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Financial innovations can prevent a crisis turning into a catastrophe. The livelihoods of people in affected areas may well depend on intervention before a crisis – and on risk funds.
A single example is enough to show that we cannot continue distributing aid as in the past. There are 20 countries in which the UN World Food Programme (WFP) has in recent years had to rescue the same communities from climate shocks no less than five times in succession, at a cost of 23 billion US dollars in less than ten years. In the world as a whole, emergencies and the annual need for humanitarian aid have increased more than tenfold over roughly the same period – from two billion dollars in 2000 to more than 22 billion in 2017. There are many reasons for this, not least large-scale conflict in places such as Syria, Iraq, Nigeria and Yemen, which are the countries most often in the spotlight. But there is one reason that is often overlooked in the focus on war and conflict: the already startling consequences of climate change. Yet we have available more innovative means of coping with these consequences than ever before – if we put humanitarian aid on a new footing.
For a glimpse of the havoc that climate change may wreak in the future, one need do no more than look at Haiti, ravaged by a hurricane, or at southern Africa, where at the end of 2016 more than 7.5 million people in the seven most drought-affected countries were suffering from famine and several countries had declared a state of emergency. Throughout the world, the successes achieved as a result of prolonged efforts to combat hunger and poverty are at risk of being reversed.
Unless the international community acts swiftly, climate change could cause more than 100 million further people to sink into poverty. In the long term, global harvests could fall by 30 per cent and food prices rise by up to 70 per cent.
Two conclusions follow from this. Firstly, we must curb climate change – and the recent ratification of the Paris Climate Agreement is an important step in that direction. Secondly, though, the consequences of climate change are already alarming – and we humanitarian aid workers must adopt a completely different approach to dealing with them.
‘The successes achieved as a result of prolonged efforts to combat hunger and poverty are at risk of being reversed.’
In the past, the aid workers arrived when a tornado, a flood or a drought struck. We keep rescuing the same people, and doing it more and more frequently: a weather disaster occurs somewhere in the world almost every day. Aid needs to become faster, more efficient and above all more independent. The affected populations and their governments need to take ownership of it.
Speed is vital: an internal study conducted by the World Food Programme has revealed that the cost of our aid during the food crisis in Niger has increased by more than 300 per cent in six months. At the start of the crisis the cost of supporting a victim of the drought was just seven dollars; six months later, when the necessary funds were mobilised, it had risen to 23 dollars. Prefinancing is the key here. A paradigm shift is called for: we need to make better use of the sophisticated forecasts of weather disasters that are now possible – and then act promptly. Food that gets to victims before the flood does reaches the right people at the right time. Air drops made later to people caught up in the flood reach far fewer of those in need and are much more expensive.
Efficiency is vital: depending on the situation in a country, a false alarm may be triggered up to six times – but even on the seventh occasion the total costs of all the early disaster interventions together are still less than the cost of taking action in the middle of a disaster. The key to crisis intervention without a crisis is prefinancing – also known as forecast-based financing. Germany’s Federal Foreign Office is therefore working intensively on pilot projects in this area in particularly vulnerable countries such as Haiti, Bangladesh, Nepal and the Philippines.
The aim of all these endeavours is to prevent a crisis turning into a catastrophe.
Innovative instruments – such as weather insurance and risk funds – that boost the independence of affected communities and countries are also useful. Three out of four people affected by famine are smallholders living on the land. The productivity of many of these smallholdings is normally good, but droughts regularly destroy the farmers’ livelihood. If they are not to be repeatedly dependent on external aid, they need a safety net, an insurance scheme. But how would they, of all people, pay for insurance?
‘Three out of four people affected by famine are smallholders living on the land.’
They could pay with the work of their hands, as is the case in WFP’s Rural Resilience Initiative – a scheme that enables the poorest of the poor to work for their insurance cover instead of having to pay. Their labour is channelled into community projects – such as irrigation schemes, dams and cisterns – that help protect them from the next drought. Their pay is in the form of an insurance policy. The scheme recently paid out compensation totalling around half a million dollars to insured smallholders in Ethiopia, Senegal and Malawi whose harvests had failed as a result of El Niño.
A scheme that proved successful on a small scale is now being expanded across a number of countries: African Risk Capacity (ARC) is a risk fund established by the countries of the African Union to protect its members against weather disasters. Senegal, Mauritania, Niger and Kenya have been insured through the scheme since 2014. However, this does not release the countries of the North from their responsibility for climate change: around half of ARC’s initial capital comes from Germany’s development bank, the Kreditanstalt für Wiederaufbau (KfW).
In 2015, ARC made its first payments, disbursing 24 million dollars in response to the drought in West Africa. The advantage of insurance schemes such as ARC is that when the specialised early warning systems are triggered, the affected countries receive aid immediately and do not have to endure a lengthy wait for pledges, transfers or perhaps merely empty promises from the North. Instead, funds can be provided to developing countries from the much-used state aid coffers to enable them to protect themselves against the consequences of climate change, with the result that they will be less dependent on aid in the future.
If this approach, with its focus on speed, efficiency and independence, is adopted on a large scale, everyone will win. Innovations such as ARC are already financing up to 30 per cent of the humanitarian need in some crises. They could do much more. For example, the World Food Programme is entirely financed from voluntary contributions from overstretched governments and donors. Just utilising the potential of risk funds alone could in a few years enable WFP to meet the costs of much of its post-weather-disaster aid from funds instead of donations. Such a revolution in humanitarian aid must be the answer to the present challenges.