Q&A: Financing source-to-sea action for a sustainable blue economy

Osano: Public awareness and understanding of the S2S concept are still generally low and this requires more engagement with the concerned actors in research, public policy and practice across the relevant sectors. Some of the implications of S2S management include the following:

• An integrated approach to combining actions in the marine and ocean sector (SDG 14), freshwater management in terrestrial systems (SDG 6) and sustainable land management (SDG 15). This implies that governments, businesses, financial institutions and local communities have to focus on actions that provide benefits across multiple rather than single sectors and pay closer attention to the synergies and trade-offs in project design and implementation. This will require closer engagement with a range of stakeholders, including local communities, and would be best facilitated through inclusive institutional designs.
• Given its public good nature, water management in both terrestrial and marine systems, especially in Africa and other developing regions of the world, has relied traditionally on public funding. This is a challenge because the public sector has limited capacity to finance the scale of investments needed to realize S2S actions for the sustainable blue economy globally. The implication here is that additional financing from the private sector (both business investment and philanthropy sources) is required to bridge the financing gap. Innovative tools and models are required for enabling the private sector to leverage public financing for S2S actions: for example, through public-private partnerships (PPPs) models which are increasingly gaining traction in Africa.

Osano: Some of the benefits include improvements in the efficiency of projects and increased awareness of and focus on how to reinforce positive impacts across multiple projects. This allows project investors to minimize cases where investments in one sector can generate negative impact on another sector along the land-freshwater-marine continuum.

An example would be where investment in agro-processing industries also contributes to increased point source pollution of the waterbodies due to the unregulated discharge of effluents. This is a common phenomenon in coastal regions in developing countries, leading to heavy pollution of rivers and streams that are discharged into the sea and affecting aquatic plants and animals.

Osano: There are several barriers to investing in S2S action. A key one is governance, when looking especially at the policies and institutional coordination challenges. In many jurisdictions, the agencies that work on the S2S continuum are established with a specific sector mandate, such as water, land, marine, fisheries or agriculture, which also determines their funding and budget allocation.

In the absence of an institutional coordination framework, this kind of set-up provides little incentive for sector-focused agencies to collaborate. In certain cases, the lack of coordination among these agencies is reinforced by overlaps in mandates, leading to competition for limited resources. In addition, there is also occasionally limited capacity for analytical work that highlights the benefits of investments in source to sea action.

Another challenge is obviously limited financing. Most actors working on S2S action rely on public funding, which is very limited.

Osano: First, any potential solutions should be built on solid evidence and strong scientific underpinnings. This requires investment in both hydrological research and modelling and the economics of water demand and supply at the appropriate scale, as well as an understanding of how this is driving economic decision-making by different actors in the relevant sectors.

Through the Water Evaluation and Planning (WEAP) tool, SEI has a strong track record of generating the science and evidence needed to underpin the business case for investment required for S2S actions. In the Mara River basin, a transboundary basin traversing southern Kenya and northern Tanzania, SEI has worked with local, national and international partners to undertake technical and modelling with stakeholders to co-develop actions that would promote water security in the region if implemented. Besides capital finance, stakeholder engagement also reveals often unrecognized investment by local communities through labour and local infrastructure inputs.

Our work in the Mara has led to the identification of S2S actions for water security in different sectors such as wildlife, agriculture, livestock, tourism, forest and cities. This has informed planning tools such as water catchment and basin management plans that guide actions and investments for water security across the different sectors.

Osano: Although public funding from national exchequers remains the cornerstone of financing for S2S actions especially in Africa, governments, private sector and financiers are deploying innovative financial tools and instruments, mostly built on blended finance and based on PPP models. These include payment for ecosystem services (PES) linked to watershed and conservation management, such as the Mikoko Pamoja Project in Gazi Bay in Kenya. This is an example of a community-focused small-scale PES carbon offset facility that seeks to provide long-term incentives for mangrove restoration and protection through conservation activities, awareness creation, and the sale of mangrove carbon credits. The revenue generated from carbon credits is used to support community development actions in water and sanitation, education and health.

Another example of a PES approach is the Water Funds model, which is established through PPP and piloted in Africa through the Upper Tana Nairobi and Greater Cape Town Water Funds in Kenya and South Africa respectively.

Another promising financing instrument is the sovereign blue bond. A pioneer in the use of the blue bond has been the Government of Seychelles, which issued a sovereign blue bond of $15 million. We are likely to see increased interest in blue bonds in Africa as countries move to develop and implement actions for national blue economy strategies in line with the African Blue Economy Strategy and Action Plan (2021–2025).

The Nairobi Statement of Intent on Advancing the Global Sustainable Blue Economy, which is an outcome of the Sustainable Blue Economy Conference (SBEC) 2018, included a range of commitments to actions from around the world, some of which covered financing. SEI is working with the Government of Kenya and other partners to document outcomes from the SBEC and track progress on these commitments. This includes exploring mechanisms and institutional design for establishment of a Blue Economy investment facility that can serve as catalysts for promoting investments in S2S actions.