Leveraging innovative finance for Caribbean Blue Economy growth

November 15, 2018


Adopting a “blue economy” approach could help usher in a new Development paradigm for the Caribbean.   Photo: UNDP Haiti/Pierre M. Jean

One of the more recent terms emerging from the kaleidoscope of colored economies (brown, black, orange) is the ‘Blue Economy’. While it may seem like following on the latest buzz of the development community, there are very tangible advantages for small islands to pivot their national development strategy towards the sustainable use of the ocean. In this 2-part blog series, we first introduce the concept and its advantages, then we discuss innovative financing mechanisms that can be used to direct investment to the sector.

A 4-Point Policy Checklist for Diving Deeper into the Blue Economy -
The earth’s oceans have been described as the last economic ‘frontier’. Globally, ocean-based activities generated over US$1.5 trillion in economic output in 2010 and were directly responsible for over 31 million jobs, primarily in fisheries, tourism, off-shore oil and gas exploration and port activities. By 2030, on current trajectories, the ocean’s value added is expected to rise to US$3 trillion, and associated employment to over 40 million. However, the state of the world’s oceans and seas threatens these benefits. Climate change, pollution and overfishing pose significant threats to the sustainability of the oceans and the economic rents they could provide. For small island states where the ocean’s role as a source of subsistence and income is magnified, business as usual cannot continue.

What can we do differently? How can Caribbean countries more effectively leverage their ocean and coastal assets for economic and social development, while protecting these assets? This is the topic of the research paper, “Financing the Blue Economy: A Caribbean Development Opportunity,” produced jointly by the Caribbean Development Bank (CDB) and United Nations Development Programme (UNDP).

Adopting a “blue economy” approach (in which the economic value of marine assets is maximized while the health of marine and coastal ecosystems is protected) could help usher in a new development paradigm for the Caribbean. The paper proposes four key sectors for highly targeted interventions over the coming years: fisheries and aquaculture, tourism, renewable marine energy, and marine transport. What does this imply in practice? And crucially, what can Caribbean policy-makers and the international community do to create an environment where the blue economy can thrive? Here are four ways:

1. Proactively manage coastal and marine resources

The absence of a strong policy framework for managing coastal and ocean resources, and weak enforcement of existing legislation have hindered expansion of the blue economy. Smart, integrated coastal management considers the long-term sustainability of economic activities, ensuring that growth in one sector does not diminish the long-term viability of other sectors. Plans to grow the blue economy should involve strategies to protect the marine space and to tangibly share dividends with coastal communities. Grenada leads the region with its Blue Growth Coastal Master Plan and the associated Integrated Coastal Zone Management Policy.

2. De-Risk (climate-smart) blue investments

In the blue economy space, challenges associated with small markets and infrastructural deficiencies are compounded by higher risks associated with investing in coastal and ocean assets that are directly threatened by environmental degradation and climate change. These lead to elevated financing costs. Policymakers can put in place a package of targeted public interventions to address risks and there by reduce financing costs. These interventions include strategies to reduce risk (e.g. through better renewable energy policy design, institutional capacity building); strategies to transfer risk (e.g. through loan guarantees issued by public development banks); or strategies to compensate for risk (e.g. through price premiums). UNDP’s ‘Derisking Renewable Energy Investment’ framework assists policymakers to implement a different mix of policy and financial instruments so as to address renewable energy investment risks and cost-effectively achieve a risk- return profile that catalyzes private sector investment at-scale.

3. Improve the ease of Doing Business in the Blue Economy

On average, CDB’s borrowing member countries rank 123 out of the 190 countries in the World Bank’s 2018 Ease of Doing Business Index. In many states, entrepreneurs have to contend with difficulties accessing credit, registering property, enforcing contracts, and realizing cross-border trade, among other things. As in other economic sectors, this hampers economic diversification and also domestic and foreign investment in the blue economy. Implementing policies to improve the ease of establishing and operating businesses in the blue economy will be vital to simulate private sector-led growth, investment, and employment. Such policies may include reducing the cost and the administrative and legal processes for establishing and financing new businesses; introducing tax incentives for businesses that help to build coastal resilience; and liberalizing certain markets (e.g., marine passenger transport).

4. Collaborate Regionally to Sustainably Exploit our Shared Space

The Caribbean’s ocean resources are shared and activities within one country’s exclusive economic zone can have significant impacts on the health and value of resources in the marine space of its neighbours. Both domestically and regionally, public rights of access and shared benefit of the coasts and oceans introduce another layer of complexity that needs to be addressed in countries’ blue economy development strategies. A regional approach is critical to develop a cohesive and effective strategy to sustainably exploit these resources. The Organization of Eastern Caribbean States (OECS) and World Bank are implementing a Caribbean Regional Ocean Policy to facilitate co-operation for transitioning to a blue economy. The CDB/UNDP paper also advocates for a regional policy approach to ensure maximum benefits are achieved and shared across the region. Beyond these policy strategies, one of the major difficulties rests in determining how to scale-up early investments in key blue economy sectors in a context in which fiscal space is severely constrained, public debt is elevated and aid resources are limited. Cash-strapped Caribbean governments still have to think creatively about how new investment can be catalyzed, especially from the private sector, and how aid resources could be more strategically ‘blended’ with private sector investment. Look out for part two of this blog, where we will delve more into financing strategies for blue economy initiative.

Source: Justin Ram, Caribbean Development Bank and Gail Hurley, Development Finance, UNDP

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