State capacity and the ‘value’ of sustainable finance: Understanding the state-mediated rent and value production through the Seychelles Blue Bonds

Introduction

The Seychelles Blue Bonds, which this paper analyses, are a US$15 million sovereign bond deal that has been widely celebrated as a groundbreaking way of accessing financial resources to support marine protection (Hunt, 2020). The Blue Bonds were bought by three U.S. pension and impact funds and effectively subsidised as it included blended finance comprised of a US$5 million low-interest, long-term loan from the Global Environment Facility (GEF) and a US$5 million guarantee from the World Bank. Out of the US$15 million mobilised from the U.S. investors, US$3 million would go to the conservation trust fund Seychelles Conservation and Climate Adaptation Trust’s Blue Grants Fund (BGF) and the remaining US$12 million would be used to capitalise a revolving fund, the Blue Investment Fund (BIF), at the Development Bank of Seychelles (DBS) (Christ et al., 2020; Hunt, 2020). Whereas the funds going to SeyCCAT would be used as grants for environmental projects and business development, the remaining funds at DBS would be used to extend loans to local businesses that source seafood from supplies that are under a management plan. These loans could for example be used for new seafood processing plants, upgrading fisheries value chains and investing in aquaculture. Despite the excitement created around the Blue Bonds, more than four years past between the bond issuance and the first approved BIF loan.

The issuance of thematic (green, sustainability and social) bonds has over the last few years grown at a pace that has been celebrated by many of the market’s supporters. Nonetheless, despite its cumulative growth, the market has been driven by North American and European issuances; Latin American issuances are small, African issuances are almost non-existent and issuances from Asia-Pacific are mainly represented by China (Harrison and Muething, 2021). Some of the challenges facing peripheral sovereign issuers, which similarly affect blue bond issuances (Thompson, 2022: 5), are low volumes of bonds being traded (which leads to lower liquidity for bondholders), below investment grade credit ratings, currency risks for issuers when issuing bonds denominated in foreign currency and high transaction costs relative to the small economic size of investable projects (Jones et al., 2020). The difficulties associated with bond financing are symptomatic of a world economy where peripheral countries are systematically confronted with higher costs of capital despite their significant needs for investing in sustainability (Ameli et al., 2021). Peripheral countries instead find their currencies in the low end of the international monetary hierarchy and are continuously risking low liquidity and balance of payment constraints (Svartzman and Althouse, 2022). Rather than appropriately addressing the long-term fiscal issues that peripheral countries face, these countries are offered blended finance and market-based solutions (Dempsey et al., 2022).

By analysing the Seychelles Blue Bonds, this paper shows how the state remained a critical mediator of rent and value relations when private finance was applied. By focusing on the state’s fiscal capacities and environmental planning, this analysis contributes to the emerging critical geographical literature on thematic bonds. First, whilst acknowledging the difficulties that Global South issuers face (Jones et al., 2020), geographers’ case studies have focused on issuers with solid credit ratings rather than issuers below investment grade. Secondly, although studies have highlighted the inequality producing effects if bond issuances function as intended, critical geographical case studies have not empirically explored the difficulties of bonds to generate returns as expected for issuers (Bigger and Millington, 2020; García-Lamarca and Ullström, 2022; Hilbrandt and Grubbauer, 2020). Focusing on a Global South sovereign issuance addresses these two gaps in the literature because it shows how attracting finance as well as making it generate revenue are both issues of de facto state capacity. Addressing these gaps is even more important due to sovereign bonds being a substantial part of green bond issuances and the difficulties that Global South issuers face (Harrison and Muething, 2021). While a critical discussion of the appropriateness of blue bond financing has started to enter some academic and non-academic literature (Hunt, 2020; Thompson, 2022), this paper heeds the call for qualitative research on blue bonds (Thompson, 2022), examining the context of the deal and advancing geographical research on the interplay between fiscal policy, private finance and environmental governance (Christophers, 2019b; Kay and Tapp, 2022).

By applying political-economic theory on fictitious capital and the state’s governance of natural resources and rents, the paper shows how the Seychellois state played a central role in the Blue Bonds even as financing originated from private capital markets and intended to finance private seafood companies. Building and expanding on publicly available documents, the first part of the analysis shows how the Blue Bonds were accompanied by ideas of anticipated returns and risks and were embedded in the broader political economy of Seychelles. Focusing on the application of debt rather than its anticipatory aspects (Chen, 2020), the second analytical section shows how the planning capacity of the state was critical for turning bond proceeds into value and rent. Besides securing the necessary land, making the right regulations was critical since BIF applicants’ businesses needed to be covered by a management plan (de Fontaubert, 2023). The analysis shows how mobilising debt financing and realising its potential were tied up with fiscal and environmental planning. The latter, however, means that the state faces uncertainty in the process of realising the potential of debt. Consequently, for a few years the Blue Bonds resulted in what political economists refer to as profit upon alienation rather than resulting in leverage for companies and productive expenditure for the state. As an example of the differentiated conditions of bond issuance in the world system (Ferrando et al., 2021), the paper contributes to thematic bond literature by showing how the state played a role as intermediary between financial and productive capital.

