The impact of foreign direct Investment on the development of weather index insurance for low-income farmers in Southern Africa

Mathithibane, Mpho Steve (2021): The impact of foreign direct Investment on the development of weather index insurance for low-income farmers in Southern Africa.

Abstract

This paper investigates the effect of Foreign Direct Investment (FDI) on the growth of agricultural insurance markets for low-income farmers in Southern Africa for the period 2010 to 2020. Agricultural insurance products for low-income farmers are typically based on weather index insurance contracts. These insurance contracts are cost-effective responses to uninsured agricultural risk in developing economies, and are often considered part of effective ex-ante climate change adaptation strategies. The approach followed in this paper is to assess the extent of FDI transactional flows based on a literature review of past and present pilots as well as market-based weather index insurance schemes. The findings revealed that FDI is relatively low to support weather index insurance development and there exists massive scale for expansion and economic growth opportunities. The study advocates for an improved policy environment with a focus on increasing agricultural productivity among low-income farmers while promoting parallel climate change mitigation strategies, this is likely to have spill-over effects on the acceleration and development of appropriate insurance solutions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign Direct Investment, weather index insurance, Southern African Development Community, Southern African.
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q14 - Agricultural Finance

References

Benin, S., Kennedy, A., Lambert, M., & McBride, L. (2010). Monitoring African agricultural development processes and performance: A comparative analysis. ReSAKSS annual trends and outlook report.

Born, L., Spillane, C., & Murray, U. (2018). Integrating gender into index-based agricultural insurance: a focus on South Africa. Development in Practice. Routledge Taylor & Francis Group.

Chakoma, I.C., & Chummun B.Z. (2019). Forage seed value chain analysis in a subhumid region of Zimbabwe: perspectives of smallholder producers. African Journal of Range and Forage Science, 36(2): 1-10.

Chummun, B.Z., & Ojah, K. (2016). Aggregate savings and financial inclusion: lessons for developing African economies. Africagrowth Agenda, 2016(07): 4-9.

Chummun, B.Z., & Bisschoff, C.A. (2014). A perspective of microinsurance (MI): The case of South Africa. Mediterranean Journal of Social Sciences, 5(23): 63-71.

Di Marcantonio, F., & Kayitakire, F. (2017). Review of Pilot Projects on Index-Based Insurance in Africa: Insights and Lessons Learned. In Renewing Local Planning to Face Climate Change in the Tropics (pp. 323-341). Springer, Cham.

FAO. (2017). The future of food and agriculture: Trends and challenges. Rome: Food and Agriculture Organization of the United Nations.

FAO. (2018). e-Agriculture Good Practice ZFU EcoFarmer Combo. Rome: Food and Agriculture Organization of the United Nations.

GIIF. (2018). Kenya. Global Index Insurance Facility. Retrieved: https://www.indexinsuranceforum.org/pdf-reader/59/2185.

GIIF. (2020). GIIF in Mozambique: Advancing Agriculture Insurance with Hollard Mozambique. Retrieved from: https://www.indexinsuranceforum.org/news/giif-mozambique-advancing-agriculture-insurance-hollard-mozambique.

GIZ. (2017). ZFU Ecofarmer Combo - A partnership between Mercy Corps, EcoFarmer (Econet), and the Zimbabwe Farmers Union. Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. Retrieved from: https://cdn.indexinsuranceforum.org/sites/default/files/Current_Factsheet_19%20Mercy%20Corps_Zimbabwe_WEB_23072018.pdf.

Mahembe, E., & Odhiambo, N.M. (2013). The dynamics of foreign direct investment in SADC countries: experiences from five middle-income economies. Problems and Perspectives in Management, 11(4): 35-45.

Markowitz, C. (2020). FDI trends in SADC: Implications for value chains, industrialisation and inclusive Growth. Occasional Paper 306. Southern African Institute of International Affairs.

Mookerjee, A. (2016). Support agencies promoting weather based insurance schemes for smallholder farmers” in Uganda and Zambia. Johannesburg: Food Agriculture and Natural Resources Policy Analysis Network.

Musakwa, M.T., & Odhiambo, N.M. (2019). Foreign Direct Investment dynamics in South Africa: Reforms, trends and challenges. Studia Universitatis “Vasile Goldis” Arad. Economics Series, 29(2): 33 – 53.

NCBA CLUSA. (2016). NCBA CLUSA among USAID-Funded “Partners for Innovation” in Mozambique. Retrieved from: https://ncbaclusa.coop/blog/ncba-clusa-among-usaid-funded-partners-for-innovation-in-mozambique/.

Osumba, J., & Recha, J. (2019). Scoping study brief-State of index-based crop insurance services in East Africa. Retrieved from: https://snv.org/cms/sites/default/files/explore/download/ccafs_briefing_paper_-_index-based_crop_insurance.pdf.

R4 Rural Resilience Initiative. (2020). Annual report: January – December 2019. https://docs.wfp.org/api/documents/WFP-0000115140/download/.

Rashid, I.M.A., Bakar, N.A. and Razak, N.A.A. (2016). Determinants of Foreign Direct Investment (FDI) in agriculture sector based on selected high-income developing economies in OIC countries: An empirical study on the provincial panel data by using stata, 2003-2012. Advances in Economics and Business, 4(9): 477-481.

SADC. (2020a). Demographics and Social Statistics 2019. Gaborone: Southern African Development Community.

SADC. (2020b). SADC Selected Economic and Social Indicators 2019, Gaborone: Southern African Development Community.

SAIA. (2020). Annual review. Johannesburg: South African Insurance Association.

Santpoort, R. (2018). The drivers of maize area expansion in Sub-Saharan Africa. How policies to boost maize production overlook the interests of smallholder farmers. Land, 9(68): 1 – 13.

Smeulders, S. (2021). Weather index insurance enhances the resilience of Zambian farmers. Retrieved from: https://zambia.un.org/en/111989-weather-index-insurance-enhances-resilience-zambian-farmers.

UNCTAD. (2020). Investment trends monitor. Global FDI flows flat in 2019 moderate increase expected in 2020. Geneva: The United Nations Conference on Trade and Development.

World Bank. (2017). Agriculture and climate risk enterprise: Kilimo Salama - Kenya, Rwanda, Tanzania (English). Global Index Insurance Facility (GIIF) partner profile. Washington, D.C.: World Bank Group.