Drought Risk Management in
Ethiopia – the big LEAP*
Expert Meeting – Requirements of Weather Markets WMO
December 5, 2007
Ulrich Hess, Chief of Business Risk Planning
*Livelihoods + Early
Assessment + Protection
AGENDA
• Risk: Managing Risk instead
of Managing Disasters
• Ethiopia Phase I: Pilot 2006
• Ethiopia Phase II: Risk
Management Framework
PROBLEM: TIMING and NATURE OF
INTERVENTIONS
E.g. Safety Net Areas - Highlands
Emergency Appeal
Crop+ Emergency
Needs Assessment
Aug
Sept Oct
Nov Dec
Life Saving Interventions
(mostly food)
Jan Feb Mar Apr May June July Aug
2008
RATIONALE (I): EFFECTIVENESS - PROTECT
LIVELIHOODS FIRST
Example: Tigray, Ethiopia
Enrolment of
Beneficiaries
Aug
Sept Oct
LEAP Index
signals severe
livelihood stress
Nov Dec
Cash or food for work
Jan Feb Mar Apr May June July Aug
2008
Funds
disburse
Ethiopia Pilot Drought Insurance
Transaction
• designed in response to Government’s
concern that Ethiopia was wrought in a cycle
of responding to disasters rather than
managing risks.
• tested the possibility of leveraging donor
contributions to secure a reliable, timely and
cost-effective way of funding emergency
operations
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
Lessons Learnt from the Pilot
• There is a market for Ethiopian drought risk;
• possible to develop objective, timely and
accurate indicators that serve as a relatively
good proxy of actual aggregate needs;
• Ethiopian weather data from NMA satisfies
international weather risk market standards;
and
• If insurance is to become an effective riskmanagement tool for Ethiopia, it must be
coordinated with other financial instruments to
provide more comprehensive coverage of
Ethiopia’s drought risks.
ETHIOPIA PHASE II –
RISK MANAGEMENT FRAMEWORK
I. IMPROVED INDEX:
LEAP
Early Warning
System
II. Develop budgeted
contingency plans
Contingency
Planning
with reliable baseline for appropriate and
and trigger points
timely response
Contingent
Financing
IV. Establish timely
of contingency
emergency
plans
financing through
use of contingency
financing
Capacity
Building
III. Build
for effective plan
planning and
implementation
implementation
capacity at
regional level
IMPROVED INDEX –
PART OF RISK MANAGEMENT FRAMEWORK
I. IMPROVED INDEX:
LEAP
Early Warning
System
with reliable baseline
and trigger points
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 resources required
for livelihood protection at regional levels
Crop and pasture monitoring
Livelihoods + Early Assessment
+ Protection: LEAP INDICES
• Objective: capture livelihood protection funding
needs at regional level
• Target group: vulnerable population
Weather data
Crop + soil coefficients
Water
Requirement
Satisfaction Livelihood Protection
Index
Beneficiaries
(WRSI)
for Crops + Rangelands
Costs
(Livelihood
Protection
Cost Index LPCI)
Viewing output parameters
RISK MANAGEMENT
FRAMEWORK
II. Develop budgeted
contingency plans
Contingency
Planning
for appropriate and
timely response
WFP
COMPETENCY
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.
RISK MANAGEMENT
FRAMEWORK
Contingency
Financing
IV. Establish timely of contingency
plans
emergency
WB + DFID (?)
financing through
+ WFP (?)
use of contingency
financing
18
16
14
Contingency
Grant/Fund/WFP CEMOP
Productive Safety Net
Flash
Appeal
Insurance
12
10
8
6
8.3 Mil Safety Net Beneficiaries
7 Mil Livelihood Protection Target Beneficiaries
4
2
NO DROUGHT
MILD DROUGHT
0
0
0
0
Occurrence (no. of years)
Number of years by drought severity
IV: INTEGRATED RISK
FINANCING
0
30
60
CATASTROPHIC DROUGHT
90
120
150
Livelihood
($US million)
DroughtEarly
severity
– Earlyprotection
Livelihoodcosts
Protection
costs ($US Mil)
180
CONCLUSION: THIS IS
IMPORTANT
• Destitution
• Dignity
• Cost
• Climate Change
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,