The paper proceeds as follows: The first section outlines the two main analytical concepts used in this paper, rent and fictitious capital, to understand the role of debt finance for investing in resource-based economic activities, followed by a methodology section. Thereafter, I introduce Seychelles’ political economy and the broader context in which the Blue Bond deal took place. This requires introducing Seychelles’ debt swap by The Nature Conservancy, which preceded the Blue Bond deal, and Seychelles’ Blue Economy strategy. The next two sections analyse, first, the chain of intermediaries of fictitious capital that creates faith in future returns. Secondly, the analysis shows how effective land use and environmental planning became part of turning fictitious capital into increased rents and value-addition. The planning process, however, proved to involve different uncertainties and complexities that various agencies of the state needed to address.

Analysing the political economy of debt and natural resources

Marxist political economy is a critique of capital, which is not just an examination of capitalism as a historically distinct system but implies distinguishing between different types of capital according to their functions (Jessop, 2015). For this study, which zeros in on the state’s role in expanded reproduction (Arboleda and Purcell, 2021), it is critical to understand state-driven planning and the role of public debt. Consequently, this section first elaborates on how the state secures the economic use-value of national resources. Secondly, this section details how fictitious capital relates to the state’s fiscal affairs. I discuss the fictions of capital not just as something that exists as part of speculative environmental finance frontiers (Büscher, 2013; Igoe, 2010), but as something that is constitutive of capital as such (Beckert, 2016) and becomes formalised in financial transactions (Durand, 2017). The analytical framework thereby nuances the interplay between resource-based development strategies and debt financing.

By institutionalising legal regimes that define ownership over resources, assembling land for investment and creating infrastructures, state planning plays an important part in shaping economic development (Andreucci et al., 2017; Holgersen, 2020; Shih and de Laurentis, 2022). The state governs the institutionalisation of markets, whether industries can access material use-values and whether actors can acquire economic rents from national resources (Høst, 2015). By conditioning how economic actors can benefit from natural resources, the state is actively influencing the distribution of natural resources for production, and particularly by conditioning access to scarce resources, the state plays a role in distribution of rents (Andreucci et al., 2017; Emel et al., 2011; Parenti, 2015). Such rents, which depend on historical and spatial conditions, can be divided into differential rents based on capitalists’ varying access to quality land (due to natural conditions or investments), monopoly rents based on natural qualities and absolute rents based on politically acquired benefits (Purcell et al., 2020: 441; Ward and Aalbers, 2016: 1764).

In addition, the state can itself be the beneficiary of natural resources by either having direct ownership of resources in its territory or indirectly being able to benefit from other actors’ use of national resources (Andreucci et al., 2017; Parenti, 2015). Taxes, in other words, are but one means through which the state indirectly acquires sovereign rents (Emel and Huber, 2008: 1395), which may be qualitatively different from the rents individual capitalists acquire due to its explicit political character (Parenti, 2015). The state can acquire rents by possessing sovereign monopoly over its territory, it plays an active role in producing environments that are conducive to capital accumulation and in doing so, it can determine the creation and distribution of rent and access to use-values (Parenti, 2015). Surely, control does not necessarily lead to rents for capitalist states since realising their territories’ rents relies on productively applying labour and capital (Emel et al., 2011). In the case of the capitalist state, then, control is a necessary, but not always a sufficient (Christophers, 2019a), condition for making its territory generate rents.

The state’s role in mediating use-values for production, rent relations and its own benefits from natural resources has been elaborated in analyses of marine resources (Barbesgaard, 2019; Carver, 2019; Christiansen, 2021b). Nonetheless, rather than being ‘rent maximising agents’, states are in such instances ‘active players in struggles over the creation and distribution of surplus value from the production of fisheries commodities and are involved in mediating domestic and foreign interests and the relations among them’ (Campling and Havice, 2014: 714). However, even if states are largely unable to maximise rents, they may try to navigate ideological and bureaucratic contexts while trying to optimise rents from their resources. Indeed, states can increase rents from their exclusive economic zones (EEZs) by investing in monitoring, surveillance and new management regimes, but such investments are not detached from conflicting interests (Campling and Havice, 2014: 723).

