Connect with us

Africa

Nuclear Power Supports Growing Development

Kester Kenn Klomegah

Published

on

In August 2014, Viktor Polikarpov was appointed as the Regional Vice -President of Rosatom International Network. His key responsibilities include overseeing, implementing and managing all Russian nuclear projects in Sub-Sahara African region. In this interview, Viktor Polikarpov discusses the potential nuclear energy requirements and nuclear safety as well as how to use nuclear energy in agricultural, health and other sectors of the economy in Africa.

How would you estimate the potential nuclear energy requirements in Africa? Which African countries have shown interest and point out if Rosatom already have some projects on the continent?

Viktor Polikarpov: Africa, being a continent suffering from electricity deficit, won’t be able to bring all its potential into life without meeting energy needs for its growing economy. It is vital for African countries to create viable energy mix, which will guarantee their own energy security and drive the industrial development. That is the reason why more and more African countries are currently studying the opportunities for nuclear power development.

In our opinion, these countries must be supported by the global community, which must ensure an equal, non-discriminated access for every state to such a safe and reliable source of energy as nuclear. At the same time, as the majority of African countries are newcomers in nuclear energy, the basic principles of non-proliferation, as well as nuclear safety and security, must come at the first place.

With the recent spike in electricity emergency declarations in South Africa, the need for additional baseload power has become a matter of urgency. Ninety five percent of electricity generated in South Africa is through coal-fired power stations. Koeberg Power Station, based in Western Cape, with a net output of 1,830MW accounts for about five percent to the total power grid, which in relevant terms means it powers the whole of Cape Town.

This proves the tested reliance on nuclear energy as additional baseload power generation for the country. South Africa was one of the first countries to publicly declare its stance on peaceful nuclear energy use for power generation in Africa.

Rosatom is intensively developing cooperation with African countries. The company already has own history of cooperation with Africa in nuclear sphere. In 2012, we signed an intergovernmental agreement with Nigeria on cooperation in NPP construction and are currently in the process of elaborating the comprehensive structure of the project. We have been working in Namibia and Tanzania in terms of uranium exploration and mining. With the Republic of South Africa, cooperation is the most lasting and dates back to 1995 with the supply of enriched uranium supplies for the Koeberg Power Station in Cape Town.

Rosatom assigns high priority to the development of cooperation with the South African nuclear industry. We confirm that our proposal for a strategic partnership in the development of nuclear energy in this country, keeps in force.

In your view, how really sustainable is nuclear energy for Africa? How is that compared to other alternative power resources such as solar and hydro, and what are the positive sides for the use of nuclear power?

VP: Today, nuclear power is one of the most important vectors of the world economic development. Electric power consumption growth under deficit of energy resources and CO2 emission restrictions make nuclear power industry practically beyond competition on a global scale. Despite of active investments to the wind and solar power generation facilities, general power balance in the world market of energetics will remain the same as now for long years ahead: hydrocarbons and nuclear power.

The question is in the optimum way of such energetic balance. Full costs of alternative generation are still considerably high and should not be passed on to final consumer. Due to technological limitations alternative energy sources cannot serve as reliable and consistent sources of electrical energy. On the other hand traditional sources of energy generation do not always meet ecological standards and demand considerable amounts of raw materials.

Nuclear generation is a most energy intensive sphere of power. I would explain this with an explicit example. In order to generate 1 MW hour of electricity you would need approximately 340 kg of coal, or 210 kg of oil, or 1-3 g of enriched uranium. And under calculation of yearly demand for 1000 MW generation object numbers tell stories best: 24 tons of enriched uranium against 1.7 million tons of oil, 2.7 million tons of coal or 2.4 billion m3 of natural gas.

Today, nuclear power is the only source of energy that meets all the challenges of a rapidly developing world. Nuclear power is unique because of the significantly low cost of electricity generated by it. That is why nuclear power plants may well feed the energy-hungry regions as well as provide for significant electricity exporting potential. Another proven advantage of nuclear power is its environmental friendliness. NPP’s do not emit any harmful substances in the atmosphere during their operation and they are totally free of the greenhouse gas emission. The main advantage of nuclear power is the unique and large-scale impact it has on social and economic development of the whole country.

Nuclear power is much more than just energy. When a country goes with nuclear, it is stimulating development of local industry, including civil construction and equipment manufacturing competencies. Development of nuclear power provides for creation of a large number of jobs – both on construction and operation stages – and these are also jobs created in related areas, not only at the actual NPP site.

Another important aspect is encouraging the development of sciences and education, as nuclear power is high technology, which requires qualified staff and strong scientific base. For some of countries, “nuclear” status would not only mean their own energy security, but also set conditions for change of their regional status and influence of the country mainly due to an opportunity of electricity export to neighboring countries. All in all, nuclear power plays a role of a certain driver for active development in other spheres of economy and social infrastructure.

Can you also discuss other aspects, for example, the use of nuclear energy as applied in agricultural, health and other sectors on the economy?

VP: Nuclear technologies include not only NPP construction. The peaceful atom concept manifests itself in nuclear medicine, a major area of our interest that includes nuclear imaging techniques and proton beam treatment for cancer and other diseases. Along with oncology, nuclear medical technologies can be applied in cardiology, endocrinology and neurology.

Rosatom focuses on the development of nuclear medicine – something whose use is still very limited in Russia – and collaborates with the Federal Biomedical Agency and international companies in manufacturing a wide range of products used in nuclear medicine, from isotopes to imaging equipment. In its efforts to make nuclear medicine affordable for the Russian people, Rosatom strives to be a global leader in producing the high-end materials needed in nuclear medicine. All such efforts are carried out under the Radiation Technologies umbrella programme and are coordinated by the United Corporation for Innovations.

As part of these activities, Rosatom has launched production of Molybdenum-99, an important radionuclide used for extraction of Technetium-99m generators, a key radioactive tracer with applications as a diagnostic tool. Molybdenum-99 is now available in Russia for testing purposes.

The Russian Federation Institute for Atomic Research (known as RIAR) provides a unique research platform for its highly skilled staff. RIAR is the No. 2 producer of isotopes in Russia. It offers the broadest range of products available in the country, including Iodine-131, Iodine-125, Tungsten-188, Strontium-89 (a Rhenium-188 generator), Lutetium-177, etc.

Another area of significant interest within the nuclear medicine field is the production of CT scanners and medical accelerators. Rosatom is ready to produce equipment for nuclear medicine centers, including self-engineered gamma cameras, emission scanners, cyclotrons for short-living isotopes production. This product line makes possible comprehensive fitting out PET centers.

Rosatom’s interest in innovations goes beyond the nuclear field – we are active in developing carbon fibre composite materials containing 92–99.99% of carbon. When compared to conventional construction materials (aluminium, steel, etc.), carbon fibre composites boast extremely high ratings for material strength, fatigue resistance, elasticity modulus, chemical and corrosion resistance – many times higher than the equivalent steel properties, while weighing much less. We are now able to produce carbon composites that are 10 times stronger and 5 times lighter than steel. These materials are essential in load bearing structures where it is critical to increase strength while reducing weight. Polymer composites are widely used in the aerospace, nuclear, automotive, construction, and ship building industries, as well as for the construction of bridges and pipelines.

Russia operates the world’s only nuclear icebreaker fleet and, therefore, has unique expertise in the design, construction and maintenance of such vessels. The Russian nuclear fleet consists of four icebreakers and four service ships. Nuclear icebreakers are operated by Rosatomflot, a subsidiary of Rosatom, and are used to maintain the Northern Sea Route and the North Pole floating research stations, as well as for cruises to the North Pole.

To what extent, the use of nuclear power safe and secured for Africa? What technical precautions (measures) can you suggest for ensuring nuclear security?

VP: Rosatom provides an integrated solution for emerging countries in which energy solution of generation III+ construction itself combines with our key operating principles – job creation, attracting international investments, infrastructure development and general social responsibility.

