Development of the Weather Indices - Four Components of Livelihood Protection

1. Development of the Weather Indices - Four Components of Livelihood Protection 21 January 2008 Elliot Vhurumuku *Livelihoods + Early Assessment + Protection

2. AGENDA • Background to Risk management in Ethiopia: Managing Risk instead of Managing Disasters • The Ethiopia Phase II: Risk Management Framework

3. Background 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

4. THE 2006 ETHIOPIA TRANSACTION • 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

5. Lessons 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.

6. 1st Workshop - Risk Management Phase II • 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

7. ETHIOPIA PHASE II – RISK MANAGEMENT FRAMEWORK II. Support CP Process: Develop budgeted contingency plans I. IMPROVED INDEX: Refine + Monitor LEAP (with GoE) 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 IV. Establish timely emergency financing through use of contingency financing WFP participates in CF package + manages Insurance bit III. Help to build planning and implementation capacity at regional level

8. PROBLEM: TIMING and NATURE OF INTERVENTIONSE.g. Safety Net Areas - Highlands Emergency Appeal Life Saving Interventions (mostly food) Crop+ Emergency Needs Assessment Aug Sept Oct Nov Dec Jan 2008 Feb Mar Apr May June July Aug

9. RATIONALE (I): EFFECTIVENESS - PROTECT LIVELIHOODS FIRSTExample: Tigray, Ethiopia Enrolment of Beneficiaries Cash or food for work Aug Sept Oct Nov Dec Feb Mar Apr May June July Aug Jan 2008 LEAP Index signals severe livelihood stress Funds disburse

10. IMPROVED INDEX – PART OF RISK MANAGEMENT FRAMEWORK I. IMPROVED INDEX: LEAP Early Warning System with reliable baseline and trigger points PROGRESS MADE

11. Role of LEAP as a risk management framework • 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 resourcesrequired for livelihood protection at regional levels • Crop and pasture monitoring

12. RISK MANAGEMENT FRAMEWORK II. Develop budgeted contingency plans Contingency Planning for appropriate and timely response WFP COMPETENCY

13. triggers activates implement • Drought Risk Assessment • Drought Impact Assessment • Drought Scenarios • Types of intervention needed • Timing of intervention • Target population • Costs • Implementing partners protects II. CONTINGENCY PLANNING IN CONTEXT LEAP Contingent Financing Contingency Plans Appropriate and timely response Livelihoods

14. RISK MANAGEMENT FRAMEWORK Capacity Building for effective plan implementation III. Build planning and implementation capacity at regional and woreda level Initiated but more needed

15. III. 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.

16. RISK MANAGEMENT FRAMEWORK Contingency Financing of contingency plans IV.Establish timely emergency financing through use of contingency financing WB + DFID (?) + WFP (?)

17. Innovative Risk Transfer Mechanisms for Populations Affected by Natural Disasters In Ethiopia Government Risk Risk Markets Donor Governments/Agencies Beneficiaries of LEAP

18. CONCLUSION: THIS IS IMPORTANT • Destitution • Dignity • Cost • Climate Change

19. 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,