How, then, does the state finance an improvement of the economic benefits generated in its territory? Rather than reinvesting taxes, an alternative is to raise fictitious capital in the form of loans, hoping that it becomes ‘productive expenditure’ (Harvey, 2018 [1982]: 278). Fictitious capital thereby becomes integral to public fiscal policy. Rather than fictitious capital being antithetical to real capital, all capital entails imaginaries or narratives that facilitate faith in future value (Beckert, 2016). What is specific about financial capital is that the fiction is formalised as a social relation and has the potential to circulate as if value has already been produced (Durand, 2017). Fictitious capital is thus the embodiment of legally sanctionable financial fictions. Insofar as credit fuels productive activities, it formalises speculations on productive capital. In turn, this creates an unstable linkage between potential value production and financial pricing (Fine, 2013). This is the case when credit is alienated from the circuit of value production:

If the borrower does not apply it as capital, that is his [sic] affair. The lender lends it as capital, and as capital it has to pass through the functions of capital, which include the circuit of money capital right through to its return to its starting-point in money capital (Marx, 1991 [1894]: 471).

Thus, the creditor advances credit as capital, but due to its alienability, credit has a double character; it can just as well be a functioning capitalist’s leverage as the creditor’s means of extracting value (Durand, 2017). Therefore, lenders may want to insert technologies that ensure that credit is applied as capital (Christophers, 2011; Fine, 2013).

While this tells us how the creditor advances capital, it nonetheless says little about how debts are applied. The anticipatory character of debt therefore needs to be supplemented with a perspective on present use (Chen, 2020). Once advanced, credit can take two forms: ‘profit upon alienation’ and ‘leverage’, as Lapavitsas (2014: 138–168) clarifies. The former involves pure extraction in a zero-sum game. This extraction can happen on an individual level (when workers acquire payday loans for their subsistence), a company level (when a company, e.g. has to sell off capital to pay back creditors), or, most importantly for our case, government bonds can be purely extractive insofar as the repayment of bondholders does not necessarily stem from increased productive activities in the national economy. Marx (1990 [1867]: 919) even applied the German concept of Veräußerung, which is exactly profit upon alienation, when analysing national debt and public bonds (see also Durand, 2017: 88–89).

Alternately, credit can function as ‘leverage’. Even if the individual functioning capitalist may momentarily be in opposition to interest-bearing capital when profits are divided, the functioning capitalist can benefit from interest-bearing capital (Lapavitsas, 2014: 151–155). If the interest rates are lower than the rate of profit from investing, deploying further loans can increase profitability. While such increases in leverage and securing low-interest credit are part of individual, productive capitalists’ absolute advantage, it increases firm volatility as decreasing profits easily become eaten up by interest payments (Lapavitsas, 2014). Similarly, national economies are affected by absolute advantage as the cost of, and ability to, borrowing influence national competitiveness in the world system (Felipe and Vernengo, 2002; Svartzman and Althouse, 2022).

Methodology

This paper uses a case methodology since this makes it possible to tease out the relationship between contingent and structural conditions and enable an in-depth understanding of the broader context of the case (Flyvbjerg, 2011). Rather than broadly exploring fisheries management (Christ et al., 2020), the study focuses on activities aimed at making bond proceeds return-generating. Empirically, this paper builds on analysis of documents and interviews with key informants from different organisations with knowledge of the design, implementation and history of the Blue Bonds. The surveyed documents include evaluations, publicly available government documents and media outlets. The purpose of surveying these documents was mainly to gather as much descriptive information about the bonds as possible. Fourteen expert interviews, which were conducted between September 2019 and January 2022, supplemented documents. Interviews lasted between 30 and 90 minutes, and the typical interview was about 60 minutes. Interviewees were selected through snowball sampling and based on interviewees’ knowledge of Seychelles’ Blue Economy and Blue Bonds. These interviews were furthermore conducted outside of Seychelles as interviewees resided in multiple countries and not limited to Seychelles. While interview questions would fall on how interviewees assessed the future of the Blue Bonds, the main aim of the interviews was to gather information about on-going Blue Bond developments, thereby qualifying information from documents. Importantly, since interviewing ended in January 2022, data-gathering stopped before SWIOfish3 was finalised. This paper therefore does not conclude on the final outcomes of the Blue Bonds but analyses some of the complexity the project faced on the way.

The political economy of Seychelles’ debt swap and Blue Bonds

In order to understand the Seychelles Blue Bonds, we must first examine the broader political economy of Seychelles and how the so-called Blue Economy discourse has shaped the country’s recent developments. The Blue Bonds and the debt swap are part of Seychelles’ overall attempt to secure its resource-based economy as part of its ‘Blue Economy’ strategy. Seychelles’ fisheries, which are divided into the industrial fishery, semi-industrial fishery and the artisanal fishery, are by several measures a cornerstone of Seychelles’ economy: following tourism, which declined due to the COVID-19 pandemic, fisheries are one of the country’s largest sectors in terms of GDP and exports, are a key source of employment, underpin the important tourist economy, provide a key food source for the population and have cultural significance (Baker and Constant, 2020; Guillotreau et al., 2023; Robinson and Shroff, 2020). Whereas Seychelles’ vast exclusive economic zone (EEZ) is 1.35 million km², its several islands (out of which three are the main populated ones) add up to 454 km² (Benzaken and Hoareau, 2021: 143). While Seychelles’ EEZ presents a critical economic resource, fish stocks are overexploited, which the country’s Blue Economy initiatives are in part a response to (Benzaken and Hoareau, 2021: 150; Robinson and Shroff, 2020; The Republic of Seychelles and the Commonwealth Secretariat, n.d.).

