As we move into a new financial year, there have been indications that market participants find Africa less attractive than it used to be last year. Some have even gone as far as suggesting that the region no longer holds prospective investment avenues. This week IFN asks the industry if this is truly the case. NABILAH ANNUAR reports.
Africa is a region that has its fair share of Islamic financial transactions. One of the major developments it achieved last year was South Africa’s inaugural US$500 million Sukuk auction. Issued in September, the program was oversubscribed by four times and priced at a coupon rate of 3.9% representing a spread of 180bps above the corresponding benchmark rate. Apart from being one of the four non-Muslim sovereigns that chose to raise funds Islamically, the issuance also set the stage for other states and corporates in the region to do the same. Last month, the sovereign reportedly had plans to issue a US dollar or South African-rand denominated Sukuk next year.
Perhaps on the back of this positivity, the poll results remain optimistic with 60% voting in favor of Africa still bearing attractive investment prospects, while 40% believed otherwise. The region is enormous, diverse, rich in resources and has a Muslim population of over 400 million. Although it has a nascent Islamic finance industry that is gradually emerging across the continent, it is somehow underserved and usually overlooked by the financial services sector.
Several multilateral development institutions have carried out various initiatives across the region. Most recently, the IDB signed an MoU between with the Kingdom of Morocco to strengthen the cooperation in the field of economic development of sub-Saharan African countries. The Franco-American Alliance for Islamic Finance and the African Islamic Economic Foundation similarly last month signed an MoU for the cooperation and advancement of Islamic finance and investments in Africa. Both parties acknowledge the high potential of Islamic finance in Africa as a form of alternative financing and investment and as a tool to attract investment into the region. The African Union Commission (AUC) has also signed an MoU with the Islamic Corporation for the Development of the Private Sector (ICD) to enhance bilateral ties with the Islamic world. The MoU strengthens the coordination of complementary activities, interests and capacities between the ICD and AUC towards promoting private sector development, investment, and resource mobilization in Africa through unlocking business potential: including mobilizing foreign direct investment in various economic sectors within the key priority sector programs and projects identified by the ICD and AUC.
Diversifying its Islamic finance capabilities, Africa for the first time last year witnessed its first Shariah compliant financing transaction in the aviation industry. Ethiopian Airlines in September last year concluded a US$100 million financing deal with Bahrain-based Ibdar Bank for the lease of four Bombardier Q400 NextGen planes. Following the success of this deal Ibdar Bank has further plans to finance other regional carriers particularly in Africa and the GCC that wish to expand their fleet – clearly signifiying potential in the region’s investment landscape.
Apart from capital market, retail and corporate finance activities, Africa has also been identified as an emerging niche market for Takaful products due to the region’s increasing wealth and inclination for Shariah compliant financial instruments. According to a report released by Deloitte last year, the Islamic investment market in Africa is growing with wide opportunities for Takaful operators to hold a spread of Shariah compliant investments and assuage any regulatory concerns. Micro-Takaful has also been suggested as an untapped opportune area for Islamic finance activities.
Based on the many developments that have transpired over the past few months, perhaps Africa is still a relevant destination for Islamic finance. The only impediment could be the very gradual progression which could be attributed to unavoidable external factors.