Authors:
Authors: WANG Yali, WANG Ziye
Translated by: Cissy Lavandez, Ola Janus
Original article (in Chinese): HERE
Introduction
The ocean is an essential natural resource for human survival, accounting for 72% of the Earth’s total area. About 10% of the world’s population live in Low Elevation Coastal Zones (LECZ) less than 10 meters above sea level. About 40% of the global population live within 100 km of the coastline [1], and their production and living activities are closely related to the ocean.
However, due to human activities, the marine ecology and the sustainable development of the economy face severe challenges. About 90% of the world’s fish are under threat of overfishing. Over the last 100 years, the sea level has risen near 20 cm [2], and by the end of the century, it is likely to increase by one or even two meters. Once the sea level rises to two meters, it will force the migration of about a 680million people from cities and metropolises within LECZ, including cities like Shanghai, Tokyo, and New York [3].
Since the first proposal of “blue economy” at the Rio Summit in 2012, international institutions like the World Bank, the United Nations Environment Programme (UNEP), The Nature Conservancy (TNC), and the World Wildlife Fund (WWF) gradually strengthened their focus on blue finance. In the following article, we will explore the innovative use of different blue financial instruments.
The historical development of Debt for Nature Swap (DNS)
The Debt for Nature Swap (DNS) is an agreement to reduce the debt stocks of developing countries in exchange for their pledge to protecting nature. Based on the principle of voluntary exchange, creditor countries will grant debt relief to their debtors provided those countries invest the equivalent amount in ecological protection projects. This process usually requires coordination support from Non-Governmental Organizations (NGOs).
During this exchange, the insolvent developing country can reduce their debt burden and improve their environmental quality at the same time. Creditors reduce the potential losses resulting from bad debts by selling their obligations to NGOs at a discount, and NGOs complete their mission and improve the environment.
Since the first debt-for-nature agreement signed between Conservation International and Bolivia in 1987, some other governments and protection organizations have also carried out DNS agreements. Many of them are tropical countries because of their abundant biodiversity resources and fragile ecosystems that play an essential role in offsetting the global greenhouse gas emissions and need more robust protection. Since 1987, the DNS tool has attracted more than $100 million for nature conservation projects in developing countries.
Over the last two decades, DNS primarily focused on rainforest protection projects, but it gradually declined due to various reasons. In recent years, some NGOs injected new vitality into other projects through blended financing. The most remarkable example is the marine protection project conducted by TNC in the Republic of Seychelles.
The DNS innovation in the Republic of Seychelles –Study Case
The Republic of Seychelles is an archipelagic country in the Indian Ocean. Its economy is highly dependent on the marine ecosystem; Fisheries and tourism engage more than one-third of the country’s labor.
To develop first-class sustainable fisheries, Seychelles actively combats illegal fishing. At the same time, as a developing country, Seychelles is burdened with the high national debt, limiting the government’s investment in marine protection. Therefore, it was significant to explore new and effective financial instruments to help Seychelles cope with the sea-level rise, seawater acidification, and biodiversity loss.
Seychelles is the first country in the world to use DNS tools for marine protection projects. In March 2015, after three years of stakeholder consultation, the TNC announced its support for this groundbreaking agreement between the Republic of Seychelles and the Paris Club. In this agreement, the Seychelles government committed to increasing the proportion of its national marine protected area from only 0.04% of the exclusive economic zone to 30% by 2020. It will ensure that area of 410000 km2 (greater than Germany’s territory) is fully protected. In March 2020, Seychelles announced the successful implementation of the promise and currently protects 30% of the marine area [4], exceeding their initial 2020 target of 10% set in the United Nations Sustainable Development Goal 14- Conserve and sustainably use the oceans, seas, and marine resources. [5].
In 2016, under the framework of this agreement, the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT) was established to help Seychelles repay the debts of the Paris Club through a blended financing model. SeyCCAT undertakes scientific research and conducts strategic design to support Seychelles marine protection and spatial planning. By 2016, SeyCCAT purchased $21 million of Seychelles sovereign debt [6] and refinanced it with more favorable conditions, applying climate change adaptation, sustainable fisheries, marine protection, and other projects.
