Tiny Indian Ocean state is receiving international acclaim for its innovative financing methods for sustainable practices
The diminutive sea-girt country of Seychelles, a tropical haven of over 100 islands and coral atolls set in the heart of the West Indian Ocean, is the first in the world to incorporate the ‘blue economy’ concept into its national development strategy. Its oceanic Exclusive Economic Zone (EEZ) extends over 1.3 square million kilometers, making it the second largest in Africa.
“While we may be small in terms of landmass and population, when you look at the ocean we’re a very big country,” says Finance, Trade and Blue Economy Minister, Jean-Paul Adam. “Our exclusive economic zone is actually three times larger than Germany. We aim to go from a small island state to a large ocean state, and economically we’re trying to organize ourselves according to our strengths.”
Seychelles is clearly eager to extract the fullest potential from this oceanic space, which constitutes the next stage in their sustainable development program. It’s currently focusing on the wealth of marine resources now being used as well as those it could also benefit from in the future, from energy and sea minerals to tourism and transportation, and to this end a Blue Economy Department was recently set up under the jurisdiction of the Ministry of Finance, Trade and Blue Economy.
In collaboration with the Commonwealth Secretariat it has also evolved a Blue Economy roadmap to back up this plan and provide a high-level assessment of the opportunities open to Seychelles for diversification and sustainable growth.
The country is also in the process of developing a Blue Economy-related investment portfolio to attract local and international entrepreneurs.
In terms of economic performance to date, Seychelles’ fiscal policy is anchored in reducing public debt and reducing vulnerability to external shocks. After the worldwide crisis of 2008, reforms were initiated with the aim of making the economy more resilient. “We actually had a very speedy recovery post-2008 because the reforms kicked in very quickly,” says Mr. Adam, “but we understood very clearly that if we didn’t build our resilience we would be hit again. That’s what we’ve been doing over the last few years and we’re aiming to consolidate all this through our Blue Economy project, which is the overarching vision to make our economy as a whole more sustainable.”
These stringent macroeconomic policies seem to be working. In 2015 a growth rate of 4.34% was recorded and the foreign exchange reserve in the Central Bank was $536 million. Debt stock has been reduced to 62% of the GNP, and according to President James Michel, the country aims to achieve its public debt reduction objective of 50% of the GNP by 2018. The government also estimates the economy will grow by 3.3% in 2016. It has additionally calculated that the ICT sector will grow by 5.5%, and financial and insurance services by around 3%.
The fisheries and food manufacturing sectors, particularly in the field of canned tuna production, should, in turn, grow by up to 5%. “We want more fish processing to take place in Seychelles, because we actually have a lack of capacity in this area.” explains Mr. Adam. “The catch is good but we can add more value by processing in Seychelles, and there are some good early initiatives.” He cites the Fish Association and Boat Owners’ Hook and Line Brand, which involves catching the fish using sustainable techniques, and then processing it economically and efficiently, with the minimum of waste.
On the key leisure business front, the Seychelloise people, in Mr. Adams’ words, “live and breathe tourism” and are proud of their ability to provide quality, nature-oriented holidays to discerning visitors.
Stability & Blue Bonds
Central Bank of Seychelles’ Governor Caroline Abel sees the overall economic situation as positive and ongoing. “Stability is well enshrined,” she says. “We remain disciplined at the Central Bank and we co-ordinate efforts with the Ministry of Finance, Trade and Blue Economy to achieve this stability because one of the cornerstones of our reforms has been the liberalization of the foreign exchange market. We have had a floating currency since 2008 and this is a key signal for the markets that we are prioritizing stability. Whenever the Central Bank of Seychelles foresees certain pressures, we act accordingly to ensure that there is all-round stability. For the private sector this is extremely important.”
A further Seychelles’ plan is to offer Blue Bonds, which fund the country’s fisheries industry, to attract international impact investors. Impact investments are investments made into companies, organizations and funds with the intention of generating a social and environmental impact alongside a financial return. They can be made in both emerging and developed markets and target a range of returns from below-market to market rate.
“We have been speaking with the World Bank and African Development Bank, primarily to mobilize international capital from international markets,” says Mr. Adam, “The idea is to use the leverage of these developmental institutions, which obviously have AAA ratings, to amortize the cost of borrowing, and therefore on-lend at affordable rates to, for example, fisheries entrepreneurs in Seychelles, on the condition that they invest in sustainable practices. The funds would also be used for the management plan for the Mahe plateau, which we’re presently developing.” The securities in question are modeled on green bonds which channel their proceeds to projects that save energy, curb pollution and recycle resources.
“We’ve also tried to bolster our resilience by transitioning toward renewable energy, which is a more predictable cost,” he adds. “We’re still in the early phases, but some wind power projects have already been completed.”