Besides the Blue Bonds, the debt swap by NatureVest, the investment arm of The Nature Conservancy (TNC), underpins Seychelles’ Blue Economy strategy. It was negotiated with Belgium, France, the United Kingdom and Italy – all members of the Paris Club of creditors – and TNC essentially brokered the entire operation by securing funding for buying back debt (Silver and Campbell, 2018). This involved the Government of Seychelles buying back US$21.6 M from creditors. It was bought for 93.5 cents on the dollar. The debt swap resulted in the establishment of the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT), which became a central entity for managing the funds that came with the swap (Silver and Campbell, 2018: 249).

Raising US$5 M of grants and US$15.2 M from TNC’s pockets, the debt swap committed the Government of Seychelles to establish 30% of its EEZ as marine protected areas (MPAs) in a marine spatial planning (MSP) exercise (Baker et al., 2023; Schutter and Hicks, 2019; Silver and Campbell, 2018). According to interviewees, it was on the initiative of Government of Seychelles that the plan was changed to make MPAs a subcomponent of the MSP process. While the MSP exercise undertaken by the Seychellois state and civil society organisations distributed rights and potential uses of the EEZ, the World Bank notes that debt swap funding ‘will not be sufficient to allow for the effective management of the marine areas and the fisheries of the Mahé Plateau, potentially making them theoretical initiatives and jeopardizing the achievement of their objectives’ (Garnaud, 2017: 6). Similarly, as an interviewee explained,

Obviously, the cash flow from [the debt swap] is not going to be sufficient for all of the funding necessary for this, but having done this work for 20 years, conservation finance, developing finance mechanisms for conservation, there is never one mechanism that is the silver bullet that will provide all the financing.

The Global Environment Facility and the World Bank’s Third South West Indian Ocean Fisheries Governance and Shared Growth Project (SWIOFish3) became an additional source of funding and also included the Seychelles Blue Bonds. The Blue Bonds extended SeyCCAT’s role as the organisation came to manage US$3 M of the proceeds from the Blue Bonds as part of the Blue Grants Fund (BGF). The rest of the Blue Bond proceeds were to be disbursed as loans through the BIF of the DBS (Figure 1).

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Figure 1.

The flows of Seychelles’ Blue Bonds, debt for nature swap and SWIOFish3.

One of the aims of the debt swap was to reduce government debt as part of a longer trajectory of IMF restructuring in Seychelles, which was initiated in 2008, but the actual reductions in debt ended up being disappointingly low (Silver and Campbell, 2018). As the Commonwealth Secretariat has argued, even if small island developing states (SIDS) are not necessarily low-income, which is the classification that international financial institutions use to determine access to development finance, they still need access to concessional finance due to their large debt loads (Silver and Campbell, 2018: 246). The Commonwealth Secretariat emphasised this analysis on the need for rethinking fiscal policies and access to finance when they, for about two years, had a consultant embedded in Seychelles’ Ministry of Finance, helping develop Seychelles’ Blue Economy strategy. ¹ Attracting international finance thus became part of Seychelles’ approach (see also Schutter et al., 2021):

As a high income country, it is critical that Seychelles increases domestic revenue through much more efficient application of revenue raising instruments such as taxes, resource rent, licenses, fees and levies and better compliance and enforcement capacity, but also through policy reform (e.g. tax reform, effective pricing of resource rent and licences for example) and through growing its economic base. (The Republic of Seychelles and the Commonwealth Secretariat, n.d.: 33).

The Blue Economy thus became part of the state’s fiscal governance of incomes and expenditures. Both the debt swap and the Blue Bonds are part of this overall strategy, which rethinks the state’s fiscal policies. Taking on new debts increases recurring expenditures and can exacerbate the effects of economic volatility (Adams et al., 2020: 7, 21). This is particularly the case with debt denominated in foreign currencies like the Blue Bonds as a depreciation of the local currency can lead to unexpected increases in debt repayments.

While being promoted by various international institutions, Blue Economy financing has also met critique from various angles. TNC has been criticised for using Seychelles’ debt problems and the IMF restructuring of Seychelles to insert itself into the future of its EEZ since TNC personnel is on the board of SeyCCAT (Silver and Campbell, 2018). Others argue more broadly that although the Blue Economy is officially said to be about social, environmental and economic sustainability, economic imperatives dominate the Blue Economy (Baker et al., 2023; Schutter and Hicks, 2019) and the central role of extractive fisheries jeopardises sustainability objectives (Andriamahefazafy et al., 2020). Some critics specifically argue that the use of Blue Bonds in SIDS’ fiscal policies is primarily a form of neo-colonialism (Perry, 2022). Regardless of how one judges Blue Bonds, it is nonetheless relevant to examine how the transaction became structured as it did and planning exercises related thereto, which is what the following sections explores.

