How African Risk Capacity Institution Can Be Viable

THE seventh Conference of Parties, COP7, of the African Risk Capacity held from March 31, to April 1, in Addis Ababa, Ethiopia. The conference elected Gambia as the chairperson. At the end of the fruitful two-day meeting key officials of the specialised agency of African Union, AU, spoke with selected journalists from African Countries about the outcome of the meeting, the challenges facing ARC Limited and the way forward. Also highlighted why ARC Limited is started with -$200 million dollars; what ARC is doing to help cyclone prone African countries like Mozambique where Adai caused havoc recently; position of Nigeria and South Africa regarding insurance, and what some regional blocs are doing to curb Co2 emission and issues relating to climate change. They are Lamin B. Dibba, minister of environmental Affairs of The Gambia and chair of the COP7; Mohammed Beavogui, director general of ARC and United Nations assistant secretary general, and  Ambassador Tosi Mpanu-Mpanu of the Democratic Republic of the Congo who is also a board member of ARC.  Maureen Chigbo, editor, covered for Realnews. Excerpt.


Question: What are the big takeaways from this conference referencing you answer to the dwindling resources of the ARC Limited and what decisions have been take to shore it up its finances?

Beavogui: Indeed as you may have noted during the deliberations of this COP7 of the African Risk Capacity, some challenges were highlighted and the major challenge that came out is the one that is related to the payment of premiums. And of course, ARC has put in its activities and also will be including in the strategy of the design an approach that outlines all the efforts it intends to take in order to help its member states to access premium support. We know that all member states are very not rich countries.  They all have tight fiscal situation and they are all confronted with competing priorities – health, education, infrastructure and these are issues that are present not issues that may come in the future like disaster is. So, one can understand that the tendency to address the ongoing issues is really more obvious. So what ARC has concretely decided is that 1) to continue to strengthen ADRiFi which is the African Disaster Risk Financing Initiative which a country like The Gambia has already accessed and has secured support for the next five years and for which we have nine countries in the pipeline. But unfortunately we don’t have enough resources in that ADRiFi, although the approach is found to be innovative and very effective in helping countries to build a sustainable premium mechanism in their own countries. Second thing is also to sensitise member states because the more we are in the pool, the lower the premium. That is also a way to address the premium issue that means paying less. The calculations we have made is that if you have all these member states on board we can cut the cost of premium by half  or even more than half.  The third is also to approach our partners so they can help us to build the basis. If you want to build a high rise, you need to have a solid foundation and that solid foundation needs support. And since our partners have been very generous so far, we want them to continue supporting us until the baby can stand and walk by itself. These are all things that are in the recommendations of the meeting. There are other recommendations that are more of advocacy and policy that were actually suggested by the chair himself. There are also some suggestions at the board level.

Q: You are the new chairman of the COP. What new ideas are you bringing on board to move the African Risk Capacity to the next level?

Lamin Dibba, Gambian minister of environment, climate change and natural resources
Lamin Dibba, Gambian minister of environment, climate change and natural resources

Dibba: I think this is very important. Infact, the director general has harped on some of the proposals. The last proposal that was made by the Gambian chair is for us to reach out, of course, with the support of the ARC, to increase and mobilise more membershipAnd this way we will be able to achieve our objective to make the premium affordable to the membership.  The other one is strategy – innovative financing. One of those is to look at the broader network of finances  – not only the traditional financial partners but at what we can get from the private sector and to involve the private sector in raising money for premium financing.  These are some of the innovation that under the chairmanship under the Gambia that we will want to reach out to members to ensure that they sign up to the agreement to be part of it.

Q: I want clarifications on your reach out to countries. How does that translate to more finances for the premium?

Dibba: We are at different levels. We have bigger brothers who are not yet part of the ARC. If we get those we can also use the network of such countries to reach other financing partners. This is what we mean by increasing the membership. They will be also able to put in their premium contribution but as well use their network to reach out to more partners.

Beavogui: On a more technical way when you increase the number of countries you diversify your risk because all the countries have the same kind of risk. Because it is diversified and if you put everybody in a pool not individuals countries going to insure but you are reinsured together. The more the pool is diversified the more the reinsurance cost less. And because the reinsurance is less the impact on the premium cost is less and so the premium cost becomes less. The first one is the diversification of the risk and the second one is reinsurance.

Q: Yesterday some of the countries, specifically, Ghana called for a rethink of the calculations that needed to be done.  They are suggesting that the ARC should have a base – say $100,000 amount that will be paid by countries after which the premium will be calculated based on their risk factors. Is that something the ARC will consider?  We have seen what happened in Mozambique, Malawi, Zimbabwe – whether we like it or not the effect of the climate change is with us. What are you doing as a minister working in partnership with other countries in West Africa to prepare ourselves to mitigate against these disaster if they happen in the region?

