21 January 21 January 20082008

Elliot Vhurumuku Elliot Vhurumuku

Development of the Weather Development of the Weather Indices - Four Components of Indices - Four Components of

Livelihood ProtectionLivelihood Protection

*Livelihoods + Early Assessment + Protection

AGENDAAGENDA• Background to Risk management in

Ethiopia: Managing Risk instead of Managing Disasters

• The Ethiopia Phase II: Risk Management Framework

BackgroundBackground

The 2006 WFP Drought Insurance Pilot project: – designed in response to Government’s concern

that Ethiopia was wrought in a cycle of responding to disasters rather than managing risks.

– The pilot tested the possibility of leveraging donor contributions to secure a reliable, timely and cost-effective way of funding emergency operations

THE 2006 ETHIOPIA THE 2006 ETHIOPIA TRANSACTIONTRANSACTION

• Risk Transfer Structure–Counterparty (buyer of option): UN World Food Programme – on behalf of Government of Ethiopia

• Competitive Tender Process–Official UN WFP procurement process–9 companies invited to tender, 5 participated–Tender Winner (seller of option): AXA Re, Paris–Final Transaction:

• Premium: $930,000, paid by USAID mainly• Maximum Payout: $7,100,000

Lessons Learnt from the PilotLessons Learnt from the Pilot• It is likely feasible to use market mechanisms to

finance drought risk in Ethiopia; • It is possible to develop objective, timely and accurate

indicators that serve as a relatively good proxy of actual aggregate needs;

• Ex-ante resources can give Government and international institutions the incentive to prepare contingency plans that set forth specific responses to specific scenarios;

• Ethiopian weather data from NMA satisfies international weather risk market standards; and

• If insurance is to become an effective risk-management tool for Ethiopia, it must be coordinated with other financial instruments to provide more comprehensive coverage of Ethiopia’s drought risks.

11stst Workshop - Risk Management Phase Workshop - Risk Management Phase IIII

• FSCB and WFP joint-workshop at ECA on 13 June 2007 attended by 40 participants from Government, UN, NGO and donor agencies – reviewed the 2006 Drought Insurance pilot project

and discuss the way forward with focus on improving weather-based indices for livelihood protection.

– a number of recommendations from the workshop were made:

• Develop a project proposal for Phase II • Establish a Steering Committee for the project • Monitor the LEAP • Capacity development

Early Warning System

with reliable baseline and trigger points

Contingency Planning

for appropriate and timely response

Contingent Financing

of contingency plans

Capacity Building

for effective plan implementation

ETHIOPIA PHASE II – ETHIOPIA PHASE II – RISK MANAGEMENT FRAMEWORK RISK MANAGEMENT FRAMEWORK

II. Support CP Process:Develop budgeted contingency plans

IV. Establish timely emergency financing through use of contingency financingWFP participates in CF package + manages Insurance bit

I. IMPROVED INDEX: Refine + Monitor LEAP (with GoE)

III. Help to build planning and implementation capacity at regional level

PROBLEM: TIMING and NATURE OF PROBLEM: TIMING and NATURE OF INTERVENTIONSINTERVENTIONS

E.g. Safety Net Areas - HighlandsE.g. Safety Net Areas - Highlands

Aug Dec Jan 2008

Feb MarSept

Crop+ Emergency Needs Assessment

Emergency Appeal

Apr May June July Aug

Life Saving Interventions (mostly food)

NovOct

Aug Dec Jan 2008

Feb MarSept Apr May June July Aug

Enrolment of Beneficiaries Cash or food for work

RATIONALE (I): EFFECTIVENESS - PROTECT RATIONALE (I): EFFECTIVENESS - PROTECT LIVELIHOODS FIRSTLIVELIHOODS FIRST

Example: Tigray, EthiopiaExample: Tigray, Ethiopia

NovOct

Funds disburse

LEAP Index signals severe

livelihood stress

Early Warning System

with reliable baseline and trigger points

IMPROVED INDEX – IMPROVED INDEX – PART OF RISK MANAGEMENT FRAMEWORKPART OF RISK MANAGEMENT FRAMEWORK

I. IMPROVED INDEX: LEAP

PROGRESS MADE

Role of LEAP as a risk management Role of LEAP as a risk management frameworkframework

provide a good proxy estimate of the costs of protecting transient food insecure peoples’ livelihoods at the time of shock;

be an independent, objective, verifiable and replicable index of livelihood losses in the country;

convey information in near real-time to ensure that to the extent possible the response to livelihood crises will be more timely and effective.

Provide early warning of livelihood stress levels Signal amount of financial resources required

for livelihood protection at regional levels Crop and pasture monitoring

Contingency Planning

for appropriate and timely response

RISK MANAGEMENT RISK MANAGEMENT FRAMEWORKFRAMEWORK

II. Develop budgeted contingency plans

WFP COMPETENCY

II. CONTINGENCY PLANNING II. CONTINGENCY PLANNING IN CONTEXTIN CONTEXT

LEAP LEAP

LivelihoodsLivelihoods

Appropriate and timely response

Appropriate and timely response

Contingent Financing

Contingent Financing

protects

triggers activates

implement

Contingency Plans

Contingency Plans

•Drought Risk Assessment

•Drought Impact Assessment

•Drought Scenarios

Types of intervention needed

Timing of intervention

Target population

Costs

•Implementing partners

Capacity Building

for effective plan implementation

RISK MANAGEMENT RISK MANAGEMENT FRAMEWORKFRAMEWORK

III. Build planning and implementation capacity at regional and woreda level

Initiated but more needed

III. CAPACITY BUILDING + OWNERSHIPIII. CAPACITY BUILDING + OWNERSHIP• Government and development partners agreed

that the index should be developed with participation of all stakeholders.

• A Technical Steering Committee chaired by FSCB, was established to oversee the implementation of phase II of the project.

• Training of Government (MOARD, NMA, and FSCB staff) on the LEAP software package was done in June and October.

• A concept note and project proposal for LEAP development and endorsed by the Technical Steering Committee.

• The phase II was funded jointly by the Government, WFP, the World Bank and FAO.

Contingency Financing

of contingency plans

RISK MANAGEMENT RISK MANAGEMENT FRAMEWORKFRAMEWORK

IV. Establish timely emergency financing through use of contingency financing

WB + DFID (?) + WFP (?)

Beneficiaries of LEAPBeneficiaries of LEAP

Risk

Innovative Risk Transfer Mechanisms

for Populations Affected by Natural

Disasters In Ethiopia

Donor Governments/

Agencies

Government

Risk Markets

CONCLUSION: THIS IS CONCLUSION: THIS IS IMPORTANTIMPORTANT

• Destitution

• Dignity

• Cost

• Climate Change

THANKS!THANKS!

• Ethiopia LEAP Tool download:

http://vam.wfp.org/LEAP

Free software download. Please do not distribute without consent of WFP and World Bank

• For questions: elliot.vhurumuku@wfp.org, ulrich.hess@wfp.org,