The Government of Ghana has taken proactive steps to better protect its agricultural sector against the risk of drought. The policy, designed to provide financial relief in the event of a drought, will enable the government to respond quickly and efficiently to support affected farmers and communities. Funds from the insurance payout will be directed towards safeguarding food security and stabilizing the agricultural sector.

Ghana’s investment in the financial resilience of vulnerable livelihoods marks the culmination of a truly collaborative process, set in place by the Global Shield against Climate Risks Initiative. The convening of relevant stakeholders, and a tailor-made, demand-driven and inclusive approach to identify key climate risks and viable pre-arranged finance mechanisms paved the way for this first drought insurance policy.

Ghana’s proactive approach, in collaboration with ARC, sets a strong example for other African nations facing similar climate-related challenges. As the continent confronts the realities of climate change, risk transfer mechanisms, such as drought insurance, will play a crucial role in protecting lives, securing livelihoods, and strengthening climate resilience across Africa.

“The Government of Ghana has shown foresight and initiative by implementing this first-ever drought policy,” says Malvern Chirume, Chief Underwriting Officer, ARC Ltd. “Within the context of climate change where drought events will increase in frequency and severity, the country is now protected against a potential crisis.” Furthermore, Chirume emphasises that the policy extends beyond financial protection: “It ensures that vulnerable communities in Ghana can continue to thrive despite increasingly erratic weather patterns due to the early warning tools available to the government. This policy is also a key component of our broader efforts to enhance climate resilience across Africa.”

“We are delighted to see the implementation of the Global Shield process come to fruition in Ghana, through multi-stakeholder, collective action, marking the completion of the first in-country process. We know that disasters don’t wait to happen – they strike with little warning, so the importance of pre-arranged finance mechanisms cannot be stressed enough. With the ARC policy in place, we are assuring the resilience of vulnerable livelihoods amid the ever-growing threats posed by climate change”, says Nilesh Prakash, Co-Director of the Global Shield Secretariat.

“The GSSP is very pleased to financially support the purchase of ARC drought insurance by the Government of Ghana for the benefit of vulnerable populations”, says Karsten Löffler, Co-Head of GSSP. “It is a good example of what pooling funds for pre-agreed risk financing solutions and international coordination can achieve.”

“KfW Development Bank is very happy that Ghana is becoming an active member of the ARC family”, states Malte Marek, Senior Portfolio Manager at KfW. “Being the second largest economy in western Africa, Ghana can set the scene for other countries joining ARC in the future.”  

“Ghana’s participation in the ARC risk pool is evidence of the proactive approach that the government is taking to protect the lives and livelihoods of the population that relies on agriculture as a source of livelihoods” according to Charlotte Norman, Government Coordinator for the ARC Programme. “This protection is one of many initiatives that the Government of Ghana is taking to boost its capacity to respond to various climatic shocks that affect its population”.

END

About ARC Ltd.

The African Risk Capacity Limited (ARC Ltd.) is a financial affiliate of the African Risk Capacity (ARC) Group, a specialised agency of the African Union (AU), an initiative designed to improve current responses to climate-related food security emergencies.

ARC Ltd. is a mutual insurance facility comprised of its members, which have included Côte d’Ivoire, Togo, Somalia, Benin, Ghana, Senegal, Gambia, Tchad, Sudan, Mali, Burkina Faso, Mauritania, Niger, Madagascar, Malawi, Zambia, Zimbabwe, Mozambique, Coromos, Kenya.

The membership also includes its capital contributors, the British FCDO and KfW / BMZ.   

Media contact:

Sonnette Fourie

sonnette@bigambitions.co.za. 

About KfW

KfW Development Bank has been helping the German Federal Government to achieve its goals in development policy and international development cooperation for more than 60 years. On behalf of the German Federal Government, and primarily the Federal Ministry for Economic Cooperation and Development (BMZ), KfW finances and supports programmes and projects that mainly involve public sector players in developing countries and emerging economies – from their conception and execution to monitoring their success. The goal is to help our partner countries fight poverty, maintain peace, protect both environment and climate and shape globalisation in an appropriate way.