Dibba:  I think this is very pertinent question in the face of challenging climate issues within in our region. Our approach in our part of the sub-region – Gambia, Guinea Bissau, Guinea Conakry, Senegal – we are talking about regional approach because if we solve our problems in The Gambia, it will not prevent us from having the effect of climate change from Senegal, Guinea Bissau or Guinea Conakry.  Of recent, what we have done is working with the World Bank to have a sub-regional programme and community forest management some of which are driving factors of climate change – community forest management along our borders as well as domestic fuel consumption project to have alternatives to fuel wood.  This will help us to have other sources that will prevent us from having a lot of C02 emissions into the atmosphere and some other global warming gases. Of recently, in other for us to reduce and enhance our ambition level as a country to reduce the Co2 emission and global warming gases, we have within the framework of Organisation of the Gambia River Basin, OGRB, just recently launched an energy project that will help us reduce depending on fossil fuel by more than half, particularly for the Gambia when we have 150 megawatts from these dams which we have already started with an interconnection line from the Gambia, Guinea Bissau, Conakry and Senegal. So these are regional programmes that we initiated as sub regional bloc to help us to enhance our ambition and make our communities more climate resilient.

Beavogui: Regarding the question you asked about having for all countries a base. Regardless of what type of insurance you are taking everybody has that base and depending on your actual risk profile you have something in addition to that base. This as you heard me say during the discussion was a wonderful proposal because it is a full security for ARC Limited to have at least a minimum base to function constantly and to protect its own capital because you can assure that the administrative cost and expenses are covered which is today covered only by the individual insurances which may come or may not come as we have seen today in creating thus a financial risk for the ARC Limited. We welcomed those suggestions yesterday. What we are proposing is that we undertake quickly a study on the feasibility of that because it is coming from member states. If you remember, it was Ghana, Senegal and a third country that raised that proposal in a passionate way. For us, it is very welcome. It is feasible but it will take a lot of political will though and it is extremely important to state and we would like this to be driven by member States again with the support of ARC. We have the expertise. The problem with Africa is not expertise any more. That one is over completely. It is the resources to do the work. So, we will take it up with each member state and we hope that they can present a proposal to themselves how this can be transformed into a political decision to move in that direction.

Q: What is the timeline for these interventions you are proposing in relation to the position of ARC Limited?

Beavogui: I need to explain to you. To be transparent, yesterday I said it but nobody picked it up. The capital of ARC Limited is a loan. Now imagine you create your company and you take a loan to create the capital. So it means you are already starting -200 million dollars. That is the situation of ARC.  Its peers in other countries in Latin-America, Pacific, in Asia got their capital as a grant. Africa came last and I don’t know for which reason, it became a loan. Fair enough, we took it and said lets construct our own and we will repay that capital slowly. That is making our premiums more expensive. Therefore, the issue is not about today. That capital we cannot touch it. We can touch only the money that comes from our own government. Can you imagine you create a company and you cannot touch the capital to use it to run your company and as soon as you come close to touching that capital, they say okay you don’t have money. That’s not the problem. If ARC can have enough member states not even contributing but buying insurance, we are covered. This negative thing will go immediately. It will disappear. The second problem though which appeared recently is that some countries signed policies but did not pay the premium. And once you sign a policy, it becomes a liability and you have to put it in the negative side of the balance sheet of the company. This is another aspect; physically, it is the way of writing things but the situation is not as desperate as it seems. If you take money it is minus but if you take note of the fact that you are operating -200 million, it becomes a problem. Those are technical nuances that have to be. I tell you one thing if by May now, we have six or seven companies that subscribe to insurance, we are no longer in the negative. It is as simple as that. Our timeline is this season. Please if you can beat the drum, help us beat the drum, tell your people, let countries join and we will not be in the red anymore.

QAs a corollary to the last question. Yesterday, the chairman of the Bureau said that the administrative cost of the ARC Limited is egregious. It is colossal. What will you do to ensure that the administrative cost is reduced?

Beavogui: No. I will tell you what is ARC Limited and that is why we want to make it a department of the whole ARC. ARC Limited is made up of a CEO which is only an underwriter now. There is a person in charge of administration and junior staff – That’s all, four people.  And we need in ARC Limited more people that can go and engage country managers and agencies and you see and that is missing. So you see we need even more staff. You need more optics when you are looking at the figures. But physically what I told you is what it is, no more.

Q: Could you please explain what kind of assistance ARC will be extending to Mozambique and Malawi following the Adai disaster considering that the countries affected have not paid a premium to ARC? Secondly, in our early meeting on Saturday, you alluded to getting Presidential Champions to sell ARC to heads of States to garner more goodwill. Can you shed more light on how you are going to go about that? What kind of dialogue are we going to see between ARC and these countries. They sign the treaty but are yet to ratify. Cyclone Adai gave a very big lesson to these countries besides there are drought and earthquakes in these countries, although not to a big extent.

