, fodder, and medicine to help keep their animals alive. Studies have shown it is three times cheaper than restocking.

DRIVE will co-finance a package of financial services in Ethiopia, Kenya and Somalia, including livestock insurance (also called Index Based Livestock Insurance, or IBLI), savings, and digital payment accounts. This will be complemented by financial literacy training to improve pastoralists’ understanding of the financial products.

A feasibility study on index insurance in Djibouti showed the value of the program was limited. Instead, the country has requested a climate risk sovereign insurance product for flood and drought with the African Risk Capacity Group.

Component Two — Linking pastoralists to markets, exporters, and processors

Despite the importance of pastoralists in the region, they are not well-integrated, as producers, into the economy. In addition, the quality of the infrastructure system—used to trace livestock and ensure its standards—is nascent and impacts the price received. DRIVE will link pastoralists to markets, exporters, and processors so they can sell quality animals through a Livestock Value Chain Facility. Its targets will be women-owned and youth-owned businesses, as well as large investments that demonstrate impact.

DRIVE draws on extensive lessons learned to ensure sustainability:

1. Private sector-centered approach for sustainability. Private sector delivery of financial services (drought insurance, savings, digital accounts) in pastoral areas to cope with drought shocks; de-risking facility to attract private investment in livestock value chains; etc.
2. Aggregation, contribution of beneficiaries, linkages to value chains. DRIVE targets pastoralist groups that are constituted around economic activities and have the potential to become more commercial. Financial inclusion is a means to improve the productivity of pastoralists; thus, the project has complementary investments in the livestock value chains so that pastoralists get better value for their livestock.
3. Regional implementation of digital financial services. A single-regional platform developed as a public good will be managed by ZEP-RE (the COMESA reinsurer) to provide scale and sustainability and facilitate transfer of drought risk to the insurance market. The extensive use of mobile money technology will make it easier to reach pastoralists in a more accurate and timely way.

DRIVE is financed by US$327.5 million of International Development Association (IDA) allocated across the four countries, with an additional US$28 million of grant from the Global Risk Financing Facility (GRiF) for co-financing insurance premiums. GRiF is a multi-donor trust fund administered by the World Bank with contributions from the Governments of Germany and the U.K. DRIVE has benefited from technical expertise from the World Bank Group’s Disaster Protection Program and Financial Resilience Program.

Join us for the Global Shield Financing Facility: Learning from country experience of GRiF to inform future opportunities on 9 November, 2022 in person at World Bank Pavilion, UNFCCC COP27 Sharm El Sheikh or virtually via Webex (link here).

More Information: Visit www.financialprotectionforum.org or drfip@worldbank.org