Media contact

Malte Marek
malte.marek@kfw.de

About Global Shield Solutions Platform 

The Global Shield Solutions Platform (GSSP), managed by Frankfurt School of Finance & Management, is a multi-donor grant facility and one of the financing vehicles under the Global Shield against Climate Risks. With the mandate to foster the actual development and use of Climate and Disaster Risk Finance and Insurance (CDRFI) solutions, the GSSP contributes to effectively addressing losses and damages exacerbated by climate change.

Media contact

Marianna Aguilera

m.aguilera@fs.de

About the Global Shield against Climate Risks

With accelerating climate change, more severe and frequent extreme weather events are expected to threaten sustainable development gains of particularly vulnerable countries. To address this, the V20 Finance Ministers together with the Group of Seven (G7) and other supporting countries, launched the Global Shield against Climate Risks at COP27. With around EUR 300 million raised in funds, the aim of the Global Shield is to increase protection for vulnerable people by providing and facilitating substantially higher and more effective pre-arranged finance against disasters.

Media contact

Michelle Maibaum

michelle.maibaum@globalshield.org

The agricultural sector is the economic backbone of Africa, where an estimated 33 million smallholder farms and the farmers who live on them contribute to 70% of the continent’s food supply. Africa produces all the principal grains and other diverse crops, including rubber and cocoa in the tropical regions; soya and sorghum on the plateaus; tea, coffee, and flowers in the high-altitude areas; as well as Mediterranean crops. However, climate phenomena such as El Niño and increasing extreme weather events, due to climate change, such as tropical cyclones, floods and droughts, are decimating crops, and the resilience of the land and its ability to adapt are being pushed to their limits. Meanwhile, the demands on this vital resource are reaching critical thresholds.

Climate change also modifies the properties of soil, both chemically and physically leading to land degradation. Soils become less fertile, lowering crop yields and this impacts on agricultural production. Land degradation is already a major issue in Africa, due to poor soil health, and this is threatening the foundation of its citizens’ livelihoods – because they cannot afford to mitigate it.

The president of the African agricultural transformation institution, AGRA, Dr Agnes Kalibata, estimates that land degradation costs farmers up to $1,400 per year. According to the global research partnership CGIAR, 65% (494 million hectares) of Africa’s soil is currently degraded. Eighty-three percent of sub-Saharan Africans rely on this land for their livelihood. As a result, yield gaps on the continent are wide, ranging from as little as 2% to over 50%.

Substantial investment in Africa’s agricultural sector is needed, however, the visible impacts of climate change have caused investors to be wary. Other funding impediments include default risks and political risks. Giving farmers access to the right financial resources to address land degradation and climate change challenges would result in more progress being made towards achieving the objectives of the African Union Agenda 2063, which include the transformation of African agriculture and food security.

Closing the gaps

With the Russia-Ukraine war having increased global food insecurity by impacting production and crop exports out of the former agricultural powerhouse of Ukraine, a significant opportunity exists for Africa. By improving yields and insuring them against climate risks, African farmers could help close the gap, unlocking immense economic growth and development potential. Tapping into finance would also help farmers expand into the 60% of arable land that is still uncultivated on the continent.

As part of the Comprehensive African Agricultural Development Programme (CAADP), an initiative that forms part of the African Union Agenda 2063, African governments have committed to allocating at least 10% of their national budgets to agriculture and rural development. But this might still not be enough.

Another way in which governments could assist farmers is through subsidising climate insurance. Farmers with their limited resources are reluctant to take out premiums due to the cost, making derisking the industry not only the answer but also a huge economic opportunity. The reduction of risk would encourage investment. Private sector involvement is critical to driving investment, innovation and addressing the challenges in the industry.

