Can insurance play a role in avoiding Aid Dependency in agricultural situations?
The UK government has recently announced a crackdown on benefits fraudsters. Those people who are living off State funded benefits rather than trying to earn a legitimate income can expect their State provided income to disappear. The government notes these people have found it suitably comfortable, and easier, to live off the benefits rather than secure an official job. This situation drains money from the State’s purse and isn’t deemed tolerable when countries are suffering from economic crises.
This problem is similar to a situation that can exist in humanitarian aid. In this situation, the finance regularly provided to an impoverished group leads them to become reliant on the benefits. Instead of using the money to better their livelihoods through long-term investments in infrastructure (and other similar benefits) the finance is used to pay for short-term wants such as luxury goods. This doesn’t happen everywhere, in the same way that not everyone on State benefits is committing benefit fraud, but it can be a problem.
To discourage this dependency, aid assistance often comes as physical products, e.g. bricks and seeds. This encourages people to use the material to build and invest. However if it is expected that within a few months a flood will wash away the newly built house (or freshly sowed field) then the incentive to use the material for its intended purpose is lost. The recipients’ developmental investment was a waste of time and effort. Consequently the recipients would rather sell the material and use the profits to buy current ‘wants’. In effect these groups are deciding not to invest in their future because of the risk of the investment failing.
Maize crop in Swaziland stunted by drought. Source: Neil Cooper/Still Pictures
A case study example of this occurred in Swaziland. Five years of consistent drought generated a system where by the fourth year communities were relying on consistent aid assistance to survive. As well as providing immediate food assistance, the humanitarian aid provided drought-tolerant seeds for the community to plant and invest in the future. The problem is even drought tolerant seeds need some rain to grow and the seeds were not getting enough. By the third year of no rain officials noted some recipients couldn’t see the benefit of planting the seeds as they would fail, it was simply better to sell them.
When the risk of failure (or damage) is too high, recipients are less likely to use aid assistance for its intended purpose. This generates a situation of humanitarian aid dependence. To avoid this there is a need to guarantee recipients that they will still received some income even if the development investment fails. Insurance can do this.
Insurance reduces the perceived risk and so encourages communities to use the aid as intended. The problem is insurance costs money and insurers want to turn a profit. There are two issues with this:
1) Recipients, by the very nature of needing assistance, don’t have the finance to pay for insurance so aid providers must pay.
2) The frequency of failure has to be low enough that insurers still perceive that can make a profit when crop failures (or equivalent situation) do happen. i.e. they don’t want to pay out every year.
However in places like Swaziland, where droughts can last over five years, insurers are unlikely to perceive the risk as low enough that they’ll insure investments. Insurers just won’t get the returns the need. So while insurance could be an answer, in high risk regions it seems development is simply unsustainable. Where this is the case you can expect either aid dependence or large-scale migration. How we cope with the challenges this dependency and migration brings is unclear but if insurance isn’t a solution then we need to think about how to tackle these challenges now.
A Developing Climate 