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Posted: January 17th, 2024

Financing Models to Support the Growth of Small Island Developing States’ Maritime Industries

Financing Models to Support the Growth of Small Island Developing States’ Maritime Industries

Small island developing states (SIDS) face unique challenges in achieving the Sustainable Development Goals (SDGs) and the SAMOA Pathway, especially in the context of the COVID-19 pandemic. One of the key sectors that can contribute to their economic growth, social development and environmental protection is maritime transport, which is the lifeline of SIDS for trade, tourism, fisheries and other productive activities. However, maritime transport in SIDS is often constrained by high costs, low connectivity, inadequate infrastructure, environmental risks and vulnerability to shocks and disruptions. Therefore, it is essential to explore and implement innovative financing models that can support the development of SIDS’ maritime industries and enhance their resilience and sustainability.

Some of the possible financing models that can be considered are:

– Blended finance: This is the strategic use of public or philanthropic funds to mobilize private capital for development outcomes. Blended finance can help overcome market failures, reduce risks and increase returns for private investors, while ensuring alignment with development objectives and safeguards. Blended finance can be applied to various types of instruments, such as loans, guarantees, equity, bonds and grants. For example, the Pacific Islands Renewable Energy Investment Program (PREIP), supported by the Asian Development Bank (ADB) and other partners, uses blended finance to mobilize private sector investment in renewable energy projects in SIDS, which can reduce their dependence on imported fossil fuels and improve their energy security.

– Blue bonds: These are debt instruments that raise capital for projects that benefit ocean health and marine resources. Blue bonds can help SIDS finance their blue economy initiatives, such as sustainable fisheries, marine conservation, coastal management and maritime infrastructure. Blue bonds can also provide incentives for improved governance and transparency in the use of ocean resources. For example, Seychelles issued the world’s first sovereign blue bond in 2018, with the support of the World Bank and the Global Environment Facility (GEF), to fund marine spatial planning, marine protected areas and sustainable fisheries.

– Climate finance: This is the financial support provided by developed countries to developing countries to help them mitigate and adapt to climate change. Climate finance can be sourced from public or private entities, bilateral or multilateral channels, and delivered through various mechanisms, such as funds, projects or programs. Climate finance can help SIDS address the impacts of climate change on their maritime transport sector, such as sea level rise, extreme weather events, coral bleaching and ocean acidification. For example, the Green Climate Fund (GCF) has approved several projects in SIDS that aim to enhance their climate resilience in the maritime sector, such as improving port infrastructure, strengthening coastal protection and promoting low-carbon shipping.

These are some of the examples of financing models that can support the growth of SIDS’ maritime industries. However, there are also challenges and gaps that need to be addressed, such as:

– Data availability and quality: There is a lack of reliable and disaggregated data on the financing needs and flows for SIDS’ maritime sector, which hinders effective planning, monitoring and evaluation. There is also a need to improve the measurement and reporting of development results and impacts from different financing sources and modalities.
– Policy coherence and coordination: There is a need to ensure coherence and alignment between different policies and strategies that affect SIDS’ maritime sector, such as trade, transport, environment, climate change, disaster risk reduction and development cooperation. There is also a need to enhance coordination and collaboration among different stakeholders involved in financing SIDS’ maritime sector, such as governments, donors, private sector, civil society and regional organizations.
– Capacity building and technical assistance: There is a need to strengthen the capacity of SIDS to access, manage and utilize different financing sources and instruments for their maritime sector. There is also a need to provide technical assistance and knowledge sharing on best practices and lessons learned from successful financing models and projects.

To conclude, financing for development for SIDS’ maritime sector is a complex and multifaceted issue that requires a holistic and integrated approach. By exploring and implementing innovative financing models that suit their specific contexts and needs, SIDS can leverage their maritime potential to achieve their development aspirations.

References:

– UNCTAD (2021). Small island developing states: Maritime transport in the era of a disruptive pandemic – empower states to fend against disruptions to maritime transportation systems, their lifeline to the world. https://unctad.org/system/files/official-document/presspb2021d3_en.pdf
– OECD (2018). Financing for development in small island developing states: A focus on concessional finance. https://www.oecd-ilibrary.org/development/making-development-co-operation-work-for-small-island-developing-states/financing-for-development-in-small-island-developing-states-a-focus-on-concessional-finance_9789264287648-7-en
– UNDP and UN-OHRLLS (2015). Financing for Development and Small Island Developing States: A dissertation help Snapshot and Ways Forward. https://www.undp.org/publications/financing-development-and-small-island-developing-states-snapshot-and-ways-forward
– World Bank (2018). Seychelles Launches World’s First Sovereign Blue Bond. https://www.worldbank.org/en/news/press-release/2018/10/29/seychelles-launches-worlds-first-sovereign-blue-bond
– ADB (2017). Pacific Islands Renewable Energy Investment Program. https://www.adb.org/projects/51113-001/main

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