Making an impact

The work of parametric insurer and financial affiliate of the ARC Group, African Risk Capacity Limited (ARC Ltd.), exemplifies the impact that is possible through addressing farmers’ specific needs and forging strategic partnerships. “There is no story that can be told about African development without taking into account agriculture and the need to protect investments in the sector,” says ARC Ltd. CEO Lesley Ndlovu.

The company provides insurance to small- to medium-scale farmers in Africa through micro or meso products. With micro insurance, farmers’ assets are insured, and their income is protected, and with meso insurance, banks are insured against a portfolio of loans. “A severe drought in a region will result in a spike in defaults. These defaults can be protected by insurance to avoid the accumulation of risk,” says Ndlovu. As a result, banks can free up more lending than they would usually be comfortable with, helping enhance access to finance so that farmers can invest in improving productivity and income.

ARC Ltd. has also been involved in several projects across Africa targeting farmers. In Côte d’Ivoire, the company, together with the Côte d’Ivoire Environment and Sustainable Development Ministry (MINEDD) and the United Nations Development Programme (UNDP), initiated a climate insurance pilot for agricultural value chains, run in collaboration with the FUSCOP RIZ CI “COOP-CA”, a federation of rice producers and their board of directors. Following the successful pilot, and with more partners on board, such as the World Food Programme, the project was expanded to include cocoa production with the aim of replicating it further across other agriculture value chains, such as cotton and maize. The project issued its first payout earlier this year of 16 million CFA francs to 3 594 rice and cocoa producers.

In the Horn of Africa, ARC Ltd. is helping fight the impact of the dual hazards of drought and excess precipitation on farmers in Djibouti. The first-ever multi-year, multi-peril agreement on the continent was signed in 2023 between the government and the ARC Group. It has given the country access to five years of disaster risk management capacity building and disaster risk insurance coverage for drought and excess precipitation.

ARC Ltd. has also partnered with the US Government (USG) on a $11.7 million project over three years to protect vulnerable smallholder farmers and African governments against climate risks. “Our priority with this grant is to provide coverage to 19 states,” explains Project Head and ARC Ltd. Chief Operating Officer Ange Chitate. “With the support of the USG, we will be refining and developing innovative products to meet the evolving needs of these countries.”

The project has two goals. The first is to work closely with governments so that they can better manage natural disasters by using parametric insurance.  In a collaborative approach, ARC Ltd. customises risk models for countries and helps governments integrate parametric insurance into their policy frameworks.

The project also aims to increase the uptake of parametric insurance by working with the African Union and regional economic communities. The significant advantage of parametric insurance is that it enables a rapid payment of claims, typically within 10 business days of a disaster, to fund emergency relief efforts and rebuilding.

ARC Ltd.’s plans for the continent’s agricultural sector include developing demand-driven micro and meso insurance and diversifying beneficiaries – including pastoralists locally and humanitarian organisations globally.

With escalating climate risks, innovative financing solutions like parametric insurance have significant potential to safeguard farmers’ livelihoods and drive development across the continent. Increased awareness and understanding are essential to encourage uptake. More investment in this space and policy reforms are also imperative to scale up climate risk management strategies and to empower Africa’s farmers.  

**Ends**

For more information about The African Risk Capacity Limited (ARC Ltd), or to arrange an interview, please contact Sonnette at sonnette@bigambitions.co.za.

About ARC Ltd.

The African Risk Capacity Limited (ARC Ltd.) is a financial affiliate of the African Risk Capacity (ARC) Group, a specialised agency of the African Union (AU), an initiative designed to improve current responses to climate-related food security emergencies.

ARC Ltd. is a mutual insurance facility comprised of its members, which have included Kenya, Mauritania, Niger, Senegal, Mali, Malawi, the Gambia, Burkina Faso, Chad, Zimbabwe, Togo, Madagascar, and Zambia.

The membership also includes its capital contributors who have provided premium subsidies, including USAID, FCDO, SDC, KFW/BMZ, IFAD, AFDB, WFP and STARTNETWORK.