The project-specific process:
- SeyCCAT raised a total of $US 20.2 million through a hybrid financing model. Among them, $US 5 million came from charitable donations, and another $US 15.2 million came from the securities investment of influential investors.
2. SeyCCAT provided $US 20.2 million to the Seychelles government in the form of low-interest loans.
3. Seychelles government returned $ 20.2 million to the Paris Club, which offset its total debt of $21.6 million at a 6,5% discount.
4. The Seychelles government will repay the principal and interest to SeyCCAT in two phases. First phase: repayment of $ 15.2 million from influential investors at a 3% interest rate during ten years; the Second phase: repayment of $5 million from charitable donations at 3% interest over 20 years.
5. In the first period, SeyCCAT will repay the principal and interest to the influential investors. In the second phase, the capital and recovered interests will be re-invested in blue projects, a calculated 80 thousand per year in local currency. At the same time, the project proceeds will be directed to a newly established charitable fund. The TNC’s “debt-for-nature swap” deal received support from several public charity foundations, such as the China Global Conservation Fund of TNC (CGCF) launched by the TNC Greater China Council. At the same time, the project received help from the United Nations Development Programme, the Global Island Partnership, and multiple other stakeholders. It is estimated that the Seychelles project experience can be replicated in up to 85 countries in the world [7]; through the protection of oceans and developing a more resilient economy, we can open up channels for a global marine protection
Seychelles DNS innovative case-lessons learned:
1.The Seychelles innovative case improves the replicability of the DNS scheme. Under the lobbying and coordination of NGOs, intergovernmental organizations, and international institutions, through debt restructuring and blended financing, this case inserted vitality into the long-standing DNS tools, effectively reduced the traditional DNS financing costs, and increased the channels for social capital participation.
2. The innovative application of DNS to promote marine protection is a win-win solution. It enables a profitable exchange for the three parties involved. At the same time, it solves two problems of debt and environmental crisis. Developing and least developed countries face a shortage of capital and destruction of the natural environment, potentially threatening the creditor’s interests. It can result in bad debts that could quickly influence the stability of the financial market.
3. DNS tools are especially suitable for blue economy projects. Since ocean-related issues usually involve sovereignty, it is difficult for the governments of developed countries to participate directly in the technical assistance or project development of the least developed island countries. In this sense, DNS tools can guide the resources of developed countries to less-developed areas. With the intervention of NGOs, the local capacity building is expected to improve.
4. This innovative use of DNS has special significance in the context of the current global health and economic crisis. Some countries in underdeveloped areas are particularly vulnerable to the epidemic; with their inability to invest in anti-epidemic medical services, their high foreign debts become unbearable, which increases the bad debt risks for creditor countries. Additionally, in this era of economic globalization, if one country’s epidemic situation is not relieved, the security of other countries might be affected. This innovative use of DNS tools could reduce the debt burden and help them accumulate resources to fight the epidemic and stimulate the local economy after the epidemic.
References:
[1]Ocean Conference (2017). https://www.un.org/sustainabledevelopment/wp-content/uploads/2017/05/Ocean-fact-sheet-package.pdf, New York, United States
[2]海因里希•伯尔基金会石勒苏益格-荷尔斯泰因州分会. 海洋地图集.. https://cn.boell.org/sites/default/files/boe_meeresatlas_innenteil_ch.pdf
[3]腾讯网. 联合国警告：80年后海平面或将上升2米，上海纽约或将淹没. https://new.qq.com/omn/20190928/20190928A00KY200.html
[4]TNC(2020)塞舌尔实现将海洋保护面积提高到30%的承诺. https://mp.weixin.qq.com/s/7c99nuBzyoDEkKs7NB_qQg
[5]UN. Sustainable Development Goals. https://www.un.org/sustainabledevelopment/oceans/
[6]PND(2015)Nature Conservancy Debt Swap to Finance Conservation in Seychelles. https://philanthropynewsdigest.org/news/nature-conservancy-debt-swap-to-finance-conservation-in-seychelles
[7]TNC（2020）塞舌尔实现将海洋保护面积提高到30%的承诺. https://mp.weixin.qq.com/s/7c99nuBzyoDEkKs7NB_qQg
[8]Oxford(2020) Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change? https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf