Bond, PPPs, Pension Funds, Others Prescribed As Funding Options

With Nigeria’s infrastructure deficits put at $3 trillion which will cost the entire 2021 budget of N13.58 trillion as capital expenditure over the next century, the country has been advised to explore the innovative financing tools such as Bonds, Public-Private Partnerships (PPPs), pension funds among others to unlock the immense potential in the blue economy sector.

Dr. Bongo Adi of the Lagos Business School in his presentation on ‘Realistic and  sustainable private sector financing model to fund Blue Economy infrastructure development along the Atlantic Ocean coastline of Nigeria’ at the Nigeria Blue Economy Stakeholders Conference organised by Alfe City Institution at the BWC Hotel, Victoria Island, Lagos, from 15th – 17th February, 2022 said the  innovative financing tools that could be explored include suitability bonds which are debt securities that can be listed on a social stock exchange.

Other funding options which he proposed include use of green/blue/climate bonds that meet investment criteria and accountability requirements.

He said PPPs can also be developed to stimulate the flow of investible ocean deals needed to overcome the initial short-term capital costs required for investments while pension funds, SWFs and large institutional investors can also partner in the efforts to fund the blue economy.

The blue economy valued at over $24 trillion globally has  capacity to generate at least $2.5 trillion each year has diverse components, including established traditional ocean industries such as fisheries, tourism, and maritime transport, but also new and emerging activities, such as offshore renewable energy, aquaculture, seabed extractive activities, and marine biotechnology and bioprospecting.

On the rationale for blue financing, Dr Adi said unsustainable use of oceans and their resources had led to the depletion of fish stocks and biodiversity, and increased pollution and habitat damage among other negative impacts

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“Blue finance can play a vital role in supporting sustainable development of the ocean economy by directing investments to activities, policies and actions that minimize ocean risks and maximise social equity and environmental sustainability,” he said.

He believed that some of the needed investments in a sustainable ocean economy would likely generate competitive market returns and thus able to attract private finance, whereas other investments area may be capable of generating positive but below market returns.

“For these investments to be attractive to the private sector, the viability gap must be met by some form of public or philanthropic co-financing or blended finance,” he said

Dr Adi responding to questions at Nigeria Blue Economy Stakeholders Conference

Adi identified the specific sectors that require blue financing to include the established ones like capture fisheries, seafood processing, shipping, ports, shipbuilding and repair, offshore oil and gas, marine manufacturing and construction, maritime business services, marine research and development education, and dredging.

The emerging sectors that also need financing, he said  include marine aquaculture, deep and  ultra deep water oil and gas, offshore and wind energy, ocean renewable energy, marine and seabed mining, marine safety and surveillance, marine biotechnology, high-tech marine products and services.

He gave the examples of the types and scales of investment in the four ocean sectors to include; *Natural capital which entails the development and investment flows area directed  to the natural assets that underpin ecosystem services, e.g conservation and restoration of natural systems, and do not involve the creation of built structure.

*Extractive natural resources- which involves human activities that remove or produce a physical good from the ocean. These sectors, such as fisheries, have received extensive investment for many years. As such, sustainable development involves redirecting existing investment towards sustainable pathways, while simultaneously generating new sources of capital.

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*Marine and coastal development- creation of new, fixed, physical assets at sea and along the coast. These include sectors such as shipping. Newer sectors such as marine ecotourism will need new source of capital.

*Knowledge and creative sector- include academic, non-academic, professional, and public sector services that conduct research and development activities to create new knowledge and innovation for a sustainable ocean economy.

Adi said some of these emerging sectors such as ocean technology development, may be perceived as high risk, and require new sources of high-reward capital.

Specifically, he said the current blue financing gap came about because of non excludable but shareable, open access resource that makes governance challenging; market failure; slow process in understanding how to value the ocean; slow adoption of science-based integrated ocean planning other instruments that could correct market failure and incentivize conservation behavior and compliance; low capacity of ocean policy making; huge initial public sector investment; slow development and uptake of risk mitigation tools like political risk insurance; and lack of seed investment for deal origination and investment pre-feasibility work necessary to structure blue projects.

“There is lack of high quality, investible projects with appropriate deal size and risk -return rations to match available capital,” he said.

“Many ocean interventions require grant capitals that generate very low, or no financial returns at all.”

With the understanding that the current investments are inadequate to support sustainable ocean economy, he said the innovative financing options have to be deployed.

However, on the functionality of blue economy financing, he said private funders require clearer structures, predictable cash flows and transparent ways to assess risk and returns.

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“Innovative finance approach identifies avenues to deliver such clarity and is deployed in development finance and climate finance,” he said.

“Key elements include generating, investing, aligning, and accounting for financial capital which encompasses both local, nation, and international level financing instruments that are provided by, and/or accessed by individuals, public and private companies, governments and other non-governmental/inter-governmental institutions.

Dr Adi left along other presenters at Nigeria Blue Economy Stakeholders Conference

“Firms may use capital to finance development of more sustainable products, technology, and gain access to new sustainability friendly –markets.

“Financial instruments used to finance a sustainable ocean economy, or as a basis for generating new financial capital for promoting sustainable ocean resource use include traditional loans and grants, capital market and insurance instruments.

“The deployment of these different capital types depends on the expected returns from the investment, which in turn, depends on the risk-return equations faced by investors.”

However, he said the enabling environment that must be provided for a sustainable blue economy financing include policy reforms and creation of regulations that strengthen the sustainable management of natural capital and that facilitate and incentivize social enterprise and new forms of capital.

He said there should be investment in data infrastructures to increase transparence, grow knowledge, and build effective human capital; and there should be correction of market distortions through taxation, pricing services and re-purposing of harmful subsidies, fees and taxes and non-fiscal (tradeable permits and social norms).

Major stakeholders in Nigeria’s blue economy at the end of the three-day ‘The Nigeria Blue Economy Stakeholders Conference’ (TNBESC) set up a transition secretariat to drive the recommendations made at the forum.

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