Macroeconomic impact of an international fishery regulation on a small island country

doi:10.21203/rs.3.rs-3212793/v1

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Macroeconomic impact of an international fishery regulation on a small island country

https://doi.org/10.21203/rs.3.rs-3212793/v1

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This paper examines the macroeconomic impact of a tuna fishing regulation on a small island economy that relies heavily on tourism and fishing for foreign exchange earnings. While there is scientific consensus to limit the use of drifting fish aggregating devices (dFADs) worldwide, there is no agreement on their optimal number at sea. Resolution 23/02, adopted by the Indian Ocean Tuna Commission (IOTC) in February 2023, proposes a 72-day moratorium on dFADs, but this resolution faces opposition from many contracting parties, particularly developing countries. To understand the reasons for this opposition, a recursive multi-sector dynamic general equilibrium model is developed for the Republic of Seychelles, a small tuna-dependent country. The model assesses the short- and medium-term macroeconomic impacts of a seasonal dFAD closure in the Indian Ocean tuna fishery. The analysis suggests that a 12% decline in canned tuna exports would result in a -8.8% deviation from the trend in real Gross Domestic Product after seven years. Such an impact would have wide-ranging effects on the domestic economy, affecting all components of aggregate demand. Consequently, the economy would become more dependent on tourism, which has shown its vulnerability during the recent pandemic crisis. The study highlights the importance of considering social and economic aspects in sustainable fisheries management and provides insights into the potential consequences of dFAD regulations for small island economies.

JEL codes: Q22, D68, E65

Earth and environmental sciences/Environmental social sciences

Social science/Economics

tuna fisheries FAD closure

macroeconomic effects

dynamic CGEM

Seychelles

Drifting fish aggregating devices (dFADs) are under scrutiny in global tuna fisheries because of their massive use across the oceans, their significant contribution to the growing fishing capacity of industrial purse seiners, and the negative externalities they induce (e.g. bycatch of endangered protected and threatened species like pelagic sharks or loss at sea after sinking or stranding which causes increased marine pollution and habitat degradation) [1–2–3–4]. Regional Fisheries Management Organisations (RFMOs) have created management plans to curb the intensive use of dFADs by implementing spatial or seasonal closures, limited deployment and acquisition of buoys per vessel, limits on dFAD sets, etc. [5–6]. However, the best intentions of dFAD management measures can also create unintended effects on the environment or the economy [4–7].

In February 2023, the Indian Ocean Tuna Commission (IOTC), the RFMO in charge of tuna fishery management in the Indian Ocean, voted a resolution to create a 72-day dFAD seasonal closure from July 2024. This resolution came from a group of contracting cooperating parties (CPCs) undergoing the negative effects of dFADs. However, many other CPCs have objected to this resolution¹, including developing and coastal states relying economically on tuna landings from industrial purse-seine fisheries. If the need for restricting the development of dFADs is admitted by most experts around the world, the consequences of management plans are poorly considered in all their dimensions [7–8].

To fill this gap, the present research looks at the economic consequences of a dFAD closure for a small country resulting in a severe decrease of its canned tuna exports. According to the managers of the Thai Union processing company located in Seychelles (interview made on May 7th, 2023), the resolution would lead to a shutdown of the plant between two and six weeks, equivalent to a decrease of activity between 4% and 12%. We took the upper bound of this interval to build a counter-factual hypothesis affecting the evolution of the domestic economy after the shock. This represents a worst-case scenario which is unlikely to happen, given that the country and most of its partners have already objected to the resolution and therefore are not bound to it. However, the scenario illustrates the channels of transmission of such an external shock for a small open economy, as well as the multi-dimensional nature of conservation management measures beyond their ecological impact. Using a recursive multi-sector dynamic general equilibrium model, this case study also highlights the entanglement of interests between distant water fishing nations and some coastal countries through the various channels of spillover effects affecting their economies.

[1] In July 2023, at least nine states had already objected to this management measure: Comoros, Oman, Somalia (but withdrew on March 25^th), Philippines, Seychelles, Kenya, European Union, France, Tanzania and Yemen.

