Regional Emergency Preparedness & Access to Inclusive Recovery Project

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The MPA will establish a Regional Climate Risk Fund (RCRF) to provide affordable, pre-arranged financing to AFE countries ahead of climate and other shocks. The operation seeks to strengthen the financial and operational preparedness of governments and country systems in Eastern and Southern Africa. Setting up the regional climate risk fund will pool countries' climate risks to transfer some of those risks to financial markets. The reserve layer of this Fund will be available to be used against broader economic shocks. The MPA offers a programmatic approach to increasing climate-related financial resilience in AFE. It aims to mobilize pre-arranged financing for rapid and cost-effective disbursement of funds to vulnerable populations affected by climate and other shocks in participating countries through a combination of multiple, layered financial instruments. It aims to enable and mobilize private risk capital through access to international reinsurance to transfer excess climate risk outside the balance sheet of the participating countries. The Regional Climate Risk Fund will have three different financing layers: (i) reserves for moderate, frequent shocks and recurring shocks; (ii) contingent financing for severe and less frequent shocks, and (iii) parametric insurance for climate catastrophic events, placed in international markets. The African Risk Capacity (ARC) Group is comprised of ARC Agency, a Specialised Agency of the African Union founded in 2012; and ARC Insurance Company Limited (ARC Ltd), a hybrid mutual insurer and the commercial affiliate of the Group founded in 2014. ARC Agency was established to help African governments improve their capacities to better plan, prepare, and respond to natural disasters triggered by extreme weather events, as well as outbreaks and epidemics. ARC Ltd offers complementary risk pooling and risk transfer services. The RCRF will be managed by ARC Ltd, which will ensure strong governance, and build the capacity of Ministries of Finance on managing their contingent liabilities related to climate disasters. National partners in participating countries, including Ministries of Finance and Ministries or agencies responsible for disaster response, selected in October 2023 the ARC Group among three potential candidates as the designated regional entity to set up and manage the regional climate risk fund. ARC Ltd will implement operational preparedness activities in each country to facilitate the flow of funds from Ministries of Finance to country systems and end beneficiaries during disaster response. It will provide capacity building to government agencies, women and women-owned MSME so they are better prepared to plan ahead of shocks. The contingency planning training will involve, at a minimum, country systems channels that are responsible for supporting vulnerable households and MSMEs in case of shocks such as adaptive social protection systems, MSME support program and National Disaster Funds or Agencies. Once there is a shock, resources from the RCRF will flow to the Ministries of Finance which will decide through which country systems to allocate the funds depending on the type of disaster and damage. Those country systems will need to have robust fiduciary and E&S systems in place; the intent is to work with existing country-level projects or programs supported by the World Bank, and thus ideally familiar with World Bank practices and procedures including management of environmental and social risks and impacts. This also means they already may have the E&S instruments and staff capacity in place to manage these risks, although this will be verified by the ARC during project implementation. Where there are gaps, a CERC/CERP Environmental and Social Management Framework (ESMF) will identify additional measures needed to meet robust E&S requirements of country systems. This MPA will complement other World Bank investments on physical and social resilience, and will focus on financial resilience. Other complementary program include the Eastern and Southern Africa Food Systems Resilience Program (P177816) focused on agricultural resilience; and the Regional Climate Resilience Program for Eastern and Southern Africa (P180171) which includes investments to strengthen the national systems including social protection programs, flood protection mechanisms, protective and storage infrastructure, as well as emergency preparedness and response action plans. The first phase of the MPA will focus on Mozambique, Madagascar, Comoros; Phase 2 and 3 include: Angola, Burundi, DRC, Eswatini, Lesotho, Malawi, Seychelles, Zambia, Zimbabwe Project components include: Component 1: Establishing and Operationalizing the Regional Climate Risk Fund Under Component 1, the MPA will establish a Regional Climate Risk Fund (RCRF) to provide affordable, pre-arranged financing for post-disaster responses to participating countries ahead of climate and other shocks. Activities under this component will be oriented to setting up and capitalizing the RCRF in the different financial layers, with ARC as its regional manager, . This component will be funded by IDA and make up the largest portion of World Bank funding for the project. Component 2: Technical assistance will support the operationalization of the RCRF and the operational preparedness of country systems to facilitate swift flows of funds upon a shock. Sub-component 2a includes start-up and operating cost of the RCRF including staffing; preparation and testing of operational process and procedures to facilitate the fund flows between MoFs, country systems and end beneficiaries; consultancies to help MoFs decide the allocation between the instruments based on their risk appetite, and improve the management of disaster-related contingent liabilities; and capacity building of country officials on DRF, of country systems on contingency planning and of women and WSMEs on financial literacy. The contingency planning training will involve, at a minimum, country systems that are responsible for supporting vulnerable households and MSMEs in case of shocks such as adaptive social protection systems, MSME support program and National Disaster Funds or Agencies. Sub-component 2b includes contributions to the cost and/or structuring of the pre-arranged financial instruments with a view to reduce the cost and improve the affordability of such instruments for the participating countries.