Composing faith in the circuit of capital

Extending credit in principle requires that creditor and the productive debtor have faith in repayment and the productiveness of the credit. The creditor needs to have faith in debtor’s ability to repay, which relates to the credibility of the debtor and the political institutions that govern debt as a social relation (Lazzarato, 2012). Examining the structuring of the bonds explicates how the promise of value is based on narratives and expectations prior to any ‘real’ value production. The Blue Bonds implied a future creditor with a belief in the credibility of the debtor and a future debtor that anticipated using ‘fictitious capital’ for seafood production. Whereas a conventional producer’s faith in credit implies a faith in a future where profits exceed interest rates, Seychelles’ leap of faith was much more profound; because of the way the bonds ended up being structured, Seychelles borrowed money with the expectation that they could create the conditions for using bond proceeds to extend credit to businesses whose commodity production would indirectly benefit the state by supporting the broader economy.

The same year as the Seychelles debt swap was announced a report that placed Seychellois fisheries implicitly in the field of state fiscal policy was written. The report for Seychelles by Vivid Economics (2015: 22–34) offered different scenarios for Seychelles’ demersal fishery. One scenario showed that if fishing efforts remained at 2013 levels, biomass and catches would decline with respectively 61% and 63% towards 2040. If Seychelles followed a draft management plan by the Seychelles Fishing Authority, biomass in particular would decline less. Finally, Seychelles could implement ‘full mortality control’, which would lead to increases in biomass and decrease fishing effort by 50%. The report estimated that the cost of such a full management plan would be around US$4.2 M and that the returns for every US$ spend would be 17 times higher (Vivid Economics, 2015: 4). ² Using debt correctly would secure employment, fisheries exports and revenue in the future. Additionally, government costs could be lowered by reducing subsidies to artisanal fisheries (Rassool, 2017), thus fitting well with the fiscal focus of Seychelles’ Blue Economy (The Republic of Seychelles and the Commonwealth Secretariat, n.d.).

The deal between Seychelles and the bond investors differed significantly from the Vivid Economics (2015) proposal. Not only was the issuance much larger as Seychelles issued US$15 M instead of the proposed US$4.2 M cost of fisheries transition, but since Seychelles had secured financing through the SWIOFish3 project, the immediate need for financing for fisheries transition became less important even if the government would have considered using Blue Bond financing for the Vivid Economics (2015) proposal. Instead, most of the proceeds (US$ 12 M) would be used to make loans to businesses covered by a management plan as a subpart of the SWIOFish3 funding. The focus on increasing the economic benefits from its oceans in the face of deteriorating fish stocks thereby remained the focus (see e.g. Advance Africa Management Services, 2018). This, however, required composing the bonds in such a way that all parties could have mutual faith in their potential profitability.

If the government had issued regular sovereign bonds, it is likely that interest payment would have surpassed what was tolerable for the Seychelles. As an advisor to the World Bank told the International Financial Law Review, ‘One of the big issues in investing in environmental instruments of this type is a lack of liquidity. Tax bases are too small to pay for these efforts and governments of developing or small nations cannot afford huge interest payments, which would be risky in any event’ (Jackson, 2019, emphasis added). Since the government was issuing a bond, as an interviewee from the Ministry of Finance explained, the government had two additional considerations. Since the bonds would capitalise a revolving fund that would make loans to businesses, bond coupons needed to come down to a level where the loans made by the fund could outcompete commercial bank loans while also being able to cover some of the administrative costs of setting up a new fund. Secondly, bonds should not compromise Seychelles’ commitments to IMF structural adjustment. ‘As part of our debt reduction strategy’, the interviewee from the Ministry of Finance argued, ‘we essentially had criteria for new lending, which meant that pretty much any above 3.5% – I mean the strategy was not set in those terms – but it did mean that any lending that would be more expensive than that would not be viable’.

Meanwhile, even as investors could fall back on the simplicity of government bond ratings when pricing the bonds (Hilbrandt and Grubbauer, 2020; Paudyn, 2013; Sinclair, 2005), a regular sovereign bond was too costly since Seychelles was rated below investment grade (Jackson, 2019). The relatively low diversification of the Seychellois economy, as an interviewee explained, created a latent risk for investors,

[O]ne of the biggest issues when investing in emerging markets is the perceived risk (. . .) Seychelles has one of the best performing economies through all of that period but of course that success was driven by a very good tourism sector and also good performance in the fisheries sector (. . .) Then you have this relative lack of diversification in terms of the economic drivers (. . .) So that drives the perception of risk and the pricing of that risk.