VVER technology is one of the most referential in the world (70 units were constructed). 55 VVER units in 11 countries are successfully operated (18 units are in EU). Safety and efficiency of NNPs with VVER are highly respected by expert missions of international organisations, including the IAEA.

The competitive advantages of modern Gen 3+ NPPs with VVER reactors are

– advanced reactor control and shutdown systems, with priority to safety but also providing good fuel economy;

– advanced management of radiation in normal operation: very small radioactive releases, occupational radiation doses, and radioactive waste generation;

– effective protection against external hazards (hyrricanes, flooding, seismic loads, flight accidents etc.);

– unique balance of active and passive safety systems (active systems are able to function provided that, at least, one of alternative power supplies is available; passive systems are able to function independently without power supply and also without human intervention);

– innovative features of passive safety systems;

– full set of systems needed to manage any conceivable severe nuclear accident in a way that eliminates large radioactive releases to the environment, including core catcher, passive heat removal system etc.

– modern Russian NPP projects correspond with all international, including post-Fukushima safety requirements and the IAEA safety standards;

Rosatom is the world’s only company of a complete nuclear power cycle. Rosatom may offer the complete range nuclear power products and services from nuclear fuel supply, technical services and modernization to personnel training and establishing nuclear infrastructure.

The advantages on nuclear among other things are the procurement of local suppliers to partner with Rosatom. This will have a powerful impact to the development of local businesses contributing to the country’s economy and international investment which will boost the country’s GDP. This increases the competitiveness of energy intensive industries in the country.

And cost effectiveness? Is it nuclear power really affordable for Africa? So, what’s Rosatom’s plan for future cooperation with African countries?

VP: Today the market demands offers related to the cost price of one kWh of electric power, which is essential for the consumer. Actually, the consumer is not much interested in how electrical energy is produced; the most important thing is the price. We can guarantee a certain price for electrical energy generated by NPPs built by Rosatom, since we have constructed the entire process chain: from uranium production to construction of NPPs and sale of electrical energy.

Rosatom has been purposefully creating the entire chain specifically in order to achieve this objective, for example, we have included a machine-building division into the Corporation. Now, the control of the cost of every stage of production also enables us to control and guarantee the price of electrical energy generated at nuclear power stations built by Rosatom.

One of the challenges faced nowadays by the nuclear energy sector is to ensure its competitive advantage in comparison with generation on the hydrocarbon raw materials. Today, they often say that nuclear energy is quite expensive, but this depends on calculations. It is true that NPPs are expensive to build, but the process of generation of electrical power is much cheaper in comparison with gas or coal generation. Which is most essential, it is much more predictable.

We have studied the volatility in raw materials markets in recent years, and the way the price for natural uranium and gas has been changing. The price range is quite broad in both cases. But the resulting ultimate cost of electrical energy is different, since for an NPP the share of the fuel component is only 25-30% of the operation cost, and for a gas or coal plant the share of the fuel component is 80-90%!

In this regard, the cost of production of kilowatt-hour of electric energy on the nuclear power plant is subject in the smallest way to changes in the commodity market and is most predictable for the investor and the end user.

NPP construction is a driver for active development in different spheres of economy and social infrastructure. We are ready to offer our integrated solutions. As we have already said these solutions include wide range of products and services – from uranium extraction to NPP construction, consulting national legislative and regulatory frameworks, personnel training and investment attraction.

Rosatom integrated solutions in nuclear power can be adapted to meet the client’s needs and the specifics of a given project. It is only our proposal is able to provide a guarantee of the total cost of nuclear energy during its life cycle. Regarding the financial solution, we understand the importance of this ambitious project for South Africa and the necessity of choosing the right financial model. We are ready to offer our experience in two models (EPC and BOO) and create tailor made financial solution for South Africa, taking into account the scale of the project and duration of its project. We offer strategic partnership in the development of civil nuclear industry for South Africa and other African countries.

Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.

