A conversation with Arınç Onat Kılıç
Andre Standing, senior consultant at CFFA, discusses with Arınç Onat Kılıç, who has recently published a paper exploring the Seychelles Blue Bond and the broader implications of private finance for developing the blue economy. Arınç is a doctoral researcher in law at the University of Antwerp, Belgium. His research delves into the socio-legal dimensions of blue bond models, investigating their implications as carriers of ecological modernization. In this conversation, Andre and Arınç look at the Blue Bond deal from the perspective of local fishing communities.
AS: In your paper on the Seychelles blue bond you highlighted some concerns about these bonds for small scale fisheries we have been discussing at CFFA. Can you summarise how the blue bond works?
AOK: The focus of my work is to consider how private finance through blue bonds affects local communities. In the case of Seychelles, this deal happened in 2018. The Seychelles government issued a blue bond valued at 15 million dollars. This is a loan they raised from private investors with the idea that the money would be used to promote a sustainable blue economy and improve the environmental impact of fisheries in Seychelles. The interest on the loan is over 6.5%, and the government will have to pay back the 15 million in three equal instalments in 2026, 2027 and 2028. Of that 15 million, 3 million has been transferred to an NGO in Seychelles called SeyCCAT {the Seychelles Conservation and Climate Adaption Trust}. They use these funds to provide grants to other organisations for work on marine conservation and the creation of marine protected areas, in addition to innovation for sustainable business models. The remaining 12 million is managed by the Seychelles Development Bank through what is called the Blue Investment Fund which issues loans for businesses in the fisheries sector.
AS: It is quite a profitable transaction for investors. A 10-year bond at 6.5% provides investors with about 9.5 million dollars in dividends... In understanding how the blue bond works, I think it can be confusing to distinguish it from the ‘debt swap’ that happened in 2015.
AOK: Yes, the blue bond is separate from the debt swap. That debt swap was managed by The Nature Conservancy and led to the creation of SeyCCAT. The Blue Bond happened in 2018 and was planned as part of the six-year SWIOFish3 project financed by the World Bank. To help issue this Blue Bond, the World Bank provided a credit guarantee for the government of Seychelles, which they needed to attract foreign investors. The Global Environment Facility also supported the Blue Bond by providing a concessional loan of 5 million dollars to the Seychelles, which is used to help cover the costs of payments owed to foreign investors in the Blue Bond. The Rockefeller Institute from the US also provided a grant of about 425,000 dollars to cover the government’s costs of issuing the blue bond. So, it was a different structure from the debt swap led by TNC.
“The Seychelles Blue Bond is separate from the debt swap: it was issued in 2018 as part of a project by the World Bank, which provided a credit guarantee for the government. The Seychelles could not afford to raise a blue bond without the World Bank’s and other donors’ financial support. It is an expensive deal.”
AS: It is an interesting point that the justification for the debt swap was to help lower the debt of Seychelles to free up money for marine conservation, but then a few years later, Seychelles borrowed money from foreign investors for the same– which means it has increased its debts to foreign creditors. It does not seem like a coherent strategy to me... I also believe that the World Bank identified three asset management firms in Europe and the US to buy the Seychelles Blue Bond. So, there was no public offering of the blue bond.
AOK: Yes, this was a private offering, so the blue bond was not open to other investors. This also meant the documentation was confidential, and the prospectus of the blue bond was not made public.
AS: The Seychelles blue bond is often presented as an example of the private sector investing in sustainable blue economies, showcasing the potential of private finance. However, it was heavily subsidised. What is your thought on that?
AOK: The Seychelles could not afford to raise a blue bond without the World Bank's and other donors' financial support. It is an expensive deal. So, you are correct – this is not a good example of the private sector financing the blue economy. There was a need to assure the private investors of their financial return with blended financing arrangements. I guess we know that without the intervention of the World Bank, private investors would not have just financed Seychelles’ blue bond out of goodwill, right? Still, the World Bank was ambitious about using the Seychelles as a trial to introduce the blue bond concept to the market.
AS: This suggests that the World Bank needed a country such as Seychelles to showcase the blue bond concept. It also shows that increasing private finance for marine conservation diverts other funds, such as philanthropic grants, which otherwise could have been spent directly on projects aimed at conservation and small-scale fisheries. I wonder whether it would have made more sense for the GEF and the Rockefeller Institute to just give the money directly to the Seychelles government without linking it to a complex financial deal that rewards foreign investors.
Another aspect is access to information. Can you tell me how you researched the blue bond and what your experience was on this?