The answer became a US$5 M loan guarantee from the World Bank and a US$5 M concessional loan from the Global Environment Facility. ³ According to the previously cited interviewee from the Ministry of Finance, the former was a challenge: ‘For me the biggest hurdle was that whole process of negotiation and convincing the World Bank to come in with its partial guarantee’. This, according to the interviewee, was because it involved the World Bank putting ‘skin in the game’ in the case Seychelles would default and because ‘the governance of these [development finance] institutions is quite very heavy and therefore when you are doing what is essentially a market-based transaction but depending on a political process, there is a little bit of a mismatch’. Meanwhile, as an example of how international organisations are de-risking blue financial transactions (Perry, 2021), the GEF low-interest loan not only lowered the price of borrowing for the government. Since the GEF loan has a 40-year maturity in contrast to the 10-year maturity of the Blue Bonds, the structure makes debt repayment more long-term than without the concessional loan (see Figure 1), thus affecting liquidity, while giving investors the security of only having committed money for a 10-year period.

However, the structure of the bonds met criticism by an evaluation funded by the World Bank. Based on theorematic reasoning from financial economics, the evaluation critiqued the Blue Bonds for mainly being part of a national welfare initiative, which should more clearly separate ‘commercial and altruistic’ activities and mobilises funding before there are businesses needing funding (Hunt, 2020: 26–27). Furthermore, it critiqued the structure of the bonds since environmental outcome and investor repayment became de-coupled (Hunt, 2020). Yet, these features seem hard to separable from the political reality of assembling actors and funding. On the one hand, without being part of SWIOFish3, the deal might not have materialised since the cost of bond issuance was lowered by applying the concessional loan and the guarantee, and as part of the SWIOFish3 project, bonds could be promoted based on environmental benefits. On the other hand, being structured as a sovereign bond, pricing became simplified as previously noted. As Vivid Economics (2015: 42) noted prior to issuance, a sovereign bond would likely be necessary as investors would be unable to judge the returns from fisheries investments specifically. That Seychelles’ investments were based on issuance of debt was essential since, as a bond investor explained, they mainly deploy debt, and the fisheries space largely demands equity investments. A sovereign issuance eased the transaction. ‘The government of Seychelles has a credit rating so you have a benchmark that’s what the risk-based pricing of that credit is’ as the investor explained. Thus, pricing the bond became easy because, when using their internal ‘pricing methodology that looks at the risk of a transaction, the cost of our operations, the expected repayment of that investment and our equity hurdles’, the investor could apply the Seychellois state’s ‘sovereign credit rating and use that as a parameter of risk’ when calculating the bonds’ net present value.

The Blue Bonds formalised the investor’s belief that they were likely to get a return, advancing credit as capital. Meanwhile, an equally important belief, which was not similarly formalised, was the Government of Seychelles’ expectation that businesses would take on the loans from the newly established fund and apply credit as capital. In other words, as a means of transforming the uncertainty of Blue Economy investments into legible risks for investors through blended finance (Christiansen, 2021a), structuring investments as sovereign bonds formally achieved this. Yet, the World Bank guarantee and concessional GEF loan made such a sovereign transaction economically viable. Effectively subsidising the bond with blended finance meant that investors could establish faith in the returns from the national economy while the Government of Seychelles could issue loans to businesses without risking significant losses and exceeding debt targets. Seychelles’ investments turned out to be complex, as there was not the immediate pipeline of investable projects that was initially assumed. Meanwhile, the state needed to make regulatory changes and assemble land that underpinned loan issuances through BIF.

Finance goes fishing?

Once the Blue Bonds were issued as capital, it became the responsibility of the Government of Seychelles to enable the bond proceeds to be applied as capital. If successful, the Seychelles could benefit from long-run increases in its resource rents and value production by providing leverage to relevant maritime businesses. Using blue bonds to finance either fisheries management or upgrading can however be an unpredictable source of revenues (Thompson, 2022: 7). To the extent that the majority of proceeds would be used to extend loans to businesses, the implicit collective task of state agencies was to ensure that bonds did not just create ‘profit upon alienation’ for bondholders but provided leverage to businesses covered by management plans. Given that the Seychelles Blue Bonds were issued in October 2018 but the first BIF loan was approved in February 2023 (de Fontaubert, 2023), it is clear that the bonds were issued somewhat prematurely insofar as the enabling conditions had lagged behind.

One clear issue was tenure and land. Even if businesses may have wanted to apply for BIF loans, the enabling conditions for extending loans to those businesses were not secured. Development areas, either for aquaculture or fish processing plants, are, as interviewees emphasised, scarce. Securing tenure for entrepreneurs that may want to apply for the BIF and securing the infrastructural conditions of available land created a challenge. One interviewee, for whom ‘the biggest problem is the question of land’, explained how critical units of lands had in the past been allocated – potentially as a result of land recipients’ political affiliations – to people that did not use the land for productive activities:

One bottleneck, which is perhaps not appreciated, is that for you to do any investment, or for you to do value addition in Seychelles, you need land at the fishing site or the port and this land is not readily available so every investor, all the investors really, have to get land from government and this land has been perhaps badly allocated or perhaps not used. So the new government is going to have a look at those who were promised land and have another look at who should be getting land.

As this interviewee furthermore explained, sewage capacity for treatment of wastewater from processing plants would have to be increased, but for the entity responsible for improving sewage conditions, the Public Utilities Corporation, this was not a priority. Without proper sewage, businesses would be unable to commit to making new processing plants, but without businesses committing to making new processing plants, improving sewage would not be a priority. In January 2021, the Government of Seychelles found Ile du Port suitable for private investments in processing. As a special advisor told Seychelles News, the right site had to accommodate ‘other activities in its surrounding, in particular to health requirements of the products, it is imperative that they are located in areas with surrounding activities that are compatible with the activities of fish handling and processing’ (Laurence, 2021). This goes to show the mundane, but often-difficult process of planning and bureaucratic coordination when the state tries to improve the economic benefits from its resources, specifically by integrating environmental management and value chains (Baglioni and Campling, 2017; Campling and Havice, 2014: 715).

In addition, the Government of Seychelles needed to secure the regulatory conditions since BIF loans would only be issued to support maritime sectors that are under a management plan. The co-management plan for the demersal fishery only came into force at the turn to 2022 and was, unlike the tuna fishery, considered insufficiently managed. As explained by an interviewee, this is why the BIF could support processing for tuna value-addition whilst trying not to increase pressure on tuna fishing:

[O]ne of the key criteria is that the supply fishery – if you are investing in fish processing or in any other kind of post harvest like marketing and distribution – the supply fishery has to be covered by a management plan, and a management plan that is developed according to best practice and so on. And unfortunately the demersal fisheries, which a lot of the small scale fishers are unfortunately engaged in, do not currently have that in place for their fishery so the plan was actually launched in the beginning of January, end of last year, but the enforcement came in this year [2022]. (. . .) the Blue Investment Fund may open up to investment in those [demersal] value chains, but right now the only fishery that we can say – important fishery – is covered by management is the tuna fishery. Of course people will say that management is not very good with the status of yellowfin tuna, but you know, the yellowfin tuna is under a re-building plan whether it is going to be effective or not time will tell.

Even as one of the central reasons for establishing the BIF was to support an entirely new field of aquaculture, the two main challenges faced by the aquaculture sector essentially mirrored those of fisheries. On the one hand, the right areas needed for licencing aquaculture needed to be found, and on the other hand, legislators needed to approve new policies. Securing the right areas for aquaculture, which would not conflict too much with other uses, had been difficult, according to an interviewee specialised in aquaculture who was nonetheless optimistic about prospective aquaculture development. The approval of Seychelles’ aquaculture regulations had been delayed but was finally gazetted by the end of 2020 and officially launched in October 2021 (Athanase, 2021). The time period between bond issuance and the launch of the aquaculture sector in Seychelles was a period during which bondholders realised profit upon alienation whilst Seychelles had fewer opportunities for providing leverage.

Not having a single person continuously responsible for Blue Bond implementation specifically, limited personnel at the relevant ministry and changing responsible ministers did not make coordination any easier. As an interviewee explained, the government department that is responsible for fisheries is small and therefore relies extensively on external consultants to draft policies. In addition, the expenditures for such consultants are often, as in the case of SWIOFish 3, reliant on external development funding. Once policies reach the cabinet and potentially requires amendments, there are limited legal resources to re-write policies. As a result, as the interviewee put it, ‘it is always an issue of you’re juggling many balls, some will fall, you know, some will be up in the air’, emphasising government personnel continuously must prioritise between different critical issues.

Seychelles could potentially have ensured more regulatory milestones had already been met before issuing the Blue Bonds. However, during the interviewing process, it was suggested that a reason why the necessary planning for extending BIF loan was not done in advance of bond issuance was because of the many actors involved and that there was political capital to be gained from issuing the bonds as part of the ‘Blue Economy’. In other words, the Blue Economy discourse has politically put Seychelles on the world map (Saddington, 2023), and while it may have had some coordinating effects nationally (Schutter et al., 2021), it may at times also have been at odds with sufficient planning and coordination. One interviewee summed up how the planning process could instead have been done:

Because the government was issuing the bond, you couldn’t have the investors in the bond or the World Bank say, ‘well you can’t have the money until you have done X, Y and Z’. It is very difficult for them to do that when it is a sovereign issuance. You know, you look at the debt conversion, they had milestones for MPA designation under that conversion. It was central to it. (. . .) Retrospectively again, having certain conditions – not imposed by the investor or the World Bank but self-imposed by the government – saying ‘we are not going to issue this bond before we have done X, Y and Z ourselves.’