Continue Reading
Comments

Africa

Losing The Battle: How China is Outperforming the USA in Sub-Saharan Africa

Henry Hama

Published

on

Under what conditions could the United States regain its position of strategic dominance in sub-Saharan Africa (SSA) despite increasingly reduced economic support programs as well as a limited-to-no Foreign Military Financing (FMF) grants? With the expansion of China’s economic and military cooperation activities across SSA in the last decade, the United States is increasingly becoming unpopular to much of the region. It is imperative to comprehend that China did not emerge accidentally as a global economic contender. When the United States was engaged in the “Global War Against Terror (GWAT),” following the September 11, 2001 (9/11) terrorist attacks, much of its focus was in Southwest Asia and the Middle East. Most of the West, and particularly the United States, thought SSA countries had never been strategically important enough to make the priority list of geopolitically important countries. Historically, only a handful of African countries mattered to the United States: countries such as Morocco remained important due to military and commercial vessels traversing the Straits of Gibraltar into the Alboran Sea; likewise, Egypt mattered due to the Suez Canal and the Red Sea; additionally, Djibouti has also been an important country due to the Bab al-Mandab Strait. It is reasonable to assess that the United States prioritized these countries due to their proximity to those global choke points, but they still did not constitute a serious prioritization on the part of America.

Over the past half century, following their independence from colonial powers, much of SSA has been ruled by state actors who were predominantly rent-seeking and authoritarian. This is particularly important as it demonstrates the ease with which China ventured onto the African continent and immediately established engaged relations. In an effort to satisfy its need for raw materials due to its exponential population growth and scarcity of indigenous materials, China capitalized on opportunities to perform transactional economic activities while forging new relationships and partnerships across SSA.  For many years the United States underestimated China as a potential economic competitor to reckon with, especially across Sub-Saharan Africa.  China’s economic capacity grew though “race to the bottom” approaches, whereby China flooded African and other world markets with cheaper products, taking away competitive advantage from local businesses. Additionally, while the United States was consumed with fighting two wars in Afghanistan and Iraq post-9/11, China was expanding its economic operations and military cooperation activities across SSA. Even then the US underestimated this new development in global activity, as it saw China’s expansion as unsustainable as well as an insignificant maneuver. The United States was content with its aid packages to SSA, which accounted for less than one percent of America’s Gross Domestic Product (GDP),in addition to HIV/AIDS relief programs. Unfortunately for the US, it became quickly seen at the local level that those aid packages could not come close to the stimulus investment/trade transactions China was conducting throughout SSA.

At first glance, SSA countries viewed China’s activities on the continent as primarily humanitarian in nature. In her book entitled Dead Aid, Dr. Dambisa Moyo stated that China’s African role was wider, more sophisticated, and more business-like than any other country at any time in the post-war period.  She later recanted those statements after realizing that China was in Africa to compete and not necessarily to provide humanitarian assistance. During the initial stages of China’s movement into SSA, the focus was mostly economic and infrastructure development that was also in support of China’s own domestic economic objectives. These moves are seen through China’s development of road and rail networks, which then feed into several air and seaports across the continent to ease the movement of goods inland to seas and airports across SSA. While that was ongoing, China opened its first military naval base abroad in Djibouti, a small but strategically relevant country of 800,000 inhabitants.  Djibouti is also home to several other foreign military bases abroad, including the United States, with approximately 4,500 personnel stationed at Camp Lemonnier, the Combined Joint Task Force Horn of Africa (CJTF-HOA). Other bases include those of the Japanese, Italian, Spanish, and French militaries.

China provides countries in SSA with suitable capital goods and cheap consumer goods, while those countries supply China with the commodities it needs to fuel its continued economic expansion, such as oil, iron ore, cotton, diamonds and timber. The relationship is complementary because both China and SSA gain from the mutual exchanges. The negative aspect, however, is China’s ability to undercut the market for locally-owned small businesses. China is causing a massive economic imbalance in these countries. For example, oil exports to China account for 86 to 100 percent of all oil exports from Angola, Sudan, Nigeria, and Congo. According to Kaplinsky, SSA’s exports to China were less than one percent of its exports to industrialized countries in 1990; by 2006,the same exports had risen to 11 percent.

