The South African financial sector offers world-class financial services to its consumers, from well-established Shariah compliant wealth managers and investment funds to conventional banks that offer Shariah compliant financial services, which are more competitive than the conventional financial products. This financial competitiveness has allowed Islamic finance to penetrate not only its traditional consumers but also attract a large segment of its non-traditional consumers in the country.

South Africa’s economic recovery plan is based on significant infrastructure developments, which have set the stage for substantial Shariah compliant investment product development in the market.

Review of 2021
As the economic situation in the country continues to deteriorate, despite achieving a growth of 5% in 2021, revised from 4% previously, according to the IMF (https://www.imf.org/en/Countries/ZAF), South Africa is less likely to sustain its recovery beyond 2021, with growth expected to slow to 2.2% in 2022.

Unemployment rates have been increasing and are reaching their peak for the last 15 years. Unemployment in 2020 was revised to 32.6% in the first quarter of 2021.

Disruption waves of the COVID-19 pandemic have hit the market space; South Africa is looking for avenues to stabilize its economy and allow it to have some space to breathe in terms of its regional Shariah compliant financial center ambition.

South Africa’s unemployment rate stood at 34.4% in the second quarter of 2021 (http://www.statssa.gov.za/?p=12689).

In the wake of the July 2021 mass unrest after the imprisonment of Jacob Zuma, a former president, in KwaZulu-Natal and Gauteng, another unprecedented crisis hit the country and its economy. This unrest has affected the unemployed, especially those affected the most by the global pandemic crisis.

Unrest has affected all the country’s business sectors; supply chain infrastructure was under stress and insurance and Takaful sectors were also under massive pressure as they experienced an unprecedented wave of claims following the looting that took place during the unrest.

The bigger picture suggests that the country’s economy has suffered from slow growth, general weak economic conditions, political instability and inflation.

Nevertheless, Islamic financial institutions see an opportunity in times of darkness; while consumers opt for competitive financial products with lower risk and stable returns, consumers have more trust in socially responsible and ethical products, thus it bodes well for Shariah compliant financial products. Therefore, local Islamic financial institutions and Islamic windows have been undeniably busy launching new products one after another.

Preview of 2022
As we look to 2022, one cannot avoid speaking about the disruptive implications of the COVID-19 pandemic on businesses, and Islamic financial institutions were not immune to this either.

Looking at the financial sector, as more and more jobs are being cut by the large banks in South Africa, which are often the most significant Islamic financial windows, secular challenges will eventually open the way for innovative retraining of the laid-off staff, as more and more people are finding employment in non-traditional layouts, like hybrid work, freelancing work and working from home (remote).
The annual inflation rate in South Africa has forced the pace for a second consecutive month to 5% in September 2021 from 4.9% in the previous month; as targeted by the South African Reserve Bank, the rate remains above 4.5% midpoint.

Conclusion
The good news is that the economic slowdown is not expected to last, as many of the negative factors that have been pulling down growth are starting to fade; the government is pushing on with massive vaccination programs that are expected to slow down the pandemic crisis. Businesses are bouncing back as they receive their insurance payoffs, post-July unrest.

In addition to the brighter outlook for the investment market, the regulatory environment is belatedly coming on board which will allow more creativity and diversity in the financial market.

Dr Aziza Yarlaeva Ebrahim is the strategy and Islamic finance advisor at Islamic Finance Think Tank (IFTT). She can be contacted at [email protected]