Ashington Ngigi Managing Director

1. Ashington Ngigi Managing Director

2. Structure of this presentation Link Between Disaster Risk, Climate Change and Finance Financing Instruments and Mechanisms Commonwealth Africa’s Challenges Africa’s Concerns at Copenhagen Recommendation to the Commonwealth Secretariat

7. Sichuan earthquake Dead 70,000 Missing 18,000 Injured 374,000 Buildings (total loss) 5.3 million Buildings (damaged) 21 million Direct overall losses US$ 85bn Insured losses US$ 300m

8. Myanmar Cyclone Nargis 130,000 believed dead (officially 85,000 dead, 54,000 missing) Over a million people left homeless Insurance protection not available due to current political climate (microinsurance solutions under discussion) Total losses over US$4bn

9. Climate Change is with us. These grisly statistics from other regions are signs of the future. If we do nothing or do not do enough.

14. Weather risks exert a large impact on the GDP and national budgets of developing countries Direct economic losses - e.g. housing, infrastructure Production slow down - e.g. damage to agricultural activity Trauma and social disruption

16. Prevention of disasters, mitigation of their occurence and extent of their effects, and adaptation to their impacts, all require financing That gives rise to the need for: Mitigation – Insurance, Savings Response – Financing: Donations, Loans Financing Tools/Mechanisms

17. According to Munich Re (2008), “Environment and market conditions are changing at breathtaking speed. Demand for new coverage concepts for complex risks is constantly increasing.” Meeting the financing needs requires concerted efforts of both public and private sector. There is potential for increased private sector participation in disaster risk insurance and climate change-related financing.

20. Liquidity The biggest financing challenge is availability of liquidity at the onset of a disaster; the ordeal being that casualties and death are highest in the early stages of a disaster Therefore: in every disaster scenario, there is need for an instrument that can provide immediate liquidity while other sources are being mobilised

28. CAT DDO Framework: Immediate liquidity after a natural disaster; Declaration of state of emergency; Macro framework reviewed at commitment and at renewal; A disaster risk mgt program in accordance with WB standards Drawdown/ Fund Availability: Full loan available for 3 years, renewable up to 4 times for a total max drawdown period of 15 years; amounts repaid during drawdown available for subsequent drawdowns Volume/Optionality Terms/Pricing: Max. loan 0.25% of GDP or the equiv. USD 500m (exceptions possible for small countries); same conversion options (interest rate, currency) as other WB loans Repayment Terms: Can be determined at the time of commitment or drawdown; repayment schedule from date of drawdown; each drawdown may have different repayment schedules; no fee charged for extension of the drawdown Example of CAT DDO recipient: Costa Rica, 2008; several flood catastrophies in 2005 to 2008; USD65 million stand-by line of credit approved.

32. Parametric Insurance – example: Caribbean Catastrophe Risk Insurance Facility (CCRIF) Multi-country: 16 member countries A joint reserve mechanism, formed in 2007, that allows Caribbean Governments to access liquidity at short notice in case of a catastrophe: quick disbursing in case of a major earthquake or hurricane; transparent rules – parametric instrument; without cross subsidization – contribution are based on each island’s specific risk; at the lowest possible cost – leveraging the capacity of the financial markets. Covers natural hazards Parametric approach: minimum requirements for a financial payout pre-identified; only harzards exceeding the minimum parameters are recognised Application: Hurricane Dean, Jamaica, 2007: damages did not qualify because the winds fell short of the 65 m/h threshold. Current parametric schemes do not have a damage loss component – hence CCRIF failed to compensate although damages were significant.

39. US$200k invested by DFID Jan 2008 to support the pilot transaction Involves creation of an index that captures national drought risk in Malawi Why Malawi? High quality historical weather data Reliable real-time communication; can provide real-time data required by market Excellent Malawi Met Office data; 23 stations with over 40 years data, few gaps

42. Climate Funds

43. Architecture of existing Climate Funds

44. Micro Finance Finance at the micro level – micro credit, micro insurance, cash for work programmes, community banking, savings and credit cooperatives, etc. 2005, International Year of Microcredit: UNISDR organised events around the world to stimulate a debate on how safety nets and micro insurance can contribute to disaster risk reduction. All India Disaster Mitigation Institute (AIDMI): Book: Microfinance and Disaster Risk Reduction: “There is evidence that micro-credit groups of the poor have done better in coping with natural disasters; in the immediate post-disaster phase when relief and rehabilitation assistance pours in, micro-finance plays a marginal role, but when the supply of dole dries up, the poor have to fend for themselves. In this critical phase of recovery, micro-finance assumes even greater importance in supplementing other efforts for livelihood restoration and sustainable development.”

45. Carbon Finance There are over 45 carbon markets operating within three principle carbon market regimes: Clean Development Mechanism (CDM) – allows a developed country that is party to the Kyoto Protocol to meets its emission-reduction or emission-limitation commitment by implement an emission-reduction (CER) project in a developing country. Joint implementation - allows a developed country that is party to the Kyoto Protocol to earn emission reduction units (ERUs) from an emission-reduction or emission removal project in another developed country. Non-Kyoto Mandatory Regimes: New South Wales (Australia), Individual US States (East Coast, California, Oregon), European Union Trading Scheme (EU-ETS) Voluntary Regimes: Chicago Climate Exchange (CCX), Retail Market

46. Carbon Finance (cont.) Designed to assist compliance with emission reduction commitments and to foster sustainable development in developing countries Global carbon market (est. by New Carbon Finance) 2008 – US$118 billion; WB estimate: US$126 billion

47. Carbon Finance (cont.) Registered Projects

50. Challenges Challenges in financing post-disaster losses Poor statistics pre-disaster often mean losses cannot be properly estimated The area of loss and number of people affected normally underestimated Extent of devastation and loss normally underrated Losses arising from business interruption and bankruptcies often unclear and undisclosed Loss surveys focus mainly on visible infrastructure and concentrate on the centre of the disaster – peripheral area losses may be missed out Sums insured under old policies not always adjusted for current situation Catastrophe Risk Financing Instruments: sceptism on reliability of weather data

51. Challenges Lack of local technical knowledge and experience to build complex insurance models such as CCRIF, TCIP. Limited capacity to carry out loss assessments after disasters Lack of financial resources to invest in creation and execution of such frameworks Inability to put in place pre-requisites for an efficient catastrophe risk financing instrument – e.g. enforced building codes Perceived low probability of disasters: hence insurance is of low priority among would be consumers of insurance products Low income levels in comparison to standard insurance rates; yet locals also unwilling to pay premiums over a long period of time Lack of understanding of insurance by locals; low awareness of insurance benefits vis-a-vis costs (premiums) There is general inadequacy in local insurance laws with respect to post-disaster damages.