Along with the surge in trade, China’s foreign direct investment (FDI) has increased exponentially in SSA due to resource and market considerations. The negative impacts of globalization, trade tariffs, and economic structural adjustment programs (ESAP) set by the International Monetary Fund (IMF) on indebted countries in SSA, have prompted many of these developing countries to enter into bilateral agreements with China in order to lessen their hardships. Most of the Chinese FDI in SSA are from companies that are government-owned.  Chinese FDI in SSA is higher than anywhere else in the world; it increased significantly from approximately $20 million per year in the 1990s to over $25billion by 2013. As one travels through SSA, there is high visibility of Chinese infrastructural development projects, which makes it difficult to differentiate FDI from aid.  While the United States is mostly focused on counter-terrorism initiatives and military capacity-building across SSA to counter violent extremism, neglecting economic development and self-sustenance capacity-building in the region basically reverses those former efforts. This is where China exploits the opportunity to address those American shortfalls: its activities in SSA create suitable conditions to be SSA’s preferred partner of choice over the United States.

Formal aid connections between China and SSA were initiated through the Bandung Conference in 1955. However, in October 2000, during the Forum on China-Africa Cooperation (FOCAC) in Beijing, there were agreements to enhance cooperation between China and financial institutions in Africa.  It was also during the FOCAC that China expressed its willingness to reduce Africa’s debt burden, promote investment, and assist in the development of human resources in Africa.    The superb new African Union (AU) Conference and Office Complex built by the Chinese government in Addis Ababa, Ethiopia, free of charge to the AU, demonstrates real partnership between Africa and China.  Within the past decade, China has committed over $75 billion in aid and development projects throughout Africa. Some International Relations analysts argue that beyond the need for natural resources, China’s infrastructural development projects in SSA – trade, FDI, debt relief, and the provision of medical support – are all part of China’s public diplomacy strategy to build up goodwill and international support for the future.  In essence, China has taken advantage to expand its footprint on the resource-rich continent of Africa by providing much-needed aid while developing lasting relationships with SSA that are less punitive than aid from the IMF or USA.

China’s establishment of a naval base in Djibouti, where the United States military has operated in since 2001, was a bold move. China also built and now controls Djibouti’s freight container shipping port, the Port of Doraleh, through which the United States base is resupplied. Djibouti is the only country on the African continent with a United States military base; it is also where the United States projects force into the region, targeting al-Shabab terrorist cells and activities. Obviously, the strategic construction of the Chinese naval base in Djibouti potentially threatens US military and commercial vessels traversing this global choke point, the Bab al-Mandab Strait. Other foreign countries, such as Russia and Turkey, have also expressed interest in foreign bases in Djibouti, but the Djiboutian president cannot part with the $63 million paid by the United States annually to lease Camp Lemonnier. In addition, he also collects rent from the Chinese and Italians also based in the country.

When the United States’ FMF, security cooperation and security assistance (SC/SA) in SSA were drastically reduced and in some cases terminated by the Trump administration, China viewed that as an opportunity to strengthen its military cooperation with SSA countries. Generally, SSA countries prefer American military equipment and training over those of China or Russia. However, due to human rights vetting built into US processes, equipment and training provision to the countries of SSA takes a significant amount of time. China does not have these processes and tends to deliver much faster than the United States. Even though regarded by SSA countries as of lower quality, China delivers the needed equipment and training unlike the United States, which delivers two to three years later and when the operational requirements have become outdated.

If the United States hopes to regain its dominance in SSA, it must change its paternalistic behavior towards African countries and it must regard China as true competition. The United States must discontinue rhetoric to discourage SSA countries from doing business with China, particularly when it is not presenting any alternative options. This will only alienate the United States from the very countries with which it wishes to strengthen bilateral relations.  Instead of attempting to undo progress China has made in SSA, the United States must compliment those works and find ways to build capacity across African countries and sustain those new capabilities.