The literature on fishery management policies is focused on the effectiveness of management to prevent stock depletion and overharvesting [9–10–11]. Maintaining fish stocks within safe biological limits and achieving a maximum sustainable yield (MSY) remain the cornerstones of natural resource management because the conservation of biomass and biological diversity is meant to support all other dimensions of sustainability, including economic or social aspects such as the role of women in fisheries [12]. However, in most cases, the management policies are designed species by species and stock by stock, with a lack of consideration of consequences for the full ecosystem from which they are extracted, or for the social and economic consequences that decisions may have on coastal communities [13–14].

In the case of tropical tuna fisheries sharing mobile stocks, interactions first occur at different age classes between surface and deep sea fishing gears (e.g. purse-seine vs longline) [15]. For instance, purse seine operating on dFADs or pole-and-line fleets catch juveniles of yellowfin tuna (Thunnus albacares), while longline vessels catch more adults of the same species. Harry Campbell [15] estimated what could be an optimal allocation of yellowfin catch between the three gears (purse-seine, longline and pole-and-line). He used a previous estimation of harvesting interactions between 1978 and 1989 showing that a 1% decline of catch per unit effort (CPUE) in purse-seine is associated with a 1.68% increase of CPUE for the longline fishery eighteen months later. However, he preferred to use a more conservative response of a 1% increase in longline catch for any 1% decline in yellowfin catch by purse-seiners [15]. It remains nonetheless difficult to clearly demonstrate any causal link between the catch dynamics of yellowfin and bigeye (T. obesus) tunas exploited since the 1950s in the Indian Ocean, despite of the tremendous expansion of the purse-seine fishery since the early 1980s [16–17]. More recently in the Pacific Ocean, Ovando et alii [7] studied the conservation of bigeye tuna in the West Central Pacific Ocean (WCPO), attempting to estimate the social cost of protecting bigeye tuna in terms of forgone catches of skipjack (Katsuwonus pelamis) with dFADs. The authors have estimated that the MSY of bigeye tuna would only be achieved at the expense of withdrawing three-quarters of the effort on dFADs, thus reducing the catch of small bigeye and yellowfin tunas, but also skipjack simultaneously. In such a case, the net welfare outcome would result in a USD − 1.2 billion loss, and would hit in priority the small island developing states (SIDS) of the Pacific Ocean while benefiting only to Japanese sashimi consumers [7]. They conclude that only a limited dFAD removal (~ 15%) would produce social benefits exceeding costs.

The consequences of tuna management policies also affect other ecological impacts, such as increased bycatch. Drifting FADs used by purse-seiners are known to increase the amount of bycatch relative to free school fishing. Watson et al. [18] identified closure areas in the Eastern Pacific Ocean where the bycatch of silky sharks (Carcharhinus falciformis) could be reduced by one-third whereas the catch of target tuna species would only decrease by 12%. However, it happens sometimes that single-species management results in undesirable consequences for bycatch. For instance, the implementation of a total allowable catch of yellowfin tuna in the Indian Ocean (IOTC Res. 2016-01) has fostered the use of dFADs in the northern division to avoid large yellowfin tuna which is rather harvested on free schools. By doing so, the number of silky sharks caught accidentally on dFADs has dramatically increased and represented a significant social cost [4]. A balanced trade-off between the conservation of target stocks and the ecological impacts of management decisions is not easy to find, although most experts agree that dFAD fishing produces detrimental effects on marine ecosystems and should be therefore limited [1–3–5–6–19].

Economic consequences of dFAD management may also be severe for contracting parties. In the WCPO, SIDS would be the first losers of a substantial reduction of dFADs. The Vessel Day Scheme allows small island countries to sell the effort rights in their EEZ (access fees) to the distant water fishing nation (DWFN) vessels [10–20]. This system would become less profitable and the value of the VDS license could decline significantly if the use of dFAD would be prohibited or severely restricted ([7]). Let’s remind that the fishing access fees represent more than 50% of government revenue for Tuvalu, 70% for Kiribati and more than 80% for Tokelau [21]. In the coming decades, climate change will reduce and reallocate the tuna biomass spatially, thus removing a substantial part of this revenue for a certain number of Pacific SIDS (Ibid.) and also for territories located in the Indian Ocean [22].

The tuna-dependent economies will not be the only ones to suffer from a seasonal closure of dFAD fishing every year. The purse-seine fleets have become increasingly dependent on dFADs around the world because they are using larger vessels, supply boats to assist them, sophisticated electronic equipment such as echo-sounders to detect the fish biomass under dFADs, etc. [5–8]. It was estimated that a six-month dFAD closure in the Atlantic and Indian oceans would reduce the catch by 600 to 1,800 tonnes per boat per year, i.e. 12–37% less catch according to the season and conditions under which this dFAD restricting measure is implemented [23]. In the WCPO, the economic loss would fetch 15% of the vessel’s revenue, i.e. USD − 250,000 per fishing trip on average [24]. The economic prosperity of small developing states is often derived from the fish landed by these industrial fleets.

The economic development of small island territories is based on many different port activities and fish-associated jobs such as stevedores, fuel suppliers, shipping agencies, fishing equipment manufacturers, warehousing agents, maritime carriers, fish processors, seafood traders, etc. [25]. Tourism and fisheries are often the two economic pillars of SIDS, providing a critical income of foreign currency allowing them to secure their imports of other commodities and services. However, such a specialisation increases their vulnerability to external shocks and diversifying their activities would enhance the conditions of endogenous growth [26]. Because of this specialisation, it is of major interest to evaluate the economic contribution of the fishing industry to the local economies through the direct and indirect effects which are created [27].

Usually, economists develop input-output or general equilibrium models to calculate the multiplier effects of the fishing industry on the rest of the economy [28]. Input-output (IO) approaches have long been applied to fisheries and marine sectors more generally [29]. Matrix calculus is used to describe the chain of cascading effects that a product or an industry may have on the whole economy (or several ones in the case of multi-regional IO models) through the industrial linkages between suppliers responding to a shift of end demand. Computable general equilibrium (CGE) models “are based on the theory of general equilibrium that draws on the main concepts of market clearing and neoclassical micro-economic optimisation behaviour of rational and homogenous economic agents” [28]. Beyond the domestic industry response in terms of output quantity after a shifting demand, the CGE approach introduces some price flexibility [30]. The shock in real terms will not be converted entirely in a proportional effect on outputs for all the national industries but may dissipate also into lower prices for some commodities, therefore mitigating the overall impact on the domestic economy [31]. The framework of IO and CGE models offers so much flexibility that connections are made possible with the natural resources and the environment upon which rely any economic development. Such conceptual developments mixing macroeconomic models and the dynamics of fish population have been proposed within the past literature about fisheries, either to emphasize the feedback loops between the ecosystem and the economic system [32–33] or more often to estimate the economic contribution of commercial or recreational fisheries to a domestic economy [34]. Our approach is rather related to this second strand of research works but provides an original dynamic CGE approach to account for the sequential effects following an initial shock. Rather than an accurate forecast of a real shock like a seasonal fishery closure, it reports a possible long-term tendency [28] for a small island country which would be affected by a fishery management rule adopted out of its control.

The model presented in this paper builds on interesting contributions in the field of dynamic general equilibrium modeling, like those of [30–35–36–37]. However, it differs from some of these models in its treatment of expectations, since households and firms are myopic in their decision making. Our model is thus a recursive dynamic general equilibrium that can then be viewed as a sequence of successive static general equilibria linked by adjusting the level of capital and labor stocks. The Seychelles is treated as a small open economy that takes world prices as given. The whole structure and equations of the model are described in [31]. The assumptions about the reference case are specified in Table A1 (Appendices) to avoid a tedious presentation in the core of the text. Four types of economic agents are considered: firms, households, the government, and the rest of the world. The model considers the linkages between firms, households, and the government in the domestic economy, as well as the economy's linkages with the rest of the world, considering resource constraints. The main economic agents in the model respond to changes in relative prices. The model considers the presence of taxes levied by the government on transactions of goods and services and primary factor incomes. It also considers the government's ability to invest in public infrastructure, which affects the productivity of private primary factors.

The model assumes an exogenous growth rate for the labour force in the economy. In the reference situation, the model provides projections for various sectoral and macroeconomic variables based on IMF projections for real GDP growth rates and the values of exports of goods (Table A1)². Based on the growth rate of the labour force and the evolution of physical capital, the model determines the underlying growth rates of total factor productivity, which are consistent with the growth rates of GDP.

The calibration of the model is based on the 2019 social accounting matrix (SAM) of the Seychelles, built using the coefficients of the 2014 SUT and 2019’s actual levels for aggregate variables from the national accounts, balance of payments, and government financial operations statistics [31]. The Seychelles Industrial Classification of 23 industries and 35 products was aggregated into nine sectors³ to simplify the presentation of results. The ‘fish industry’ group encompasses fishing and fish processing activities.

Firms

In each industry, production requires a combination of labor, capital, and intermediate inputs. The production technology features constant returns to scale and provides managers with various options for substituting inputs in response to changes in relative prices. The productivity of private primary factors is influenced by the level of public capital stock provided by the government. Firms pay taxes and invest in physical capital, which increases their capital stock.

The optimal level of inputs is determined by a cost minimization rule and the Shephard lemma. Since firms are not endowed with an intertemporal behaviour in the model, the level of investment is determined in an ad hoc manner, based on the rental rate of capital and the price of capital goods. Gross output is transformed into goods using a fixed-proportion rule, and the same good produced by different industries is aggregated using a CES function. The representative firm receives transfers from the government and retains a fixed share of the return on capital for saving.

Households

Households have preferences for leisure and for domestically produced and imported goods. Over time, their total time endowment grows at the same rate as the constant growth rate of the population. They allocate their time between labour and leisure and derive their income from the returns to labour and physical capital, transfers received from the government, and net transfers from the rest of the world. They pay income taxes to the government and other taxes, such as sales taxes on goods, levied by the government.

In each period, the representative household maximizes its utility, subject to a budget constraint, to determine the optimal level of labour supply and consumption of goods. A two-level nested utility function is used to represent the preferences of representative households, where utility is a logarithmic function of total consumption and leisure at the top level and total consumption is a CES function of various goods at the second level. A two-step optimization process is used to solve the representative household problem. At the optimum, an increase in the relative price of a good reduces affects relative quantity demanded.

The government

The government consumes goods and invests in public capital, which increases the productivity of private factors. It finances its expenditures through taxes and bond issuance. Government spending includes consumption spending, public investment spending, transfers to households and firms, and interest payments on government debt. A fixed proportion rule is used to allocate the total expenditure of each category among the various commodities. The government's total outlays minus its total revenue represents its balance. When this is negative, the government finances the deficit through bonds purchased by domestic households and non-residents. The government pays interest on its outstanding debt to domestic and foreign residents. Government spending on capital goods increases the public capital stock and affects the productivity of private primary factors such as private capital and labour. Public investment affects the economy both on the traditional demand side through the demand for capital goods and on the supply side through its impact on the productivity of private factors.

Relations with the rest of the world

The domestic economy relates to the rest of the world through exports, imports, transfers to households and the government, and net capital inflows to finance investment. On the supply side, total production of each good in the domestic economy is sold or exported. A constant elasticity of transformation (CET) function is used to capture the transformation of the composite into sales in both markets. A revenue maximization rule is used to determine the optimal level of sales in each market.

On the demand side, total demand for each commodity by domestic agents includes demand from households, the government, firms for intermediate uses, and for investment by the private sector and the government. Investment demand by sector of destination is a different concept from investment demand, which we discussed earlier. Total investment by sector of destination is a composite of investment demand by sector of origin. A Cobb-Douglas aggregator is used to combine investment by sector of origin to form total investment demand by sector of destination. A cost minimization rule is used to determine the composition of the composite and its dual price. The aggregate demand for each good is a composite of domestically produced goods and imports. A CES aggregator is used to capture the imperfect substitutability between the goods of the two origins.

Equilibrium and dynamics

The model assumes that all economic agents respect their budget constraints, and that market equilibrium is achieved through price adjustment. The wage rate adjusts to clear the labour market, and the price of each domestically produced good adjusts to supply and demand. Capital is industry-specific, and investment flows move between industries in response to differences in rates of return. There is a macroeconomic equilibrium between savings and investment in which total investment must be financed by total savings, i.e., the sum of foreign and domestic savings.

To avoid a Ponzi game, the model incorporates a closure rule in which the ratio of foreign savings to current GDP follows an exogenous path each period. The model is closed by adjusting in each period the saving rate of households to achieve equilibrium between savings and investment. The model's dynamics are driven by the evolution of the labour force, private and public capital, and public debt.

[2] https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD/SYC

[3] Agriculture, Fish industry, Manufacturing, Utilities, Construction, Finance and real estate, Tourism, Information and communications, and Other services. The 23 industries and 35 products are included in the model; aggregation into nine sectors is done only for the presentation of the model results.

