Development of the Weather
Indices - Four Components of
Livelihood Protection
21 January 2008
Elliot Vhurumuku
*Livelihoods + Early
Assessment + Protection
AGENDA
• Background to Risk management in
Ethiopia: Managing Risk instead of
Managing Disasters
• The Ethiopia Phase II: Risk Management
Framework
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
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
• 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.
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
ETHIOPIA PHASE II –
RISK MANAGEMENT FRAMEWORK
II. Support CP Process:
I. IMPROVED INDEX:
Develop budgeted
contingency plans
Refine + Monitor LEAP
(with GoE)
Early Warning
System
Contingency
Planning
with reliable baseline for appropriate and
and trigger points
timely response
IV. Establish timely
emergency
financing through
use of contingency
financing
WFP participates in CF
package + manages
Insurance bit
Contingent
Financing
of contingency
plans
Capacity
Building
III. Help to build
for effective plan
planning and
implementation
implementation
capacity at
regional level
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
IMPROVED INDEX –
PART OF RISK MANAGEMENT FRAMEWORK
I. IMPROVED INDEX:
LEAP
Early Warning
System
with reliable baseline
and trigger points
PROGRESS MADE
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
RISK MANAGEMENT
FRAMEWORK
II. Develop budgeted
contingency plans
Contingency
Planning
for appropriate and
timely response
WFP
COMPETENCY
II. CONTINGENCY PLANNING
IN CONTEXT
LEAP triggers
Contingent
Financing
•Drought Risk Assessment
activates
Contingency
Plans
implement
•Drought Impact Assessment
•Drought Scenarios
 Types of intervention needed
 Timing of intervention
 Target population
Appropriate
and timely
response
protects
 Costs
•Implementing partners
Livelihoods
RISK MANAGEMENT
FRAMEWORK
Capacity
Building
III. Build
for effective plan planning and
implementation
implementation
Initiated but
capacity at
more needed
regional and
woreda level
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
Beneficiaries of LEAP
Innovative Risk
Transfer Mechanisms
for Populations
Affected by Natural
Disasters In Ethiopia
Government
Risk Markets
Risk
Donor
Governments/
Agencies
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,