Africans desire economic independence. However, that can only be achieved through aiding them in the building of their own capacities rather than just making them dependent on the US. America must continue to encourage SSA build strong governing institutions. It is imperative to understand that democracy is more conducive to economic development because of the protection and balance of these various institutions. Developing countries need an institutional framework that supports a market economy, which include distinct institutions that foster exchange by lowering transaction costs and encouraging trust as well as those that influence the state and other powerful actors to protect private property and persons rather than expropriate and subjugate them respectively. The United States must do more to differentiate itself from China and become the preferred partner of choice across sub-Saharan Africa. So far, its strategy seems to be too focused on just criticizing China’s efforts and ignoring the legitimate relationship advantage it has built over the last decade. Unfortunately for America, the time has passed where the countries of Africa automatically will choose the US over all other competitors. The longer it takes America to realize this, and adapt to it competitively, the longer it will remain an African also-ran.

Continue Reading

Africa

South Africa: Better Education & Spatial Integration Crucial for Reduced Inequality, Job Creation

MD Staff

Published

on

In an environment of accelerating but still modest growth, government policies that stimulate competition and create the fiscal space needed to build a skilled labor force from the poor population of South Africa, would create jobs and help reduce inequality, according to the South Africa Economic Update released by the World Bank today.

The World Bank expects real growth in gross domestic product (GD) to accelerate from 1.3 percent in 2017 to 1.4 percent in 2018, supported by a rise in confidence, global growth and benign inflation. For 2019, the forecast is 1.8 percent and 1.9 percent in 2020. But despite this modest rebound, growth in South Africa remains constrained and continues to lag behind its peers. Overall, South Africa is projected to remain largely below the average growth rate of 4.5 percent in 2018 and 4.7 percent in 2019 in emerging markets and developing economies.

“This outlook calls for fundamental policy action to turn the economy around through policies that can foster inclusive growth and reduce inequality,” said Paul Noumba Um, World Bank Country Director for South Africa.  “Creating labor demand and fiscal space to finance improved education as well as reinforcing spatial integration will enhance the ability of the poor people of South Africa to participate meaningfully in the economy”.

The special focus section of this 11th edition of the South Africa Economic reviews the evolution and nature of South Africa’s inequality – among the highest in the world– arguing that it has increasingly been driven by labor market developments that demand skills the country’s poor currently lack. It suggests that significantly raising South Africa’s economic potential will require breaking away from the equilibrium of low growth and high inequality in which the country has been trapped for decades, discouraging the investment needed to create jobs.

Simulations assessing the potential impact of a combination of various policy interventions on jobs, poverty, and inequality suggest a scenario in which the number of poor people could be brought down to 4.1 million by 2030, down from 10.5 million in 2017. This would be driven by increasing the skilled labor supply among poor households through improved education and spatial integration as well as increasing labor demand through strengthened competition.

In this scenario, the Gini index of inequality would be reduced from 63 today to 56 in 2030. An additional 800,000 jobs would be created with higher wages for workers from poor households, and cheaper goods and services contributing to these outcomes, according to the report.

In the short term, these policy interventions would include, getting the implementation of the recently granted free higher education right, continuing to address corruption, improving the competitiveness of strategic state-owned enterprises, restoring policy certainty in mining, further exposing South Africa’s large conglomerates to foreign competition and facilitating skilled immigration,” said Sebastien Dessus, World Bank Program Leader.

In the longer term, the report suggests that improving the quality of basic education delivered to students from poor backgrounds and reinforcing the spatial integration between economic hubs, where jobs are located, and underserviced informal settlements, would reduce poverty and inequality and support job creation.

Continue Reading

Africa

Can Insurance Help Low-Income Ethiopians Cope With Risk?

MD Staff

Published

on

Photo: Binyam Teshome / World Bank

The loss of crop or livestock as well as concerns about illness and accidents are key financial expenses on the minds of low-income Ethiopians.

