OPERATIONAL BRIEF Financing Options and Instruments BLUE ECONOMY FOR RESILIENT AFRICA PROGRAM © 2022 The World Bank Group 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000 | Internet: www.worldbank.org Acknowledgments This work is a product of the staff of The World Bank Group with external contributions. “The World Bank Group” refers to the legally separate organizations of the International Bank for Reconstruction and Development (IBRD), This brief was written by Peter Kristensen (Lead Environmental In addition, the team received incisive and helpful advice, the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Specialist), Sylvia Michele Diez (PROBLUE Program Manager), input, and comments from World Bank colleagues, including Investment Guarantee Agency (MIGA). 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BLUE ECONOMY FOR RESILIENT AFRICA PROGRAM I 1 About the Blue Economy for Resilient Africa Program The Blue Economy generated nearly US$300 billion for the Key Messages African continent in 2018, creating 49 million jobs in the process. These and other crucial benefits—most notably food security, livelihoods, biodiversity, and resilience to the effects of climate change—are entirely dependent on the health and productivity of coastal and marine areas. By safeguarding productive coastal landscapes, countries will be in a better position to Fully implementing a Blue Economy approach in Africa requires take full advantage of future Blue Economy opportunities, which range from sustainable scaling up the financial resources available. blue energy to aquaculture to blue carbon. The World Bank’s Blue Economy for Resilient Africa Program, announced at COP27, will provide multisectoral analytical, financial, and policy support to Africa’s coastal countries African nations need to spend as effectively as possible the and island states to help them leverage the opportunities—and manage the risks—inherent limited resources available to them by leveraging coordination and in scaling up their Blue Economies. sustainability.  About this series of briefs Many African countries would also benefit from accessing the World Bank’s full range of finance instruments, which spans grant financing, debt, and equity financing. Technical assistance or grant financing is often required to undertake the analytics and diagnostics needed to The Blue Solutions for Africa series of operational briefs identify policy improvements. captures how a thriving Blue Economy can help African countries better manage the development challenges they face while supporting economic growth, sustainable The private sector has an important role to play in livelihoods, and the health of these precious ecosystems. developing Africa’s Blue Economy. Several financial instruments can encourage partnership with the private sector, each of which have a different THE BRIEFS COVER THE FOLLOWING THEMATIC AREAS purpose with different requirements. • Climate change • Data management and knowledge creation The World Bank is available to help countries • Coastal and marine with mobilizing capital for investments. It also biodiversity and habitats • Innovative financing provides technical support and learning from its instruments • Sustainable fisheries portfolio of more than US$7 billion of ongoing • Developing and incentivizing investments in oceanic and ocean-related sectors. • Marine pollution institutions • Jobs and livelihoods © Shutterstock • New frontiers of innovation • Participatory marine © Dominic Chavez / World Bank spatial planning Building stronger river banks along the Nile river to protect it from erosion. © Freepik BLUE ECONOMY FOR RESILIENT AFRICA PROGRAM I 3 Introduction Africa’s coastal and marine areas face growing challenges. Protecting the continent’s natural assets and the services they provide is not just a moral imperative; it is also a chance to obtain higher economic yield by, for example, adding value to fish products in Mauritania, using mangroves as shield for rice paddies from storm surges in The Challenge Guinea, using clean coastal environment for tourism, as in Senegal, and generating new jobs by moving from destructive to productive practices, so enabling countries to access to blue carbon finance. To realize this potential, African countries need access to finance that spans grant financing, debt relief, and Despite wide acknowledgement of their equity financing. As a range of financing instruments are made available, there is a need to shift from separate, isolated investments in individual sectors to a more integrated, holistic “ridge to reef” approach. There is a need importance to global development and for cohesive, systematic management of marine and coastal areas. environmental health, the world’s oceans The World Bank is available to help countries with mobilizing capital for investments. It also provides technical are under threat from mismanagement, support and learning from its portfolio of more than US$7 billion