By AFJN Intern Erika De Leener

Climate change is currently a big phenomenon affecting the entire world. If no action is taken to reverse the trend Africa will be most severely affected by the impact of climate change related disasters. Unlike more developed continent’s, Africa faces serious challenges to adapt to climate change due to widespread poverty and under development.  Climate change has threatened Africa’s growth and will compromise the socio-economic gains made over the past few years.

Impacts of Climate Change on Africa

Development in Africa depends highly on agriculture, which is climate-sensitive. Agriculture alone accounts for 30% of Africa’s GDP and 50% of the continents total exports. Further, even if the present agreements to limit emissions by 2020 are fulfilled, global temperatures are still predicted to increase by 3-4 degrees Celsius (5.4-7.2 degrees Fahrenheit) by 2100. This would lead to devastating effects such as a 30% reduction in rainfall in sub-Saharan Africa thus causing a disastrous food security issue for the continent, as 96% of agriculture is rain dependent. A shocking estimate that experts have made is that Africa would need to invest approximately 10-20 billion dollars annually up to 2050 to prepare for only a 2 degree Celsius (3.6 degrees Fahrenheit) increase in worldwide temperature.  Furthermore climate change will have significant impact on rising sea levels which will lead to high rates of coastal erosion and flooding of low lying coasts. Africa has about 320 coastal cities and an estimated 25% of Africa’s 1.1 billion population lives within 100km (62 miles) of the sea coastline.

The Climate Change Summit

In September 2014, a Climate Change summit was held in New York, bringing together worldwide countries to announce their “climate ambitions” and bring new light onto climate talks. Nations need to look beyond their borders and rethink how the world makes and uses energy. Unfortunately China’s president and India’s prime minister did not attend even though they account for almost a third of global emissions meaning that small developing nations have to unite to address climate change related issued including CO2 emissions. However an impressive 43 African countries and islands were represented by state officials or the president.

Forming and Funding of Catastrophe Bonds

A significant outcome that was derived from the climate summit is that the African Risk Capacity (ARC) will use the Extreme Climate Facility (XCF) to issue climate change catastrophe bonds. The XCF is a data-driven, multi-year vehicle that provides financial support to eligible African countries and will be designed by the ARC, which is a specialized agency of the African Union (AU) to help AU countries better plan, prepare and respond to extreme weather changes. XCF is an African led initiative that is designed to increase diverse sources of funding including international funds, and is encouraging public and private funds to invest in these climate adaptation strategies. These catastrophe bonds will hopefully be issued in 2016 and will provide additional financing to participating countries to increase their climate adaptation investments. The bonds will improve the different regions’ ability to prepare and respond to natural disasters and big weather shocks like extreme heat waves, floods, cyclones or droughts. If these bonds are successful they will be handed out to the governments of the countries concerned every five years over a period of at least three decades. The bonds will be financed by capital provided through private investors with donors supporting the annual bond coupon payments. The XCF will be structured to issue more than 1 billion dollars in African climate change bonds over the next thirty years. These are the first ever climate change bonds as well as the first ever Africa-specific catastrophe bonds to be put in use.

Currently there are five African countries qualified to take part in the planned bonds because they are already part of ARC’S risk pool insurance plan, set up to deal with droughts, floods and other weather shocks. These five countries are Niger, Senegal, Mauritania, Kenya and Mozambique. However more countries are expected to sign up before the first bonds are distributed and each bond will be personalized to the different regions. For example, cyclones are only relevant for southern Africa. Furthermore the ARC will work with African States and their partners towards an effective XCF design ahead of the UN Climate Change Conference in Paris next year.  As stated previously the XCF is data driven and will be created using Africa’s 30-year climatology as a baseline. Consistent data is available covering the entire continent since the start of the early 1980s and will be used to calculate a multi-hazard extreme climate change index for each African region. The index will track increases in frequency and magnitude of extreme climate shocks that are over the baseline. If the index surpasses a pre-determined threshold these countries will receive payments to their governments from the XCF to support their pre-approved weather adaptation plans.

Although this does not meet the Africa’s climate change requirements economically, it is a stepping-stone in the right direction to adapt to climate change challenges. While these bonds will help it is also up to the African leaders to take initiative. Our advocacy includes but is not limited to ensuring promised aid for adaptation is fulfilled, and that African leaders use it appropriately. During the climate summit thousands of people gathered from various African countries and their leaders now know that many across Africa (and the world) are watching them and their actions.

http://www.prnewswire.com/news-releases/africa-to-issue-over-1-billion-dollars-in-climate-change-bonds-276391261.html

http://www.cnn.com/2014/09/23/world/africa/climate-change-summit-carlos-lopes/

http://af.reuters.com/article/investingNews/idAFKCN0HL14920140926

http://www.africanriskcapacity.org/documents/350251/757534/African+Risk+Capacity+Fact+Sheet.pdf

http://allafrica.com/stories/201409260661.html

http://www.unep.org/climatechange/adaptation/Portals/133/documents/AdaptCost/9%20Sea%20Level%20Rise%20Report%20Jan%202010.pdf