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ARC and UNCCD to collaborate on drought, extreme weather resilience

24th October 2019 - Author: Luke Gallin

The Africa Risk Capacity (ARC), the parametric development insurance provider, is once again collaborating with the United Nations (UN) to develop financial tools to help Africa become more resilient to drought and other extreme weather events.

droughtThis year alone, more than 45 million people across Africa are food insecure as a result of prolonged drought. Since its launch in 2014, ARC has been providing drought insurance coverage structured as a parametric contract to African states and is continually looking to expand its remit and influence across the continent.

A new collaboration between ARC and the United Nations Convention to Combat Desertification (UNCCD) aims to support the development of new tools to assist Africa’s efforts to adapt and ultimately become a more resilient place to the impacts of future droughts and other adverse weather events.

ARC states that the partnership will also look at utilising private sector resources through the establishment of new financial instruments, which could include things like drought-focused catastrophe bonds.

Underlining their commitment to the task at hand, a Memorandum of Understanding (MoU) was signed by Ibrahim Thiaw, UNCCD Executive Secretary, and Mohamed Beavogui, ARC Director General, during a technical workshop held in Bonn, Germany.

The workshop, which was held over the 22nd and 23rd of October, is reviewing the proposed principles and work of the eXtreme Climate Facility (XCF), which is a new financial vehicle designed to leverage the capital markets to provide financial support to African countries affected by drought and other extreme weather events.

While the new partnership aims to build on the XCF vehicle and might well lead to the use of more exotic forms of risk transfer, at the least, it’s likely to help increase awareness and education around all forms of insurance protection for extreme weather events, ultimately helping to make Africa more resilient.

“The message is clear. We will see an increasing number of droughts with unprecedented severity, which are exacerbated by climate change. No country or region, rich or poor, is immune to the vagaries of drought. The ARC-led XCF will become an important tool to help African countries to cope effectively with the impacts of drought.

“Currently, through the Drought Initiative, the UNCCD is helping 35 of Africa’s 57 countries to create the mechanisms they need to take early action to avert drought disasters. Today, Africa is ramping up pre- emptive actions as a unified front against future drought and climate-induced disasters in the region,” said Thiaw during the ceremony.

Beavogui, added: “Reducing the impacts of drought and other natural disasters by helping Member States’ improve climate resilience through innovative mitigation and risk financing instruments are key to our mandate. The Agreement signed today with UNCCD will create a functional synergy in our efforts to help countries better understand their risk profiles, improve knowledge and strengthen capacities for climate adaptation and food security.”

Commenting on the XCF programme, Beavogui commented: “Since the inception of the XCF programme in 2014, this is the first Technical Review Forum where the overall end-to-end framework is considered and reviewed. Our guiding principle since the creation of ARC is to interrogate our concepts by subjecting our models to the best available experts in that field. We did this with our drought tool, the African RiskView, which remains the best-in-class to-date for Africa. We are grateful to all our partners and industry experts that have joined us in this process.”

Miguel Navarro-Martin, Manager of Banking Products, World Bank Treasury, said: “The World Bank supports countries with climate adaptation measures and is committed to working with countries to strengthen financial resilience against climate and disaster shocks. Our focus is on helping countries to protect their fiscal accounts against external risks. The XCF concept being developed by ARC provides an opportunity for African countries to access financial solutions to manage disaster risk and to fund a portfolio of climate resilient investments.”

While Dr. Astrid Zwick, Head of InsuResilience Secretariat, said: “The centrality of our collaboration with countries is to enable a more timely and reliable post-disaster response. Critical to this are preparedness and readiness using climate disaster risk finance and insurance solutions. The XCF promises to be one of those instruments that can complement ongoing efforts in countries to avert, minimize and address climate disaster risks by strengthening local adaptive capacity and resilience. We are glad to be part of this process.”

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