of ongoing investments in oceanic and ocean- the effects of climate change, and poorly related sectors. These investments take various forms, including concessional and non-concessional loans, blue bonds, marine conservation endowment funds, carbon credit, parametric insurance, and debt for climate understood interactions within and between swaps. The real challenge lies in operationalizing solutions, from the point of articulating the need to engaging financiers to catalyzing a truly collaborative effort to reach the common objective of keeping coastal and marine oceanic and terrestrial sectors. Investments areas pollution-free and productive. in oceanic development are often isolated to individual sectors, exacerbating conflicts over resources and space. Protecting the ocean is not only a moral imperative; it is also a to formulate appropriate governance, fiscal, and financial financial opportunity. Ocean financing needs to move beyond policies, as well as investment solutions. an extractive, inequitable “business as usual” approach— which sees activities undertaken with little regard for negative In many cases, financing is available. However, it is not always environmental, economic, and social impacts that threaten available at the right time or place. The time and effort required long-term development—to align economic development to request (and then wait for approval of) finance can also be opportunities with ocean health in a way that fosters low- prohibitive. In some cases, projects are isolated from each carbon, resource-efficient growth, creates jobs, and reduces other or are not “shovel-ready”, and continuity is not achieved. poverty. Enabling such a transition requires significant upfront investments, firstly to understand current trends and emerging threats through technical assistance, and secondly 4 I FINANCING OPTIONS AND INSTRUMENTS © Vincent Tremeau / World Bank BLUE ECONOMY FOR RESILIENT AFRICA PROGRAM I 5 CONSIDERATIONS ON RAISING PRIVATE/COMMERCIAL FINANCING What is Needed FOR REVENUE GENERATING ACTIVITIES Will project/SOE Are project/SOE Each African country is different, with different financing needs based generate additional revenues to repay the YES revenues sufficient to include a premium for YES Consider private/ commercial financing on that country’s unique economic and political backdrop. Middle investments made? private sector returns? income countries have different needs to low-income countries or NO fragile and conflict-affected states. However, all countries have two NO YES things in common when it comes to developing their Blue Economy. Is there a rationale and potential Will project/ to introduce or adjust user SOE revenues First is a need to develop blue investments based on data, analytics, charges to project/SOE, such YES collected be sustainable for that revenues generated are and scenarios for sustainability and climate change. Second is a need sufficient for cost recovery? the sector? Consider blended to shift from separate, isolated investments in individual sectors financing (part to integrated, holistic, and regional management of marine and NO NO commercial and part concessional) coastal areas. Could revenues be sustainable for Consider public NO the sector with YES financing Long-term, scalable solutions require sound technical The process for accessing development finance can be partial public sector concessional funds? assistance; robust, multisectoral networks with clear complex. To help countries successfully navigate this territory, institutional mandates; and access to sufficient and it is important to convene governments, technical partners, appropriate finance. Such financing can be secured in two and donors so that they can establish trust and collaboratively ways: by spending the resources available better, so that better develop a clear path towards achieving the Sustainable sustainability results can be achieved, and/or by identifying Development Goals by strengthening their blue economies. new sources of financing to scale the Blue Economy and climate action. The private sector has correctly been touted as a necessary CONSIDERATIONS ON RAISING PRIVATE/COMMERCIAL FINANCE ingredient in sustainable economic development. This is also FOR NON-REVENUE GENERATING ACTIVITIES Many countries in Africa could benefit from accessing the true for Africa’s coastal and marine areas. Several financial World Bank’s full range of finance instruments, which spans instruments can be pursued to encourage partnership with grant financing, debt, and equity financing. Innovative finance the private sector, each of which have a different purpose products that can be explored include blue bonds, crowding with different requirements. The decision trees on the next Consider Is lack of in private sector finance where practical, and a strategic page can help identify which instruments are suitable for a concessional Does sovereign have opportunity for deployment of concessional resources. This