Disaster Risk Financing Approaches: Independent Report on the Experience of South Africa Municipalities (English)

South Africa is highly vulnerable to natural disasters. Between 1952 and 2019, South Africa experienced USD 9 billion in economic losses due to disasters, including droughts, floods, wildfires, and social violence, with an acceleration in losses due to the increasing frequency and severity of shocks (World Bank, 2022). The "Day Zero" drought alone cost the Western Cape more than R5 billion, reducing the production of deciduous fruit, wine, and citrus, and contributing to the loss of 25,000 jobs (StatsSA, 2017). More recently, the 2022 KwaZulu-Natal (KZN) floods saw 459 people lose their lives, over 4000 homes destroyed, 40 000 people left homeless, and 45 000 people temporarily left unemployed. The cost of infrastructure and business losses amounted to an estimated USD 2 billion (Grab & Nash, 2023). These events are increasing in frequency and severity.

The most recent Intergovernmental Panel on Climate Change (IPCC) report indicated that South Africa’s natural disasters were likely to increase in severity and frequency given the likely increase in temperature due to climate change even after implementation or risk reduction activities (IPCC, 2022). Municipalities are at the forefront of dealing with the impact of disasters. To better plan for disasters, National Treasury conducted a National DRF Diagnostic with the World Bank and prepared a DRF strategy in 2024.

The DRF Diagnostic found that annual disaster relief costs in South Africa cost an average of R3.7 billion per year, with uninsured losses accounting for 86% of the total, necessitating significant government support. The annual funding gap is projected to exceed R2.3 billion, compared to the current pre-arranged funding of R1.4 billion (World Bank, 2022). The National DRF Strategy identified three priority areas for reform: 1. Increase the availability of funds to strengthen fiscal and financial resilience to shocks; 2. Improve the distribution of funds to address response gaps with a focus on efficiency and timeliness; and 3. Enhance data collection to support be Enhance data collection to support better budgeting and effective risk management. The Strategy noted the importance of incorporating the perspectives of municipalities as key actors in disaster response. National Treasury and the World Bank commissioned Cenfri to interview municipalities to gain a deeper understanding of how municipalities finance their disaster risk response and recovery efforts and to identify recommendations in support of the implementation of the DRF strategy. The study focused on the funding sources municipalities utilized in response to disasters, the rationale behind their use, the challenges associated with these instruments, and potential alternatives.

The document was originally published on World Bank Website - link here.