How drought insurance and value chains can support Somalia’s livestock economy

Pastoralists rely primarily on livestock for their livelihoods. This makes them more vulnerable to climate-related shocks, and therefore they have the highest poverty rates in Somalia. When drought hits, their animals either die or are sold at rock bottom prices. And yet Somalia’s livestock trade contributes to almost 80% of the country’s foreign currency earnings, with much of the livestock exported to countries in the Arabian Peninsula , such as Saudi Arabia, Yemen, Oman, and the United Arab Emirates.  

However dependent Somalia is on pastoralists, they are not well integrated, as producers, into the economy because they operate in remote regions and are often on the move. Added to this, the quality of the infrastructure system—used to trace livestock and ensure its standards—is nascent in Somalia and, as a result, importing countries impose additional checks and reduce their prices for it.

To address this challenge, the Federal Government of Somalia launched the De-Risking, Inclusion and Value Enhancement of Pastoral Economies in the Horn of Africa Project (DRIVE) in late August 2022, with World Bank support. The project aims to enhance pastoralists’ access to financial services for drought risk mitigation, as well as to include them in value chains and to facilitate livestock trading in the Horn of Africa (HOA). It covers Djibouti, Ethiopia, Kenya, and Somalia.

The current drought in the Horn of Africa is a reminder of the importance of anticipating droughts and acting early to deal with extreme weather , largely because it is having a severe impact on food security and causing the asset depletion of livestock and income losses for pastoralists. The DRIVE project will help mitigate such effects in future by building a risk-management mechanism that allows households to anticipate the effects of a drought in a timely and efficient manner, and prepare for them.

“Livestock is our nation’s core asset. The misfortune of drought pushes our pastoral communities to overflow to cities. This project will mitigate the loss in livestock and create markets, so that our pastoralist communities get more benefit from their livestock,” says Hassan His Excellency Hassan Hussein Mohamed (Eeley), Somalia’s Minister of Livestock, Forestry and Range.

The DRIVE project will complement humanitarian assistance as part of the country’s response to the current crisis. Findings from a feasibility study on drought insurance, and from the quality infrastructure report undertaken in 2019/2020, have influenced the project’s design, aimed at founding a more sustainable response to drought.

First, it will provide financial services for pastoralists, including drought insurance (also called Index Based Livestock Insurance, or IBLI), savings, and digital accounts. When droughts occur, pastoralists will either be able to use their savings or receive insurance payouts at the onset to keep their animals alive. Studies from USAID and others show that early intervention saves livestock and money, and that keeping livestock alive by spending money to feed them costs less than restocking.

“Climate change is impacting our economy,” said Elmi Mohamud Nur, Somalia’s Minister of Finance. “Providing drought insurance to our pastoralists offers protection for the backbone of our economy.” 

Hope Murera, Managing Director of the ZEP-RE, a Kenya-based reinsurance company in charge of this component of the project, sees the launch of the project and its implementation as providing a platform to scale up financial services to pastoralists, including insurance coverage.

Second, the project will link pastoralists to markets, exporters, and processors, so pastoralists can sell quality animals through a Livestock Value Chain Facility. This involves agribusiness activities, including a milk value chain, animal feed production, logistics, the fattening of livestock, abattoirs, and meat processing. Its targets will be women-owned and youth-owned businesses, as well as large investments that demonstrate impact. Accrediting testing laboratories should improve quality control, the certification of livestock products, and the formulation of national quality, food safety, and meteorology policies. The project aims to set international standards for export certification across the Horn of Africa.

DRIVE is financed by a $40 million IDA grant for Somalia, out of the $327.5 million allocated to the Horn as a whole. It will be implemented along key trade routes, including a northern corridor from Ethiopia to Somaliland and a southern corridor from Somalia to Kenya. It is expected to provide 300,000 pastoralists in Somalia access to finance, connect 400 pastoralist groups to markets, mobilize $10 million of private investment in livestock value chains, and greatly improve quality assurance standards in the sector. It will also offer financial support for de-risking the private investment put into value chains.