Unexpected expenses associated with these issues are relatively common. A third of low-income Ethiopian households experienced at least one major health issue in the previous year, often paying for it out-of-pocket.

In rural areas, almost 50% of households experienced some agricultural loss in the previous year. For three-quarters of these households, these financial losses accounted for more than half of their income in a typical year.

Yet even though these crises affect a large number of the population, Ethiopians don’t have adequate mechanisms in place to cope with the financial hardship they bring.

“People don’t put money aside to deal with risk. Instead, they rely on cash and savings, if they have them, borrow money from family, if possible, or as a last resort, sell livestock to cope with these unexpected shocks,” said Craig Thorburn, a Lead Financial Sector Specialist with the Finance, Competitiveness and Innovation Global Practice of the World Bank Group, and the technical lead for a FIRST Initiative funded project that produced the new report What People Want: Investigating Inclusive Insurance Demand in Ethiopia.

Informally borrowing money is a common coping strategy as loans from formal financial institutions are expensive and hard to get. However, when a crisis, such as drought, affects an entire community, informally borrowing money from relatives isn’t a viable option. And selling livestock may inject rural households with quick access to cash, but this approach ultimately leaves families poorer and less resilient.

Last year, the World Bank Group conducted a demand-research study in Ethiopia to examine risks low-income households face and see whether insurance could be a tool that Ethiopians could tap into to reduce and better manage these financial burdens.

This country-wide survey reached close to 3000 households, totaling 13,000 people, from both rural and urban areas.

“Understanding the needs of underserved populations, including low-income households, is key to developing quality insurance products and expanding insurance markets,” Thorburn said. “Without this knowledge, potential insurers wouldn’t understand the real and perceived risk of this unserved market segment.”

The survey found that people had little knowledge or experience with insurance, and that 50% of surveyed households never heard of insurance. However, people expressed interest in it if insurance products were devised as accessible and inexpensive.

Ethiopians have unserved needs that could be met with affordable products they actually want.

For example, 97% of focus group participants indicated they would buy a proposed prototype crop insurance product if it were available to them, as it would allow them to replace lost income and buy inputs for the next crop cycle.

And for health-related issues, the survey found that while many people fear a high-cost illness, they could manage many basic expenses with their existing resources, with 75% reporting that they were able to fully recover from financial hardship. This indicated that a well-designed insurance product could leverage existing strategies such as savings, and provide peace of mind. Interest in a hospital cash prototype was high, with close to half of participants willing to pay an actuarially sound premium.

This openness to insurance could provide a great opportunity for insurers, particularly if they can customize and tailor their products to suit customers’ needs.

While this initial research indicates that low-income households are interested in insurance, it would require insurers, the government and other stakeholders to work together to develop insurance products that are accessible, affordable and appropriately designed for people’s needs. Other aspects related to extending the insurance market would need to be considered as well. These include adapting the regulatory framework to motivate insurers to enter this market and devise financial education programs to educate people on insurance.

“Ethiopia provides a significant opportunity for insurers to expand their businesses, the government to improve the overall stability of the low-income population, and low-income people to stabilize their economic status,” said Thorburn.

Focus group participants indicated they would be most likely to purchase insurance from formal financial institutions, such as banks or microfinance institutions, which would bring stability and financial capacity. They indicated that they would be less likely to purchase insurance through informal formal groups, such as savings and credit cooperatives or Edirs, which are well-ingrained local community-based organizations created to help cover funeral expenses.

The World Bank is working in Ethiopia to create an enabling environment for inclusive insurance.

These survey findings are part of a broader World Bank study that that looked at supporting more inclusive insurance markets in Ethiopia.

This study and the report were done jointly with MicroInsurance Centre at Milliman and EA Consultants. The study and the report were funded by the FIRST Initiative.

World Bank

Continue Reading

Latest

Newsletter

Trending

Copyright © 2018 Modern Diplomacy