The Financialisation of Risk in Ethiopia’s Drylands

In the third of our PhD blog posts, we introduce Masresha Taye who is currently doing fieldwork in Ethiopia. In this post, we’ll hear from Masresha, with a short video where he explains his work.

Read on for a summary of the research.

Financialisation of Risk in the Ethiopian Drylands: Pastoralists’ Practices of Integrating Livestock Insurance to Respond to Uncertainty 

The Borana pastoral region of southern Ethiopia has seen a wave of changes since the 1970s, including land tenure and policy changes, sedentarization and villagization, changes of rainfall patterns and increase of drought incidents, commercialization, territorialisation and rangeland fragmentation, dwindling of indigenous and communal rules and practices affecting pastoral livelihoods, security, conflict and market volatility.  These changes are creating both uncertainties and opportunities for pastoral communities.  

However, Borana pastoralists have a long tradition of responding to different risks and uncertainties they face. Depending on how these are perceived, pastoralists respond by employing different strategies. Some of the responses include herd management (herd splitting, reduction, and diversifying species), livelihood diversification (petty trade and commercialization of livestock resources), and other social mechanisms such as social assistance/insurance. To supplement these traditional responses, in the last three decades, there has been a suite of development interventions and policies by different development actors that have been aimed at strengthening the resilience of pastoralists thereby improving their livelihoods. Some of them include improving pastoral livelihoods (like income diversification), increasing social protection and providing safety nets, humanitarian interventions, rehabilitating the rangelands, increasing infrastructural and social amenity development, livestock commercialization, and efforts to strengthen peace and security.  

Livestock insurance is a novel intervention, first tested in Borana in 2012. It has evolved from social protection interventions in the Horn of Africa as a means of diversifying climate-related risks pastoralists face through a process of financialization of risk. The Index-based livestock insurance (IBLI), a financialized risk product designed to protect pastoralists against a covariate risk of drought-related forage scarcity, is a unique institutional intervention for the pastoral population. IBLI was introduced in Borana based on the assumption that a significant risk in the area is rainfall variability – intertemporal and spatial. As a result, it operates using an objectively designed satellite-based forage monitoring platform. Also, it aims at making payouts to individual pastoralists before the underlined ‘risk’- drought – happens when it is estimated forage condition in an area will fall below a certain triggering threshold.  

The indicator of drought risk for IBLI is vegetation scarcity based on NDVI readings (Normalized Difference Vegetation Index). Nonetheless, drought is not the only hazard pastoralists face, but a combination of risks and uncertainties have intertemporal and spatial impacts. Thus production, market, policy, and security interact  and perceptions of these among pastoralists vary. Pastoralists respond in a variety of ways, as described above, and insurance adds to the existing options.  

Many of the studies conducted to date on the index-based insurance in pastoral areas in Africa focus on two major issues; namely, patterns of demand/uptake and the impact of livestock insurance on livelihoods. These studies, however, have not asked how and why different choices are made in response to uncertainty and where insurance fits. By focusing on the qualitative dimensions linking pastoralists’ perceptions and responses, this study aims to explore how different pastoralists combine livestock insurance with other response strategies, asking: How do pastoralists combine livestock insurance with other ways of responding to risk and uncertainty? 

The research will explore three interlinked factors – exposure, perception, and response to risk and uncertainty – through three sub-questions: 

  • What risks/uncertainties have pastoralists in Borana faced over time? (exposure
  • How are these perceived by different Borana pastoralists (richer, poorer; men/women; young/ old)? (perception
  • How is livestock insurance combined with other ways of responding to risks and uncertainties, by different groups of Borana pastoralists? (response

In addition to examining existing secondary resources, including IBLI surveys, the study will collect primary data to understand how livestock insurance is combined with other strategies among different groups of pastoralists in sites in Yabello area of Borana. The research will compare those with different levels of engagement with the insurance product, ranging from regular purchasers to those who have never bought it.  

The research will contribute to the literature on risk and uncertainty in the dryland pastoral system in Ethiopia, and in particular on the potential role of a financialised product, livestock insurance, as a route to improve pastoralists’ ability to respond to drought.  

For more on the background of our PASTRES students, see the profiles on our website.

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