Gabon's debts will be reduced by $450 million thanks to an innovative debt-for-nature mechanism. Piloted on Gabon's behalf by Bank of America (BofA), the debt-for-nature mechanism enables developing countries to reduce their external debt in return for funding for their biodiversity. In return, Gabon is protecting part of its marine ecosystem. This is the second case in Africa after the Seychelles.
After the Seychelles, Gabon is paying for its biodiversity through the debt-for-nature mechanism. The operation, for which tenders were launched on the London Stock Exchange on 25 July 2023, will enable Gabon to reduce its external debt by up to 450 million dollars (267.1 billion CFA francs). In return, the country is committed to protecting its marine environment, with the support of the US-based non-governmental organisation (NGO) The Nature Conservancy.
Financially, the operation is being led by Bank of America (BofA), the second largest US bank in terms of deposits. A debt-for-nature swap is a debt relief technique for developing countries. It involves extending payment terms, reducing interest rates, granting new loans at low rates and writing off debts. This technique, invented by the American biologist Thomas Lovejoy, considered to be the godfather of biodiversity, involves exchanging part of the foreign debt for local investment in environmental protection measures.
The largest network of marine reserves in Africa
As part of Gabon’s debt-for-nature operation, the choice to protect marine biodiversity is not an insignificant one. Over the years, the Central African country has built up the largest network of rich and diverse marine reserves in Africa. Stretching over 53,000 km2, or 26% of the country’s territorial waters, this environment comprises 20 marine parks and aquatic reserves. It is home to countless threatened marine species, including the largest breeding populations of leatherback and olive ridley turtles, as well as 20 species of dolphins and whales.
Gabon thus becomes the second African country, after the Seychelles, to benefit from the debt-for-nature swap. It’s a swap that should spread throughout Africa, “firstly, because there are many countries on the continent with very large bond debts, and which have problems refinancing these debts. In fact, between now and 2025, there is going to be a debt refinancing wall in sub-Saharan Africa, and as you know, the last time an African sovereign issued bond debt was 18 months ago. So there is a problem of a lack of resources to help African sovereigns refinance the bond debt they issued between 2010 and 2020. And this is where the ‘debt against nature’ swap can be of interest to African countries”, explains Hamouda Chekir, a member of Lazard’s Government Advisory team.
The French bank has just assisted Ecuador with a financial package that benefits both nature and the country’s economy. In concrete terms, Ecuador has swapped its current debt of $1.63 billion for a debt of $656 million, a transaction corresponding to 3% of the South American country’s total external debt, i.e. $48.129 billion in February 2023.