AOK: I spent two months in the Seychelles, speaking with various government officials, NGOs, and people from the fisheries sector. I conducted about 20 interviews. One of the things that I found is that when the blue bond was being negotiated, many people outside of government, including from the fishing sector, did not have the space to be part of the planning and were confused about the deal's structure.
AS: That seems to be a recurring theme when looking at these so-called innovative financial instruments. Were you able to get a copy of the blue bond contract signed by the government and the investors?
AOK: I tried, but it is not available to the public. I asked the SWIOFish3 project and the ministries involved in the process in the Seychelles, but I was told it is a private agreement. There has been this problem with a lack of transparency, which is also reflected in the lack of public participation. You know, the Seychelles borrowed this money to upgrade the fisheries sector, but the fisheries sector and local fishers were not involved in the process.
AS: In your paper, you describe what the purpose of the Blue Investment Fund is, including its relationship to marine protected areas in Seychelles. You refer to this as ‘ecological restructuring’. Can you summarise what that means?
“The “ecological restructuring” in the Seychelles will restrict fishing for local fishers. This is why 12 millions of the blue bond were set aside to help the fishing sector, but 75% of the funds have not yet been used: fishers are concerned about the high interest rates of the loans.”
AOK: The blue bond forms part of a bigger government project to make fisheries sustainable and make this a profitable opportunity to increase economic growth. What the government of the Seychelles has committed to, in parallel, is an increase in the coverage of its marine protected area. It is well recognised in the Seychelles that this will restrict fishing for local fishers. So, the largest part of the blue bond – the 12 million – is intended to be used to help the fishing sector become more profitable given that fishers were losing some of their traditional fishing grounds.
AS: It is a good example of how the commitment to increase the coverage of marine protected areas can threaten the livelihoods of small-scale fishers. In your research, you scrutinise what has happened with the money from this deal. So often, international coverage of these deals celebrates the amount of money raised without asking how this money will be used and with what impact. What has happened so far? Has it really helped the fishing sector become more profitable?
AOK: Well, I think the 3 million that was administered as grants in the Seychelles seems to have been helpful. This is the perception of the local NGOs and government officials. But the problem has been with the other 12 million. Since the Development Bank of Seychelles has offered loans to the fisheries sector, only one company has successfully applied for one. That was for 2.8 million, and it was used by an existing fish processing company to expand and upgrade its facilities. So, 9 million has not been used at all. The loans are not accessible to small-scale fishers. This is partly because the World Bank required loans to meet strict environmental and social safeguards and because applicants have to show existing capital reserves of at least 10%. Also, many fishers are worried about getting into more debt. Most of them do not even have a bank account. The blue bond has been an attempt at financial inclusion of local fishers, but their life is different than what the foreign investors would imagine. Overall, the local fishing sector is concerned about the high interest rates of the loans, which is 4%, and the bureaucratic process is just too burdensome. The approach to administering the blue bond makes sense from the perspective of technocrats from the US, but it does not make sense in the context of the Seychelles. There is a huge gap between the design of the financial mechanism and the reality of the local fisheries.
AS: So, to summarize: although the design of the blue bond was to help increase the incomes of fishers who have lost access to traditional fishing grounds, that does not seem to be working. From what you describe, it is hard to see how this blue bond has helped the economic growth of Seychelles, either. Why did the Seychelles choose this approach to administering the proceeds of the blue bond?
“The approach to administering the blue bond makes sense from the perspective of technocrats from the US, but it does not make sense in the context of the Seychelles. There is a huge gap between the design of the financial mechanism and the reality of the local fisheries.”
AOK: There were other plans to use the money. The original plan was to invest in a pipeline of projects that would operate in the new ports. However, that was an idea of the previous government. In 2020, there were national elections and a new government was elected. So, the plan for the new port development projects changed. Additionally, there are people in government now who realise that the Blue Investment Fund is not working well, and there is an appetite to use the money for other spending, such as on marine renewable energy. The problem is that the government cannot renegotiate the terms of the blue bond contract due to high financial costs. Remember that negotiating the blue bond in the first place took a lot of time, and it needed a grant of 425,000 dollars to happen. If the government wants to use the money for something else, there are liabilities and financial consequences. Using the funds for purposes other than the bond agreement could mean they lose the credit guarantee provided by the World Bank. The government is now stuck with these funds that could benefit the local fisheries in many other ways.
AS: In your paper, you discuss the fears about how the blue loan facility might affect local fishers, but you also talk about alternative ideas for the use of the money.