The interviewee furthermore highlighted that the election of the opposition party, Linyon Demokratik Seselwa, in October 2020 changed the dynamics since it merged fisheries and the Blue Economy as one ministry, which it had not been previously. This powerful ministry had, according to the interviewee, finally been able to coordinate government agencies and make land reforms. Regardless of which planning trajectory that might have been most appropriate for Seychelles, the planning challenges show the uncertainty that the sovereign faces in governing the flow of environmental finance into its territory. Even before credit enters the frictional process of private sector seafood processing, the Government of Seychelles needed to govern the environmental conditions of investment.

Concluding discussion

Using the Seychelles Blue Bonds as a case of our contemporary development paradigm, this paper has analysed how an economically peripheral state like the Seychelles tries to govern expanded economic reproduction by assembling credit and environmental planning. Historically, peripheral countries have become exporters of their natural resources and have little economic wiggle room because of their position in the international monetary system (Svartzman and Althouse, 2022). As an example of Seychelles’ engagement with the international monetary system, the Blue Bonds show Seychelles’ endeavour to mobilise capital to maintain its maritime resource economy as the other side of the coin. The fiscal and administrative hurdles that the Government of Seychelles has been facing show how the de facto capacity of the state was critical in the Blue Bond deal even as it involved raising money on private capital markets and facilitating it to private companies. First, the fiscal capacity of the state when applying fictitious capital is constituted through collective imaginaries and faith in the returns made by Seychelles and fisheries investment. Investors needed faith in repayment through future Seychellois tax revenue (or repayment from the World Bank guarantee) and Seychelles needed faith in the economic viability of BIF investments. Second, the capacity of the state to regulate its territory was still a critical part of governing loan flows since loans would only support fisheries that had taken sufficient steps towards a management plan. Appropriate areas for seafood processing and aquaculture either proved scarce, required political planning or required public entities improve land through investments in sewage. The Government of Seychelles became the governor of uncertain rent generation and value production, which proved difficult to coordinate in the first years after the Blue Bond issuance.

The Seychelles Blue Bonds would ideally have provided leverage that resulted in profits that exceeded private debitors’ interest payments to DBS, the revolving BIF at DBS would receive interest payments that would exceeded the costs of the Blue Bonds and the state would potentially gain further revenue from the already important fishery and newly developed aquaculture. Redistributing and improving (through sewage) scarce land, developing coastal areas and the applying labour and capital had the potential of enabling rents (insofar as local areas with the right conditions were limited) for private actors. ⁴ Instead, in the immediate years after the issuance of the Blue Bonds, the bonds mainly resulted in profit upon alienation inasmuch as they led to investor returns rather than leverage. Whether the Seychelles Blue Bonds will create sufficient revenues in the years subsequent to this study remains to be seen. Interviewees remained hopeful about the prospects of the BIF when some of the final interviews were conducted for this study. Even as credit come from private capital markets to private enterprises, it is clear that the state faced uncertainties and complexities in the planning process. In this sense, like value chain governance (Havice and Campling, 2017), the case of the Seychelles Blue Bonds shows how the governance of the investment chain worked in tandem with environmental governance by the state. While the intermediation in the bond structure critically limits the linkages between the Blue Bonds and environmental outcomes, much like the preceding debt swap (Silver and Campbell, 2018), it appears less likely that the bond investors would have been interested in investing directly into Seychellois businesses, which would also have involved currency risk and would likely have been too small for international investors. Since the de-coupling between project outcomes and returns for bondholders is a generic feature of these bonds, this is not the main contribution of this analysis. Rather, the analysis has highlighted how environments are being governed for the flow of finance, implying uncertainties and frictions for the state.

Unlike other thematic bonds, which were likely to have been made without any green labelling (Hilbrandt and Grubbauer, 2020), it is unlikely that the Seychelles Blue Bond would have been issued if it was not for the ‘blue’ label since the bonds could put Seychelles’ Blue Economy on the world map (Saddington, 2023; Schutter et al., 2021). Meanwhile, as part of the SWIOFish3 project, the bonds were supported by blended finance without which the cost of the bond would not comply with Seychelles’ IMF debt restructuring nor would it be economically viable to use proceeds for local lending. Since peripheral countries face liquidity constraints and high costs of borrowing, actors providing peripheral countries with lower costs of money capital acquire a powerful role as gatekeepers. Because of the role of blended finance, the Seychelles Blue Bonds may be an outlier in the thematic bonds market. Yet, as blended finance is increasingly being promoted as a tool for environmental investing (Bracking and Leffel, 2021), it may be far from the only case moving forward.