paper provides particular situation. macroeconomic private/ financing becoming YES stability to manage YES commercial a few examples of existing instruments available from the a bottleneck for commercial financing or development World Bank and its partners. financing? blend with public financing? finance Technical assistance or grant financing is often required to undertake the analytics and diagnostics needed to identify NO policy improvements. Countries also need debt financing to get NO to scale: to finance the gray, green, and digital infrastructure Does the YES necessary to improve waste management; to improve safety project definition at sea; for monitoring, control, and surveillance of fisheries; Is the country on a path /economic and to unlock the employment potential within marine and to macroeconomic YES outcome coastal tourism. stability? justify raising financing at commercial NO terms? Consider public NO financing 6 I FINANCING OPTIONS AND INSTRUMENTS © Freepik How the World Bank Adaptable financing options The International Development Association/International Bank for Reconstruction and Development Group Contributes (IDA/IBRA) offers various financing instruments to meet countries’ unique needs. to Solutions Case study THE WEST AFRICA COASTAL AREAS MANAGEMENT The World Bank seeks to operationalize Africa’s Blue Economy by PROGRAM integrating disparate oceanic sectors under a common vision of The West Africa Coastal Areas Management Program (WACA) is an example of investment sustainability and resilience in the face of intensifying climate change project financing (IPF). Developed in partnership with West African people who live on the coast and depend on it for their livelihoods, nutrition, food security, and prosperity, the program draws risks. It provides cost-effective financing combined with technical on US$477 million in IPF funding to support countries’ effort to improve the management of their © Freepik shared coastal resources and reduce the natural and manmade risks affecting coastal communities. expertise to ensure that investments are directed where they will be The program consists of country-level IPF projects and a regional platform that promotes integration, the the most effective, so supporting the successful implementation of sharing of knowledge, and political dialogue between member countries. The platform also mobilizes public and private finance to tackle coastal erosion, flooding, pollution and climate change adaptation. sustainability-focused marine and coastal activities. Investment Project Financing With more than US$7 billion invested in marine and ocean- own financing instruments to bring along other development related sectors in June 2022, the World Bank is in a unique partners in providing collective support for countries as position to help countries transform their ocean economies they pursue their existing national, regional, and global Investment Project Financing (IPF) is for government investments that create and scale up the physical or social and move towards a more resilient and sustainable pathway. commitments. infrastructure needed to reduce poverty and create sustainable development. The World Bank’s Blue Economy portfolio currently includes projects focusing on sustainable fisheries and aquaculture; Many instruments and financing options are available to meet integrated coastal and marine ecosystem management; the countries’ economic conditions and climate challenges. This circular economy and improved solid-waste management to includes concessional and non-concessional loans, blue address marine plastics; sustainable coastal tourism; maritime bonds, marine conservation endowment funds, carbon credit, transport; and offshore renewable energy. parametric insurance, debt for climate swap, and many more. Development Policy Financing Through its commitment to convening partnerships, the World The Development Policy Financing (DPF) instrument helps governments (or government divisions) develop and implement policies Bank has demonstrated its ability to catalyze coherent and and institutional actions that support sustainable shared growth and poverty reduction. Policy reforms with a Blue Economy purposeful collective action. The West Africa Coastal Areas lens seek to ensure that marine and coastal development, wastewater management, and solid waste management contribute Management Program provides a clear example of how the to economic growth and create jobs, so ultimately preventing an increase in poverty in country. World Bank draws on its global knowledge and deploys its The US$50 million Grenada Fiscal Resilience and Blue Growth Development Policy Financing is one example of DPF. The project sought to help Grenada embark on various policy reforms to ensure the sustainable use of natural ocean resources while increasing adaptation and resilience to the impacts of climate change. Grenada’s marine and coastal ecosystems provide a wide array of goods and