Vietnam's blue economy ready to create a wave

June 24, 2024 | 04:12 pm PT
Thomas Jacobs IFC Country Manager for Vietnam
As I have traveled around Vietnam since moving to Hanoi in August 2022, I am constantly reminded of its natural beauty – from the rich greens of its mountains and rice fields to the varied blues of its oceans.

Previously managing the International Finance Corporation's operations in the Pacific Islands, ocean economies and "blue finance" have been on my mind since I arrived in Vietnam. And being an avid open-water swimmer and water sports enthusiast more generally, protecting our oceans is very important to me.

But it isn't about me, oceans are a huge asset to us all. A source of livelihood for over three billion people, a healthy ocean provides food, drives economic growth, and absorbs about 30% of global CO2 emissions. At least 3 to 5% of global GDP is derived from the ocean. According to the Organization for Economic Cooperation and Development (OECD), ocean-based industries are expected to double their contribution to global gross value added from 2010 to 2030 to $3 trillion and employ 40 million people.

In East Asia, coastal countries and seas account for 80% of global aquaculture and provide the conduit for 90% of world trade through shipping. In some countries in the region, more than 20% of gross domestic product is generated by the blue economy, the term used to describe the sustainable and integrated development of economic sectors in healthy oceans.

Yet a range of factors—climate change, overfishing, and pollution—threaten the health of oceans, putting marine life at tremendous risk and impacting millions of people who rely on them. More than 80% of plastic leakage into marine environments comes from Asia and the Pacific. Fifteen out of the 20 most polluting rivers globally are in this region, with seven in Southeast Asia. 1.5 billion people in rural areas and 600 million more in urban areas across the region still lack adequate water supply and sanitation.

This needs to change. Without timely interventions, climate change, overfishing and unsustainable tourism practices, marine litter, and untreated wastewater entering the ocean will significantly limit the potential of the region's blue economy.

In Vietnam, it is estimated that with appropriate interventions in the blue economy across key marine sectors, the nation's GDP could be 34% higher by 2030 – an increase of $23.5 billion compared to the business-as-usual scenario. The country's 3,260-km long coastline provides rich marine resources along with major potential for onshore and offshore wind power. Vietnam is also the world's fourth-largest producer of fish and aquaculture, with annual seafood exports of $8.5 billion.

Over the last few years, investors, financial institutions, and issuers globally have shown increased interest in blue finance, an emerging area in climate finance. Blue bonds and blue loans are financing instruments that earmark funds exclusively for ocean-friendly projects and the protection of critical clean water resources. Demand for this asset class has grown since 2018, when the World Bank and the Republic of Seychelles issued the first sovereign blue bond. Recent market research commissioned by IFC, the largest development institution focused on the private sector and a global leader in climate finance, indicates an immediate investment opportunity of at least $90 billion in the blue economy across select emerging markets globally.

This type of innovative financing offers an opportunity for Vietnam's financial sector. Transitioning to a climate-resilient and low-carbon economy will require massive investments, with at least half from the private sector. Key to achieving Vietnam's Sustainable Development Goals by 2030, this is also an opportunity for the domestic banking sector to establish their position as market leaders.

A challenge is identifying investment-ready, bankable projects. Financial institutions will need to refine their approach to develop sizable blue projects for investment, including applying environmental and social risk-management mechanisms for blue sectors. At the same time, the market has been seeking guidance on project eligibility criteria, translating general blue economy financing principles into guidelines for blue bond issuances and blue lending.

In response, IFC launched Guidelines for Blue Finance in 2022 to guide its investments in blue finance by identifying eligible blue project categories that support the blue economy – for example, IFC’s new investment in a five-year blue bond to be issued by Southeast Asia Commercial Joint Stock Bank (SeABank), the first of its kind in Vietnam. These guidelines have been a useful reference for market stakeholders, who are interested in growing this asset class.

Aligning public and private sectors to create transparent and attractive market opportunities will help drive Vietnam's blue economy investments. And in some markets, public-private partnerships (PPPs) are vital, especially with fiscally constrained governments and Asia's massive infrastructure needs. Water supply, sanitation, and waste-management are some of the sectors that could benefit from PPPs.

A holistic approach—from policies to practical implementation to private capital—is essential to preserving and regenerating Vietnam's oceans. Strong regulatory frameworks and transparency will be important to determining the speed, at which markets and the private sector can unlock blue investment opportunities. And, as with "greenwashing," preventing and mitigating "bluewashing" will be critical to inspiring investor confidence.

The blue economy is an integral part of IFC’s commitment to climate finance. As the country works towards developing a strong blue economy, we are excited to be part of Vietnam's watershed moment.

*Thomas Jacobs is IFC Country Manager for Vietnam, Cambodia and Lao PDR.

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