Seychelles bears a structural merchandise trade deficit which has increased from SCR 7.7 billion in 2015 to SCR 11.8 billion in 2022 (NBS 2023), with significant consequences for the economy and the public sector. The government’s overall balance was at equilibrium or even slightly positive between 2015 and 2019, but became strongly in deficit during the COVID-19 pandemic (SCR − 3.9 billion in 2020 and SCR − 1.5 billion in 2021), when the income from the tourism sector plummeted before recovery in 2022 and 2023 (Central Bank of Seychelles, www.cbs.sc). Tuna products, weighting nearly 90% of all merchandise exports on average, have supported the domestic economy during this difficult period, exports of canned fish even rising by 40% in quantity (20% in nominal value) between 2019 and 2022 (Fig. 1). This dynamics demonstrates the key role played by the tuna industry for the domestic economy which accounts directly and indirectly to 8% of the domestic GDP at basic prices [27].

Assuming a worst-case scenario of a significant decrease of production and export after a seasonal closure of tuna fishing for three months (third quarter), we analyse the consequences of this closure for this small open economy. In that regard, our simulation cuts the nominal value of fish product exports by 12% in the first year and kept it constant at this new level for the subsequent years, as though the dFAD moratorium was extended from year to year with the same consequences on tuna landings for the country.

Among others, the overall impact of decreasing fish exports would result in a declining real GDP and a growing debt for the national economy (Fig. 2). The demand for fish by foreign consumers is an important component of aggregate demand, representing 19% of the GDP. The contraction of fish landings and exports will therefore directly affect the GDP by a few points during the first years following the dFAD management decision (-0.1% from the reference level of the first year, then − 1.5% in the second year, -3.7% the third year, etc., Table 1). Because this industry consumes a great deal of domestic and foreign inputs and provides many jobs for nationals and expatriates⁴, the cascading effects on the economy could be important, thereafter affecting the tax income for the government and increasing the public debt beyond 4% from the reference level after seven years (Fig. 2). The households’ income would also fall proportionately, thus depressing the domestic consumption. Interestingly, all components of the aggregate demand (private consumption, private and public investment, government expenditure, exports) exhibit a similar decreasing pattern, accelerated after the shock (Table 1). It mostly shows the great reliance of the domestic economy on the exporting performance of this small country: as soon as the main driver of the economy is slowing down, all other components of demand adjust to this new level of disposable income.

Table 1

Deviations of selected aggregate variables from their reference levels after the shock (%)
%	2019	2020	2021	2022	2023	2024	2025
Real GDP at market prices	-0.1	-1.5	-3.7	-5.5	-7.0	-8.0	-8.8
Real private consumption	-0.8	-2.3	-4.2	-5.2	-6.2	-6.9	-7.5
Real private investment	-1.2	-2.7	-4.5	-5.3	-6.0	-6.6	-7.2
Real public investment	-1.2	-2.7	-4.4	-5.1	-5.8	-6.4	-7.0
Real government consumption	-0.4	-2.0	-4.2	-5.7	-7.0	-7.8	-8.5
Total real exports	-2.0	-4.3	-6.9	-7.7	-8.6	-9.4	-10.2
of which exports of fish product	-9.4	-17.2	-24.6	-25.9	-27.8	-30.6	-33.2
of which real revenue from tourism	0.5	0.1	-0.7	-1.6	-2.4	-2.7	-3.0
Total real imports	-2.7	-5.0	-7.1	-7.2	-7.5	-8.1	-8.6
Public debt		0.1	0.4	0.9	1.6	2.7	4.4
Note about the shock: the nominal value of fish exports is reduced by 12% in the first year and remains constant at this new level.