Beavogui: What can ARC do for Mozambique, Malawi and Zimbabwe today?  As you know, we presented today, the drought model and tropical cyclone model and we are on the last phase this year of testing it in real world to make sure that it works. These are new models. Somebody was saying you can go on the market and you get models. But models are site specific and country specific because the winds, the rains, the population, the poverty level, the landscape are different from place to place; so it has to be customized for that region. What we want to do now and we are already doing to give information and extending this information to these countries because it is not finished. I am sorry to say. I don’t want to scare you but you know it happened two weeks ago but it started over one month ago. And now it doesn’t seem that it is completely finished. So we have seen the winds coming and the formation happening and we have this information provided. Some of them have information more than the others. For instance, Mozambique has information. But we are providing this information. The second thing we want to do is to include these countries in the finalization of the model so that as soon as it is ready they can access it and we can work together in more concrete ways. So that if something happens they can have insurance. That’s where we are now. In terms of what do we do? Mozambique already extended invitation to ARC to join them in the African Development Bank for a meeting this month to discuss what kind of coverage they want to request the bank to come in either through ADRiFi or someone else because ADRiFi does not have enough resources at this moment. So they can access insurance with ARC limited. So that is going on. We are discussing drought with Malawi. Malawi is a place that you have severe drought and severe flood unfortunately. Two years ago, it was drought. Now it is flood. We have restarted dialogue, we are discussing and we made a lot of sensitization. We went to the parliament in Malawi to explain because you need a lot of explanation. People don’t understand insurance and they say why should I pay and something happens in that village and I don’t get anything because they don’t understand the threshold. And now the sensitization is advancing in Malawi which has decided to come back for this season. So the dialogue has started on how they can get in in the next pool.

Dibba:  On the presidential champion, we have already discussed this with the director general. In Gambia, already, they have spoken to my president who is willing to champion this ARC and the strategy we have is going to be part of our work plan that we will get from ARC that when we go we will present a comprehensive report to the cabinet. I will do a cabinet presentation where they president chairs the session and from there I will have a one –on-one session with him to discuss the outcome of this meeting for him to reach out to his peers in the region  and also use some of the African Union meetings to have side meetings with these heads of States to talk to them. This is the strategy that we wanted to use.

Q: I want to know what is happening to Nigeria. Is Nigeria in any way involved in this ARC?

Beavogui: Yes, Nigeria signed the treaty. We have a draft MOU with Nigeria. And we have started working with the disaster risk agency of Nigeria and also the NIRSAL facility in Nigeria. We are trying to find a way of working together. There is an intensive work going on. We hope that we will able soon to complete this process. But again Nigeria is a country that does not insure nothing including its own building; its own cars. It is like South Africa – it is a policy. In Nigeria, they don’t trust the insurance thing. So you need the sensitization. And it’s time now to get them on board and they understand at least the technical people. Now we need to formulate that message to go into the political arena to take this the way it should be.

Q: Do you believe in the school of thought that believes that ARC should be able to get the heads of state themselves, that formed it anyway, to know about the challenges it is facing and get them to agree when they go for the AU meeting, and thereafter when return to their countries, they should sign the cheques for ARC and uphold the assurances given to ARC?

Ambassador Tosi Mpanu-Mpanu
Ambassador Tosi Mpanu-Mpanu

Mpanu-Mpanu:  It is happening already. AU summit has been done and we have the decision of heads of State concerning ARC.  For me, it is clear that there is strong ownership of this institution which is an institution by Africans for African and with Africans at the core. So it is a very strong narrative. Like the distinguished chairperson and ARC director general said, it is about African solidarity. This climate change issue is the first monetary issue of solidarity. Because if I am hit by disaster and I am not able to deal with the people will get on the road and will come to your country and it will affect you.  It’s about collective actions. Collective solutions so we can deal with the issue together. Like the director general has said, the bigger the risk pool of countries the smaller the risk profile will be and the smaller the cost so that is what we look forward to. But then it goes to the earlier question that was asked for countries to ratify it. The countries coming to sign and ratifying are our clients and they need to be serviced.  And if the product to service their needs are not there they will not come. This is why the countries in Central Africa are very much interested in the flood model being developed and also in the outbreak and epidemic model because I come from the DRC and on a regular basis we are hit by Ebola, and it creates a lot of distortion as far as the budgetary circle is concerned. So if ARC is able to provide those new products more countries will come and join.  There was a question about the viability of the institution. I had a degree in Finance and really any company when you sell the company usually have a deep in the cost. But whenever you have a profile of revenue which is sure to be regular, those revenue offset the initial cost. Indeed, we have this initial capitalization of $200 million which was given to us by donors. But if we have a strong risk pool of African countries guaranteeing regular revenues every year, ARC will be a very strong institution. 

 – Apr. 18, 2019 @ 10:25 GMT |