services. However, these assets were being undermined by poorly planned coastal development, pollution, unsustainable fishing, unplanned tourism, and climate change impacts. © Adobe Stock 8 I FINANCING OPTIONS AND INSTRUMENTS © Dominic Chavez / World Bank Parametric insurance Case study Parametric insurance is project finance through insurance payments for risk mitigation (for example, for the conservation and restoration of fisheries, coral reefs or mangroves). These insurance products have been developed for various oceanic sectors MOROCCO BLUE ECONOMY PROGRAM FOR RESULTS in Central America and holds promise for similar applications in Africa. The US$350 million Morocco Blue Economy Program for Results uses the Program for Results Financing instrument The first parametric insurance product developed by the World Bank was a US$2.3 million insurance package for the Caribbean to create jobs, stimulate economic growth, and strengthen the sustainability and resilience of natural resources Oceans and Aquaculture Sustainability Facility to protect fisheries and aquaculture. The insurance promotes formalization of while improving food security. Specifically, it supports the development of institutional frameworks, improves the the sector by giving fishers incentives to register to benefit from the insurance scheme. Ultimately, it aims to reduce the natural integrated management of natural resources, and strengthens selected sectors for a climate-resilient Blue Economy in disaster risk that climate change poses to food security and foster policy reforms that promote climate-smart fisheries practices targeted areas. and coastal resilience. Program for Results Financing Case study The Program for Results Financing (PForR) instrument seeks to strengthen country systems by disbursing financing only upon the delivery of defined results. This helps countries improve how they design and implement their development programs and strengthen institutions to achieve lasting results. CASE STUDY THE GUINEA-BISSAU BIOGUINEA FOUNDATION The Guinea-Bissau BioGuinea Foundation (FBG) is a marine conservation endowment fund registered under British law and recognized as a charitable organization in both the United Kingdom and Guinea Bissau. Its mission is to provide financial resources and mobilize partnerships to benefit biodiversity conservation, sustainable community development, Innovative instruments and environmental education in Guinea-Bissau. FBG was established in 2011 with support from multiple donors, including the World Bank. It is primarily funded through an endowment of €4.35 million (US$4.2 million), with additional pending commitments totaling €3.6 million (US$3.5 million). The foundation recently helped raise US$4.1 million for conservation through an innovative blue carbon REDD project. Its endowment targets are set at €13 million The World Bank is constantly developing innovative financing products to meet the needs of (US$12.6 million) by 2026 and €28 million (US$27.1 million) by 2031—which is estimated to be sufficient to sustainably a diverse range of countries with unique funding needs. guarantee basic operating costs for the country’s National Protected Areas System as well as the foundation itself. Marine conservation endowment funds Case study Marine conservation endowment funds are grant-making entities that provide finance for conservation activities. They receive capital from governments, foundations, and the private sector. Often there is no expectation of a return, so the SEYCHELLES BLUE BOND funds can support higher-risk projects that have less certain outcomes. The Seychelles Blue Bond, issued in October 2018, was the world’s first sovereign blue bond. The World Bank supported the bond by providing a US$5 million guarantee which, together with a concessional loan of US$5 million from the Global Environment Facility, will partially subsidize the payment of the bond coupons. These credit-enhancement instruments allowed for a lower price of the bond by partially de-risking the investment for impact investors, but also by reducing the effective interest rate for the Seychelles. Blue bonds Blue bonds are a subcategory of the green bond market, designed to finance sustainable marine activities and assets. Part of the rapidly growing “label” bond market, blue bonds can be issued by © Freepik sovereigns, municipalities (or regional/protected areas) or corporates and are earmarked exclusively for projects deemed ocean-friendly. Standards applied in the green/blue bond market include the Climate Bonds Initiative (CBI) and the Green Bond Standards (European Union). CBI has developed criteria for marine renewable energy, and are in the process of developing criteria for shipping and fisheries. 