Among a number of small upcoming projects Seychelles is embarking on is coral gardening. “This is being done on the basis of boosting resilience against climate change by propagating corals into areas that have been affected by bleaching. It improves the reproduction of coral and basically you’re planting them,” Mr. Adam explains. Commercial opportunities emerging from this area might stem from current interest in coral in the pharmaceutical industry. Other projects under scrutiny include getting products from algae, extracting biofuel from seaweed, an aquaculture strategic plan which will link into the sustainability factor of fisheries, and a port development plan due to be initiated in 2018 pending a feasibility study.
The entire Western Indian Ocean is viewed as a potential source of untapped oil reserves, so exploring the region’s strong hydrocarbon potential by drilling is also on the agenda, even though this is one aspect of the island’s progress that hardly seems to tally with the declared policy of sustainable research.
Mr. Adam is at pains to clarify and justify this apparent contradiction: “Drilling operations are still a major part of the of the global economy whether we like it or not. We’ve always issued very strict instructions to any company doing seismic surveys. The reality, of course, is that there will be some form of hydrocarbon energy with us for a very significant period of time, and for a country such as Seychelles the benefit already gained from seismic surveys, even without actually having drilled for oil, has been very substantial.”
“The data that we’ve got has been instrumental in allowing us to do a marine spatial plan, which is being finalized this year,” he continues, pointing out the usefulness of seismic surveys as a research tool and in providing input that allows Seychelles to make good sustainable development decisions. “They also give us additional information, for example, on things such as up-wellings, which play a key role in the ecosystem in terms of how other parts of the environment, fish and other organisms, interact.”
From a marketing perspective, he comments, “The blue economy is really about putting forward all the best aspects of our traditional approach to the sea and also looking at the best way to look at this very delicate, and very rich, resource.”
Foreign direct investment
The Seychelles government has made it clear that it welcomes foreign investment as long as any improvement to its natural resources, infrastructure and productivity levels is carried out in an environmentally sound manner. In a 2016 budget speech, it was announced that foreign direct investment (FDI) was forecasted to drop from $227 million in 2014 to $184 million in 2015, all consistent with the government’s approach toward improving local investment and creating opportunities for all Seychellois businesses. There is also scope for overseas – especially U.S. – investment in environmentally friendly renewable energy, which would help the islands move away from their heavy dependence on imported fossil fuels.
Central Bank Governor Caroline Abel has more to say on the “green” aspects of development. “Fuel-based electricity generation is quite expensive in the long term, so there is a push for renewable energy, and the financial system is responding to that,” she says. “One of our banks recently launched a green loan product geared toward projects related to renewable energy. We are also seeing a drive toward encouraging businesses to install solar panels and adopt energy efficient practices.”
“The blue economy is really about putting forward all the best aspects of our traditional approach to the sea and also looking at the best way to look at this very delicate, and very rich, resource”
Jean-Paul Adam, Minister of Finance, Trade and Blue Economy
She also views more modest business concerns as the driving force toward future growth in the country. “The major challenge that we have domestically is how to promote small and medium-sized enterprises (SMEs),” she says, “given that major projects have already happened, particularly in the tourism sector.” The lack of access to credit in the past has delayed progress, but she is optimistic about the coming years. “There are a lot of initiatives that we are undertaking to change this,” she continues. These include a further development of the financial sector, new services in the banking industry, and proposals put forward for international experts to present new tools to help ease that credit access.
One key step forward has been to improve the national payment services infrastructure, as set out in a new four-year strategy. “Previously our banks were perhaps guilty of not investing in new technology. Now they recognize competition,” explains Ms. Abel. “Before 2015, banks were the only institutions that could offer payment services, but we reviewed the legal framework so that non-banks could also enter this sphere. Last year we licensed a telecoms company to offer mobile payment services. Now we are seeing banks going for internet banking, and by the end of the year we could see more offerings in mobile banking.”
Three years ago the country installed a platform for electronic bank transfers in the domestic currency. “This is currently being used by the banks,” says Ms. Abel, “but by the end of this year we will extend it to all clients so they will not need to physically come to the banks for fund transfers. This will be beneficial for small businesses because in the Seychelles people traditionally go to the banking hall for their needs, but this leads to long queues and inefficiencies.”
The CEO of the Development Bank of Seychelles, Annie Vidot, in turn, wants to help a wider spectrum of businesses, large and small, by diversifying the loan portfolio and broadening the islanders’ scope for self-sufficiency. “We have traditionally lent to fishermen or taxi drivers, but we want to support more innovative areas. The blue economy is not only about fisheries; it’s wider than this,” she maintains. In addition to enticing foreigners to bring their expertise to the islands and set up businesses, she favors educating local people in marketing and practical know-how, thus giving the country a greater opportunity to take control of its destiny and enjoy the advantages of the blue economy.
Finally, she adds that today’s Seychelles is very much an equal opportunities country and cites Caroline Abel and herself as prime examples of females rising to key positions. “We are role models in terms of women leaders. A success story,” she says. In gender balance terms, that puts the Seychelles’ business sector at ahead of other progressive countries, both large and small. It’s another notable move by the country to keep pace with today’s changing world.