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Opportunity magazine is a niche business-to-business publication that explores various investment opportunities within Southern Africa’s economic sectors. The publication is endorsed by the South African Chamber of Commerce and Industry (SACCI).

CLIMATE CHANGE RISK

CLIMATE CHANGE RISK Shifting Africa’s climate change disaster-risk architecture Envato Images Developed countries must support in building Africa’s climate change resilience, argues African Risk Capacity, a specialised agency of the African Union. All eyes are on the existential crisis posed by climate change. The regular United Nations Framework Convention on Climate Change meetings put the focus on the multiple threats the world faces, with many warning that lessons for dealing with climate change threats must be learned from how Africa handled the Covid-19 crisis. COP27 will be held in Egypt in 2022. Resilience in Africa to these climate change impacts can only be built with the assistance of developed countries and these have a vested long-term interest in providing this support, says Ange Chitate, COO of African Risk Capacity Limited. “Beyond Covid, the most critical risk to Africa is the availability of water, which is directly linked to climate change. The continent is extremely vulnerable to and bears the brunt of drought, flooding, cyclones and other climate change-led weather events, even though it has actually had very little impact on carbon emission,” says Chitate. This is particularly serious for a continent like Africa which depends so heavily on agriculture for its economy and employment. “When one considers that agriculture sustains two thirds of Africa’s employment and that more than 80% of agriculture in Africa is conducted by small to medium-scale farmers who are at the mercy of climate change events completely out of their control, COP talks have to deliver practical and meaningful support from developed countries to help ensure a high level of preparedness in the developing world for what is being touted as the next pandemic,” Chitate adds. It is a view shared by South Africa Forestry, Fisheries and Environment Minister Barbara Creecy, who said that if the COP process is to be successful, developing countries need support from developed countries in the form of finance, technology and capacity building. South Africa’s suggested global goal on adaptation sees focus being placed on “the most vulnerable people and communities; their health and well-being; food and water security; infrastructure and the built environment; and ecosystems and ecosystem services, particularly in Africa, Small-Island states and Least-Developed Countries”. Minister Creecy also calls on developed countries to ensure access to long-term, predictable and affordable finance for developing communities. Building African climate-change resilience Natural disaster-insurance relief has a role to play in building resilience. “There’s a responsibility for G7 countries to support Africa in managing the impact of climate change by, for example, providing sovereigns with parametric insurance premium finance to help them respond swiftly and decisively to crises fuelled by climate change on the continent,” says Delphine Traoré, ARC Limited Non-Executive Director. Established in 2014, ARC Limited provides natural disaster-insurance relief to African countries which have joined the sovereign risk pool. Along with its partners, which provide premium support, the insurer has already paid over -million to seven countries to provide drought relief and address the economic concerns these countries’ most vulnerable citizens face. Governments then make payments to the most vulnerable households in drought-stricken or other climate-affected areas so the 32 | www.opportunityonline.co.za

CLIMATE CHANGE RISK most vulnerable communities can supplement their food budgets if reduced harvest tends to push up food prices. “Our role is explaining to African governments the importance of having this type of insurance and accounting for food security and disaster risk in their budgetary work process. “There’s been a lot of work done by ARC Limited with the support of the African Development Bank and other financial institutions to see how we can support these countries with a super replica programme. We need to do more still to find a sustainable way to do premium financing for countries that are not able to afford it but that are quite impacted by climate change impacts,” says Traoré. ARC Limited has also paid out -million to the Madagascar government to meet the food security needs of over 600 000 people affected by a devastating drought. ARC Limited’s role as a parametric insurer is critically important in building resilience and ensuring a country is able to bounce back swiftly after a natural disaster. “We monitor the rainfall of countries in the risk pool and sovereign insurance payouts are triggered when the system reveals that there hasn’t been enough rain, before droughts get to a crisis stage, farmers are left with nothing and people are starving,” explains Chitate. The programme further helps countries build capacity to manage climate-related risks. In this way it attempts to shift the disaster risk management architecture to be proactive, not reactive, says Chitate. “We see a tangential benefit of this type of programme being the increasing sophistication of countries to better understand risk. The Covid pandemic is a good example of this. “When dealing with risk mitigation and management, one needs to examine the reason why governments don’t act. On the insurance side, one of the issues to address is around premium affordability because it’s quite expensive to insure against natural disasters and payment of premiums competes against other national priorities,” explains Chitate. Sovereigns which participate in the ARC programme must also develop a contingency plan which sets out at a very high level how the government would spend any insurance payout they receive from ARC. “Through this plan, we ensure the funds get to the intended beneficiaries. Having a plan increases dramatically the speed of execution because at a point the government received the funding, it already has a plan on how to disburse this,” she says. With 0-million in its kitty, ARC says it probably has the largest balance sheet dedicated to climate risks in Africa. About ARC Limited African Risk Capacity Limited (ARC Ltd) is a financial affiliate of African Risk Capacity (ARC), a specialised agency of the African Union (AU), an initiative designed to improve current responses to climate-related food security emergencies. ARC Ltd is a mutual insurance facility comprised of its members, which have included Burkina Faso, Mali, Mauritania, Niger, Senegal, The Gambia, Malawi and Kenya. The membership also includes its capital contributors. KfW on its own behalf, and for the account of the Federal Republic of Germany acting through Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung (BMZ) and the United Kingdom (DFID) have contributed the first tranches of their respective €50-million and €90-million commitments.

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