10 I FINANCING OPTIONS AND INSTRUMENTS © Freepik BLUE ECONOMY FOR RESILIENT AFRICA PROGRAM I 11 Blue carbon credits What Success will Look Like Blue carbon refers to carbon that is sequestrated through marine and coastal ecosystems such as mangroves, tidal wetlands, and by using seagrasses. While there presently are limited examples, the upstream identification stage of such credits is growing fast and can build on the experience gained in terrestrial carbon sequestration. The World Bank provides support to help countries prepare for blue carbon credits. For example, it supported Pakistan with analytics focusing on the potential for blue carbon using the PROBLUE multi-donor trust fund. The resulting report, published in May 2021, recommended that the country should start developing a Blue Carbon Action and Financing Roadmap and include blue carbon in its nationally determined contributions. Since then, the provincial Government of Sindh has jointly launched the Delta Africa’s Blue Economy will thrive if technical assistance and Ideally, Africa’s Blue Economy agenda should integrate other Blue Carbon partnership, one of the world’s largest mangrove restoration projects, which aims to conserve and restore nearly finance are channeled into larger programs so that the results World Bank priorities such as poverty reduction, biodiversity, 350,000 hectares of mangroves. In March 2022, the project sold its first tranche of 3 million blue carbon credits. become greater than the sum of the individual contributions. climate change, and gender and social inclusivity. In particular, Multiple development funding donors will need to work together climate change should be incorporated both upstream and to support national development processes, mobilize additional downstream, including for coastal infrastructure investments. resources, and ensure that their actions are coordinated to Several examples show that the Blue Economy can be captured ensure maximum impact in client countries. in nationally determined contributions for climate change and Debt for Nature/Climate Swaps systematic country diagnostics. The Blue Economy will also thrive if decisions and investments reflect the externalities of the ocean economy. To achieve this, Finally, Africa’s Blue Economy will succeed if it is built on This is a mechanism by which international creditors offer debt relief in exchange for the investment of the avoided debt service Africa’s decision-makers need access to high-quality data, regional integration that draws on existing institutions and in climate change-related projects. The transaction structure can vary, with the reduction of debt coming from its conversion to tools, and methodologies, as well as standards to ensure that platforms in an integrated and collaborative manner. local currency, the use of a lower interest rate, a partial write-off, or a combination of these options. As an example, in 2021 Belize strategic and most-resilient projects are prioritized for financing signed a debt-for-nature swap that reduced the country’s external debt by 10 percent of its GDP in exchange for a government and implementation. As an example, PROBLUE has created a commitment to spend US$4 million a year until 2041 on marine conservation. platform for data and tools that serves as a basis to undertake marine spatial planning and better optimize the use of the Given the complexity of the instrument, its higher transaction costs, and its dependency on the creditor, its use has been limited marine and coastal resources. in scope and scale to date and usually involves countries in debt distress. Case study PROBLUE PROBLUE is a World Bank programmatic multi-donor trust fund that uses its well-established platform to channel funds to initiatives that align with its four strategic pillars. These pillars are: • Improved fisheries governance • Marine litter and pollution reduction and prevention • The “blueing” of oceanic sectors to ensure their sustainable development • Integrated seascape management. PROBLUE has a broad structure to accommodate the evolving priorities of client countries and development partners alike. Its resources allow the World Bank to identify trends and emerging threats to oceans and the coastal and maritime economy, formulate appropriate solutions for action, and support the implementation of blue interventions that focus on these pillars, along with important cross-cutting issues such as gender, climate change, and maximizing finance for development. PROBLUE is able to support Africa’s Blue Economy in two ways: • By supporting an integrated, “spend better” approach to investment: PROBLUE’s capacity-building support and upstream knowledge work can help regional and country- level institutions develop strategic, integrated investment opportunities that are sustainable. • By exploring ways to increase financing to Africa for Blue Economy activities: PROBLUE’s resources can be used to leverage other resources within the World Bank and beyond. New financing mechanisms—such as payments for ecosystem services and blue carbon opportunities—can also be explored in partnership with countries and regional entities. © Freepik BLUE ECONOMY FOR RESILIENT AFRICA PROGRAM I 13