Beyond the Report: From Diagnostic to Action for Angola’s Financial Resilience

The southwestern African country of Angola is enigmatic, it boasts of a variety of diverse ecosystems, ranging from the arid Namib Desert in the south to the lush rainforests of the north. With its rich land and tropical climate in the Northern part of the country, it has massive agricultural potential for a range of crops, including high value chains like coffee, cotton and wine. Its long coastline could deliver double digit growth of the fisheries sector. However, Angola is exposed to climate shocks that threaten the vital ecosystems, with droughts and floods being the most serious. As climate change continues to increase the frequency and severity of weather-related disasters, economic and social costs, will also rise.

Luanda, the nation’s capital already faces frequent surface flooding. One of the fastest growing cities in Africa, Luanda grew at 9% per year over the last 15 years, and infrastructure losses are estimated at over US$10 million per year.  Stunning artwork of its cityscape like the one below, don its prominent places like the national airport and tell the world a story of a city regenerating itself and striving to becoming so much more. Without financial protection, the city will struggle to reach its economic potential.

The recently published Angola Disaster Risk Finance (DRF) Diagnostic, prepared by the World Bank, in consultation with the Government of Angola (GoA) aims to support the government in better understanding the fiscal impact of disasters and crises and in planning and implementing options to strengthen financial resilience for government, households, and micro, small, and medium enterprises (MSME). The diagnostic is expected to improve risk informed decision-making and enable the GoA to develop a comprehensive strategy for long term financial planning to manage climate and disaster risk.

A diagnostic

A DRF diagnostic is a WB assessment that digs deeper into a country's financial preparedness for managing climate and disaster risks. It assesses the risk profile, the financial impact, the expected cost of response and the gap between the cost of response and amount of available funding. The diagnostic then identifies financial solutions to close the funding gap and mechanisms to get support to affected people and businesses rapidly. Such financial protection is a key enabler for climate resilient development globally, and specifically for Angola, as found in the 2023 World Bank Group’s Country Climate and Development Reports (CCDR).

The number of large-scale hydrometeorological events has increased ninefold since the late 1990s. Droughts in the southern part have become more severe and prolonged, having affected over 86 percent of the population between 2005 and 2017.  Floods occur almost every year, they damage substantial amount of property and can lead to deadly epidemic outbreaks. While the population affected by epidemics accounts for only 1.3 percent of the total, over 80 percent of deaths are linked to epidemics. As the climate crisis continues, these events will become more frequent than before, exacerbating current challenges, and making recovery more difficult.

One of the key findings of the diagnostic is that Angola faces a significant funding gap. The annual cost of disaster, estimated at US$75 million, is not sufficiently covered. This makes Angola reliant on diverting money from the budget, which in turn is vulnerable to oil price shocks. Further, humanitarian support is extremely limited. Between 2011 and 2020 emergency development assistance covered only 8 percent of the total response cost. With 35 percent of households vulnerable to poverty due to covariate shocks the impact of climate shocks may challenge Angola’s progress in reducing poverty. By adopting a risk layering approach this issue can be addressed. As shown in the figure below, compared with the current approach (base strategy), a risk-layered approach would yield considerable savings on average and particularly during uncommon, severe events. Savings increase to nearly US$430 million for severe events. This and many other conclusions led the World Bank team to identify four major recommendations to strengthen Angola’s financial resilience. These include improving public financial management and risk-informed decision-making, establishing new financial instruments, and leveraging existing programs to reach the most vulnerable people and economic sectors, for example the MSME sector.

Figure 1: Effect of risk-layered financing approach on cost of covering losses, based on expected loss events over a multiyear period.

Global Success Stories
The completion of a DRF diagnostic signifies a key moment for a country: where a government commits to strengthening its financial resilience. This normally entails the follow-through of developing a strategy and an action plan to implement that strategy. From global experience in the most successful countries the DRF policy agenda is led by the government’s Ministry of Finance in collaboration with the Disaster Management Authority. Some notable examples are Colombia, one of the first countries globally to adopt a DRF strategy, including subnational DRF strategies through the National Development Plan 2014-2018 and the Philippines where the National Treasury of the Philippines adopted the Disaster Risk Finance Strategy in 2015. Since then, the Philippines has been expanding its menu of risk financing instruments, strengthening asset management, risk information data and decision making.

The global momentum driving the DRF agenda is palpable across the African region. From 2021 to date, a record number of more than 10 countries are developing national DRF strategies. 

Building a Resilient Angola

Now is the time for decisive action. Angola could ride the wave of DRF momentum in Africa to develop and implement its strategy. The diagnostic provides concrete analytical evidence for actionable insights that could help to strengthen financial and operational preparedness to manage climate related shocks and stresses. Based on these findings, the government can develop a strategy, which prioritizes key actions and lays out a roadmap for targeted interventions to significantly mitigate the impact of disasters. This can lead to communities better equipped to recover from floods and droughts, infrastructure fortified against flood damage, and families protected by proactive measures. By implementing the DRF strategy, Angola can bridge funding gaps, enhance financial preparedness, increase timeliness of response, which has been shown to save both lives and costs, and ultimately pave the way for a more sustainable and resilient future for all its citizens. The government, in collaboration with its people, can seize this opportunity to build a more financially resilient Angola, where every citizen thrives, not just survives, in the face of rising climate challenges.

To read the full Angola DRF report in English, please click here.
To read the full Angola DRF report in Portuguese, please click here.