AOK: People I interviewed in the Seychelles fishing sector describe a lack of thinking about the impact of the Blue Investment Fund. If it increases the capacity of fish processing companies geared towards export, then it could negatively impact small-scale fishers and local food security. It could also increase pressure for more fishing. There is also concern about the impact this might have on the stability of fish prices. However, there are also alternative suggestions by the fisheries associations for using the money in ways that benefit them. For example, establishing a cooperative or a central fish market where the price of fish could be stabilised and made more reliable for both the fishers and customers.
AS: In your paper, you make a point that the blue bond prioritises commercial activities that produce economic growth over the interests of most of the fishers in the Seychelles. Where marine conservation and sustainable fisheries funding is based on interest-baring loans, the money will end up invested in companies that can provide surplus profits. If fishers engage with these schemes, they are also exposed to the risks of unsustainable debt.
AOK: Indeed. The expansion of debt is really important to understand in these financial mechanisms as it changes the relationships between groups. Especially seen from the point of financial inclusion, the fishers’ way of life changes via debt. If we see sustainability as a matter of public provision, this would mean that there would be more public investments addressing the needs of the local fishers and their alternative proposals. In this scenario, they are beneficiaries of public services during the transition to sustainable fisheries. But lending them money so that they would create more GDP in the name of sustainable transition is a whole different case. This type of financial inclusion integrates them into different commercial dynamics where they have to see their work as a business activity that needs to grow in the future to be able to repay the debt. Local fisheries have already addressed the dangers of focusing on export-oriented business models. This type of discourse that makes sustainability a profitable opportunity only for those who can bear its costs is not in line with the progressive realisation of the socio-economic rights of fishers and, overall, with the Guidelines to Secure Sustainable Small-scale Fisheries.
“This type of “financial inclusion” changes the fishers’ way of life via debt expansion. It also calls them to create more GDP in the name of sustainable transition. However, a discourse that makes sustainability a profitable opportunity only for those who can bear the costs is not in line with the Guidelines to Secure Sustainable Small-scale Fisheries. ”
AS: One of the points you make in your paper is that the Seychellois government resents having to borrow money at high interest rates from international creditors to fund marine conservation, given all the broken pledges made by Northern countries to support Southern countries in tackling the climate crisis. Since the estimation is that billions of dollars are needed to protect the oceans, if blue bonds become a popular way to fund this, it will transfer considerable wealth from the South to the North.
AOK: I think this is very often what is missing in these conversations, the fact that island nations should pay a cost -the interest- to be able to finance their adaptation to the changing climate. And that private finance should be rewarded - with the interest rate again - for taking the risk of lending money for such purposes. We take this reality very much for granted now but, in fact, it is not in line with the common but differentiated responsibilities, a principle that is supposed to guide climate finance. But as we have seen in recent developments, wealthy countries who are most responsible for biodiversity degradation across marine ecosystems escape their obligations.
These private financing arrangements should be read in this context. There is so much frustration in island states, who realise the risks of becoming more and more indebted for the conditions that they have not caused. Of course, this is a perfect business opportunity for foreign investors, even if they are genuinely looking to create a positive environmental impact.
AS: Your research also highlights the idea of a funding gap. So many organisations assume that the transition towards a sustainable economy needs a huge amount of money to be spent. That is the underlying logic of encouraging countries like the Seychelles to borrow money from foreign investors. But your research provides a good insight into why this is not only superficial but also why increasing private finance comes with considerable dangers, including expanding indebtedness.
I believe you are off to Belize soon to research the blue bond and debt swap there. We shall follow your work closely!
AOK: Thank you very much for being interested in my research! I very much hope that this interview will make the research results more accessible to people who are working in the field and small-scale fishing organisations.
Banner photo by Paweł Wielądek.
Closing the funding gap for biodiversity conservation is one of the critical topics at the 16th Conference of the Parties (COP 16) to the UN Convention on Biological Diversity (CBD), hosted in Colombia in October 2024. The funding gap has been estimated at $700 billion in Goal D of the Kunming-Montreal Agreement, based on a report, “Financing Nature”, published in 2020. Taking the example of fisheries and ocean conservation, this article shows the $700 billion figure is based on highly dubious calculations and assumptions. The author argues the funding gap report is not a serious effort to estimate the needs for supporting conservation efforts. Instead, it is a performative publication marketing opportunities for private investment and market-based mechanisms. Therefore, the $700 billion figure should be rejected by those opposed to the continuing financialisation of conservation.