However, all sectors are not hit to the same extent. The most spectacular collapse would concern the fish real exports, with a negative deviation of 9.4% from the reference levels in the first year after the shock, this effect amplifying throughout the following periods (up to -33.2% after seven years, Table 1), as though the local supply chain was broken and impeded any output recovery. This fall would only weakly affect the first economic pillar of the domestic economy, i.e. the tourism industry, which would respond positively after the shock (+ 0.5% and + 0.1% for the two first years, respectively), and step back only by -1% or -3% for the following years. The two opposite trends show the separate dynamics of the two industries whose drivers are independent from the other. A look at the sectoral contributions to GDP strengthens this result: all sectors are equally affected seven years after the exogenous shock of lower fish exports (-9% away from the reference levels), except a few industries (Table A3 in the Appendices). The fish industry is more affected than others, beyond − 19% after seven years, but the manufacturing industry is also severely harmed by the shock (-18%). It is important to remind that energy operators belong to the manufacturing sector supplying the highly fuel-consuming fishing activity [38], as well as other companies producing various inputs required to go out fishing at sea (electric and electronic equipment, ice, salt, fishing gears, food, etc.). At the end of the period following the shock, all other industries display a negative deviation to the sectoral GDP levels between 9 and 10%, except the tourism industry whose activity is less severely hit (-6% only after 6 years).

[4] Indian Ocean Tuna Ltd the tuna canning plant of Seychelles, belonging 60% to the Thai Union Group and 40% to the state of Seychelles, employs nearly 2,000 people, of which one-third are Seychellois and two thirds foreign workers.

Conservation and management measures are designed to restore the level of fish stocks, enhancing future catches and landings in case of recovery, as shown in several successful examples in the past [39–40]. They may also produce unintended consequences on other ecological components or along social and economic dimensions [4–41–42]. A resolution was adopted by IOTC in February 2023 to impose a seasonal dFAD closure starting from July 1st to September 11th, 2024 (IOTC Res. 23 − 02). Several contracting parties have objected to this resolution because they considered that this measure was not justified scientifically in all its consequences⁵. This is why it seems important to analyse the effects such a measure may have on small tuna-dependent economies.

We built a counterfactual hypothesis based on a worst-case scenario where the tuna canning plant in Seychelles would be shut down for six weeks every year from 2019, resulting in a 12% drop in its fish exports which represent the bulk of the country’s sales abroad. This case is unrealistic because the Republic of Seychelles has already objected to the IOTC resolution 2023-02, escaping to its implementation in the country according to the RFMO’s rules. Secondly, most of the trade partners landing fish and exporting to the country (e.g. EU fleets) have also objected and can therefore supply the local cannery with frozen tuna. The analysis is nonetheless interesting to understand the consequences of a sudden disruption in fish production and the channels through which a small open economy could be affected [43]. In particular, the external impact could be somehow comparable to a strong El Niño Southern Oscillation (ENSO) effect which stopped local tuna landings for the second quarter of 1998, resulting in a 34% decrease of output value for the fishing and fish processing industry, hence a -5% change of real GDP [22]. The recent COVID-19 pandemic provided another good example of what could produce such an external shock. The number of foreign visitors had fallen by 70% in 2020, generating a 11% decrease in the GDP [27–31].

What is observed in the present case is a twin deficit of public and foreign trade accounts. Several explanations and pass-through effects can be put forward. We summarise the overall effect by the following chart (Fig. 3):

The first one is based on a Keynesian loop related to the loss of capital (KDàYF+YH_capàC+INVàDDàQSàVAàKD in Fig. 3). The fishing industry is capital intensive, with capital income representing 92% of the primary income in the Seychelles case. Consequently, the capital market (hence investment and savings) collapses after the shock and hit almost every industry. The marginal rate of substitution becomes smaller than the marginal rate of transformation, generating a lower relative price of fish compared to other goods and services. The domestic consumption does not respond to this decreasing price by consuming more fish because this specific output (canned tuna), produced in very large quantity (~ 50,000 tonnes per year, see Fig. 1), is quasi-entirely directed to the export market. The labour-intensive activities do not benefit from the new situation because the public sector is also hit, thus reducing social transfers and investment. Only a few industries can take advantage of the lower interest rate, like the financial and real estate sectors, but this is far from offsetting the loss of the fish industry in which the country is specialised. The whole economy is therefore depressed by the decline of households’ consumption.

