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The 'Blue Economy' and its vast potential
MANY investors are fascinated by the allure of the Blue Economy which aims to harness - potentially - trillions of dollars of the assets of the oceans, while its spin-off idea of Blue Bonds is making a splashy start.
The World Wildlife Fund believes that the value of the oceans' assets is over US$24 trillion, and while fisheries are now overexploited, there is still plenty of space in other sectors of the blue economy, such as renewable energy, biotechnology, maritime transport, waste management, tourism and climate change.
The global blue economy, which makes use of the oceans' resources, is expected to grow at twice the rate of the mainstream economy by 2030, according to the European Commission.
The oceans contribute US$1.5 trillion a year in value-added to the global economy, according to the Organisation for Economic Cooperation and Development. Fisheries and aquaculture provide direct or indirect employment to 10 to 12 per cent of the world's population, with more than 90 per cent of those employed located in developing countries.
Here is where the global financial markets come in. The island-nation of Seychelles is finalising the launch of the world's first blue bond that was approved last year, with the World Bank providing backing with a US$20 million package for the conservation of marine resources and to expand fisheries in the Seychelles. HSBC analysts expect blue bonds to perform well.
The World Bank's blue economy portfolio is worth US$3.7 billion, which breaks up into US$1.1 billion in financing for sustainable fisheries and aquaculture, and US$1.5 billion for efforts to conserve and improve coastal and ocean habitats.
It is expected that funds for blue bonds raised through global capital markets may deliver the promised trifecta of benefits: it is good for the environment, good for the developing world, and good for investors.
The US-based firm, NatureVest, set up by JP Morgan and The Nature Conservation to leverage private capital for conservation, believes that in 10 years, it will sell US$1 billion worth of blue bonds.
The blue economy will potentially benefit not just the Small Island Developing States (SIDS) such as the Seychelles, and Least Developed Countries (LDCs), but also the major economies. In his book, The Blue Economy: 10 years, 100 innovations, 100 million jobs, Gunter Pauli explains that a "Blue Economy business model" will shift society from scarcity to abundance with what is locally available, by tackling issues that cause environmental and related problems in new ways.
The concept was discussed at the United Nations' Conference on Sustainable Development in Rio in 2012 where the SIDS declared that the green economy had very little relevance for them, and instead they wanted a "Green Economy in a Blue World".
Last month, the World Bank launched a Sustainable Development Bond series which aims to heighten awareness of the critical role of water and ocean resources. The bonds expect to raise at least US$3 billion and will provide investors with an opportunity to support the World Bank's Sustainable Development Goals (SDGs) that address water, sanitation and marine protection.
If the World Bank's trials with blue bonds are successful, it will demonstrate that both debt swaps and blue bonds can offer significant new blue financing potential for SIDS and coastal LDCs.
So far, there has been little activity apart from the US$20 million bond in the Seychelles, which is being watched with interest.
A recent Euromoney article explained that some debt financiers had expressed doubt that the Seychelles bond could be easily replicated because of its unique circumstances and small scale. Yet, they believe that blue bonds have the potential to engage a large investor base if the size of such bonds can reach around US$50 million to US$100 million, or more.
For its part, the World Bank declared in a report issued last year that the blue economy was relevant to all countries.
In a short time, the European Union has marched ahead of other regions. The European blue economy employed 3.3 million people in 2014. The United States is still planning for it, but at an advanced stage, and Asia's vision is still on the drawing board.
The European Commission is searching for entrepreneurs who are active in the blue economy. The commission hosted BlueInvest 2018 - the first European event of its kind aimed at attracting investors - in May this year in Brussels.
The European blue economy is already significant. The European Commission estimates that it accounted for over five million jobs in 2012 and a gross value-added of around 500 billion euros (S$798 billion) per year. It also encompasses a large number of the EU population with an estimated 40 per cent of the people living within 50 kilometres from the sea.
With Europe adopting the blue growth strategy in 2012, the European Commission launched a policy of promoting the key economic sectors of the blue economy and simultaneously managing sustainable ecosystems.
The blue economy is drawing attention in North America. More than 20 clusters of firms focused on the Blue Economy and blue technology have formed in the US and Canada.
Asia, however, is lagging behind in developing its blue economy. The concept is only about a decade old but it will enable countries to find new sources of food security, new medical breakthroughs and clean blue energy.
Asian countries began looking seriously at the blue economy at a forum in New Delhi in July this year. At the event, the Secretary (East) of India's Ministry of External Affairs, Preeti Saran, affirmed that India would allocate US$190 billion to build connectivity between its seaports and 27 new economic development areas in the next decade. She invited Asean countries to join the project and participate in coastal special economic zones, investment consultation, maritime transportation and tourism.
India is employing remote sensing technology to support its blue economy via weather and disaster forecasting, marine environment protection, and identifying waters suitable for fishing and tourism.
At the same event, the Vietnamese ambassador to India, Ton Sinh Thanh, urged delegates to create specific proposals to foster blue economy cooperation within the Asean-India strategic partnership framework. For its part, Vietnam is taking steps to develop its blue economy by strengthening coastal management, curbing illegal fishing, improving the lives of fishermen by creating jobs, reducing poverty and ensuring social equality.
The Seychelles blue bonds have shown Africa's ability to innovate. It is time that Asia takes up the challenge and tap the vast ocean of resources.
- The writer is the editor-in-chief of The Calcutta Journal of Global Affairs.