The second channel through which the economy is affected lies in the Leontief multiplier effects (QSàICàIDàQS in Fig. 3). The intermediate demand for inputs by the fish industry has dramatically decreased after the shock, in particular self-consumed inputs such as frozen tuna landed by Seychelles-flagged (domestic inputs) or foreign-flagged (imported inputs) vessels, but also transportation and storage, food products (oil, salt), rubber and plastics used for fishing gears or packaging, marine diesel oil, stevedoring services, electronic equipment, etc. The backward linkage effects of this central activity are usually very important for such specialised small island economies [21–28–44]. The spillover effects spread over the entire economy by cascading from industry to industry and from year to year in our recursive multisector dynamic system. A meta-analysis of economic multipliers in the marine sector lato sensu (including freight, shipbuilding, marine renewable energy, aquaculture, tourism, etc.) estimated an average output multiplier of 1.82, meaning that any US Dollar created by the marine sector would increase the domestic output by an additional amount of 82 cents in the rest of the economy [29]. In the case of Seychelles, the output multiplier of the fish industry was deemed slightly higher (1.99) [21]. The most impacted supplier of the fish industry is the transportation and storage activity which produces an important net surplus and consumes in turn many different inputs and primary factors, like oil purchased from the local company which fully imports the crude and refined oil products. We can therefore understand why the trade balance is deeply modified after the external shock not only on the export side but also through imported goods and services.

The third transmission channel of the shock is naturally passing through foreign trade and investment, thereby creating a twin deficit in the country (EX-IMàRoWàIT+IMTàG+INV àDDà EX-IM in Fig. 3). The fish industry imports one-third of its inputs but exports 96% of its output. After a shock affecting the exports of fish products, the trade balance becomes therefore strongly negative, creating a financing need which cannot be covered by domestic savings, thus deepening the public deficit. The government incurs a loss of tax income and thus inflates its current deficit and debt stock. Let’s also remind that the state holds 40% of stock shares in the local canning company (Indian Ocean Ltd) owned by Thai Union Group, a foreign investor, for the remaining stock. Because of the decreasing activity of the cannery during the dFAD closure season, the government receives less royalties and corporate tax income. However, the public budget is weakly impacted by the indirect taxes because the tax rates on value-added or import duties are quasi-null for fishery input products. On the other hand, the loss of duties on the shrinking import flows of energy products can be more harmful to the government. Consequently, the state has a less active supporting role through its expenditure (consumption + public investment) or monetary transfers to private institutions (firms and households). With the current account balance drifting towards a larger deficit for the country, the financing capacity of foreigners could rise and trickle down to the domestic economy through grants, aid, loans or foreign investment. However, the latter variables are considered fixed in the model and cannot supplement the weakening domestic demand.

[5] For a list of arguments underpinning the objections, see the nine IOTC Circulars (2023-11, 2023-12, 2023-14, 2023-18, 2023-19, 2023-20, 2023-26, 2023-28, 2023-35) downloadable on the IOTC website (https://iotc.org/documents/circulars)

In this article, we explored the macroeconomic consequences of an international fishery management measure for a small open economy. The recent IOTC decision on a 72-day closure of the dFAD fishery for the Indian Ocean purse seine fishery could lead to a shortage of fish supply for tuna-dependent areas and affect other activities and institutions through a chain of cascading effects. Using a dynamic general equilibrium model applied to the case of Seychelles, we examined the spillover effects of a 12% decline in fish exports for this country.

We show that this shock to foreign demand affects all industries and institutions in this small open economy that specialises in tourism and fishing. The shock wave spreads rapidly to the domestic demand for all goods and services through the decline of capital income. The growth trend of 3–4% planned by IMF is eroded by a deviation of nearly 9% after seven years, resulting in a -5% or -6% change for the national product with an amplified effect throughout time, other things being equal, i.e. in the absence of countervailing economic policies or international support. All the drivers of aggregate demand are affected (household consumption, investment, government expenditure…), starting with the most important one (exports), so that the entire domestic economy depends on foreign visitors and tourist activities, increasing its vulnerability to a new shock such as a pandemic or an international crisis.

Author contribution:

Patrice Guillotreau has contributed to the data collection process, analysis and writing; Yazid Dissou has contributed to the design of the model, data collection and processing and analysis of results; Sharif Antoine, Manuela Capello, Frédéric Salladarré, Alex Tidd and Laurent Dagorn have contributed to the analysis of results and editing process.

Acknowledgement:

The authors are grateful to France Filière Pêche (FFP) which has funded the MANFAD project on which this research is carried out. The authors also want to thank the National Bureau of Statistics of Seychelles and the African Bank of Development for developing and sharing their data and models.

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Macroeconomic impact of an international fishery regulation on a small island country

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