Dubai, UAE: Highlights of a Dubai Chamber of Commerce and Industry study reveals the presence of large investment opportunities in the untapped sectors of Islamic economy in the African continent, especially in the field of Islamic finance, halal food and tourism, in Africa’s south and east markets offering lucrative investment options for UAE investors in the various areas of the promising Islamic economy sector.
The highlights of the study which will be fully published during the Africa Global Business Forum in Dubai next month, was launched during a press conference by Dubai Chamber on the 2nd day of the Global Islamic Economy Summit organised by Dubai Chamber and the Dubai Islamic Economy Development Centre in collaboration with Thomson Reuters, at Madinat Jumeirah on Tuesday.
Launched in association with the Economist Intelligence Unit (EIU), the highlights pointed to the growing demand in Kenya, Ethiopia and South Africa markets for Islamic finance products and banking instruments in asset management and takaful sectors.
It further revealed that the African region needs somewhere near $98bn a year to fund its infrastructure needs. Sukuk lends itself well to Africa’s infrastructure gap, it said.
In his welcome address during the conference, H.E. Hamad Buamim, President and CEO, Dubai Chamber, said that this Investing in Africa’s Islamic Economy: Southern and East Africa Report is very timely as it links two very important topics like Islamic economy and Africa. Overall, this study provides a comprehensive overview of the current status and potential for Islamic finance and economy in Southern and East Africa and brings forth some interesting insights and information.
“Our global expansion strategy is to enhance the competitiveness of our members in emerging markets of the world while highlighting Dubai as the middle ground from where Asian companies can make entry into Africa, and to call upon African companies to set up base in Dubai and to benefit from the lucrative investment opportunities presented by the emirate’s vibrant economic sectors including trade, tourism logistics, and financial services. To this effect, we have set up two representative offices in Ethiopia and Ghana and are soon to open another two in Mozambique and Kenya,” said H.E. Buamim.
He further stressed that the highlights of the study also covers the Central African markets, while the opportunities in the west of the continent will be reviewed during the Africa Global Business Forum in November.
"Africa is the destination for future investments, and the Islamic economy sector in the continent is still in the growth phase, therefore we invite UAE companies to work in this area to make Dubai the Capital of Islamic Economy under the directives of H.H. Sheikh Mohammed bin Rashid Al Maktoum, UAE Vice President and Prime Minister and Ruler of Dubai, and to make their presence felt in these markets with their leadership and excellence,” he said.
The President and CEO of Dubai Chamber further stressed that this study is one in a series of studies on Africa developed by the Chamber, and is aimed at introducing businesses in Dubai to investment opportunities available in South and East Africa.
According to the report, the Islamic financial services industry in Africa is currently dominated by banking and sukuk agreements but growth potential remains in the asset management and takaful sectors.
In countries such as Kenya, Ethiopia and South Africa the Islamic segment of the population is increasingly demanding Islamic financial products. Moreover, the African region needs somewhere near $98bn a year to fund its infrastructure needs. Sukuk lends itself well to Africa’s infrastructure gap because of the requirement of cash flows.
Focusing on South Africa, the initial study states that Muslims represent 2.3% or 1.3 million of the population in South Africa while contributing well over 10% of the GDP. However, only 10%-15% of the Muslim population uses Islamic banking.
Islamic finance is slowly gaining ground in South Africa while the country has the most developed stock exchange leaving it well poised as a springboard for investment opportunities and penetration into the rest of the Continent.
In September 2014, South Africa became the third non-Muslim country, after Hong Kong and the UK to issue Islamic-compliant debt setting a significant precedent in Africa. The $500m sale, jointly arranged by BNP Paribas, Kuwait Finance House Investment Limited and Standard Bank of South Africa, was four times oversubscribed, with investors from the Gulf Corporation Council (GCC) getting over half of the subscription allocation.
The bond, which matures in June 2020, is part of the National Treasury’s objective to diversify its funding and investor base. The National Treasury is now working on issuing South Africa’s first domestic rand-dominated sukuk with the aim of diversifying funding and expanding Islamic finance beyond the banking sector. Total Islamic banking assets currently account for 3.5% of total banking assets in South Africa.
Zambia is laying groundwork to accommodate Islamic windows alongside its conventional banks, Islamic financing could play a key role in financing infrastructure, agriculture and manufacturing projects in the country which launched Islamic finance guidelines in an effort to develop regulatory framework for the sector.
As the only member of the Islamic Development Bank in Southern Africa region, Mozambique has received around US$300 million investment by the IDB since the country joined the bank in 1995. Currently 22 IDB-funded projects, valued at more than US$160 million, are under way.
On Kenya, the study states that the country has a Muslim population of 14.5 million while Islamic banking commands a market share of about 2%. Under the Capital Master Plan, Kenya has adopted a robust vision for developing Islamic capital markets. The country has an on-going partnership with the Qatari government to build capacity and develop the legal and regulatory framework to allow it to issue a sukuk, Islamic asset management and other Sharia compliant products. Dubai Islamic Bank has recently received, in principal, approval from regulators in Kenya to establish a branch, expected to open by the end of 2015.
Uganda has a Muslim population of nearly four million, representing 12% of the total population of around 30 million. The government of Uganda in June approved the Financial Institutions (Amendment) Bill, paving the way for Islamic banking and finance in the country. A member state of the Islamic Development Bank, Uganda is seeing interest from both foreign and local financial institutions to offer sharia compliant services to the nation.
There is significant growth potential in Islamic microfinance in Ethiopia. Around a third of Ethiopians don’t have access to formal credit and saving products. The country has to develop a comprehensive and adequate regulatory framework to grow confidence in this sector.
The study showed that the Takaful market in Sudan is the most important market in Africa, the world's third largest market after the Gulf Cooperation Council (GCC) and Malaysia.
The study pointed that Sub-Saharan Africa regional spend on halal food was about $114bn in 2013 based on Thomson Reuters data. Emphasis has been mainly on halal meats and meat products, but over the past few years, the trend has been shifting to the introduction of halal franchises, prepared meals, canned, frozen and instant foods.
In spite of its small Muslim population, South Africa has emerged as one of the five largest producers of halal products worldwide largely due to its access to the rest of the Continent and the presence of highly advanced halal certification programmes (60% of all products in SA’s retailers are certified halal) worth approximately ZAR1billion ($71.7m), according to MATRADE (Malaysia External Trade Development Corporation).
South African supermarkets including South Africa hopes to increase the value of halal exports by $31-billion by 2020 and reinforce its position as gateway to the Continent’s halal food and beverage market.
Halal travel in Africa offers significant growth potential for the tourism industry. Muslim tourists globally represent a major niche market—a market that has a young demographic, is growing in affluence, and is increasingly asserting its unique needs on the travel, tourism and hospitality market.
Tanzania, Zanzibar and South Africa are currently the most popular destinations, and are best equipped for the halal market, but destinations in Africa are still considered for the more intrepid traveller. Poor marketing strategies are symptomatic of the undeveloped market.
The study lists the priorities for Muslim tourists which it said are centred on the availability of halal food, a family friendly environment and accommodating religious practices and gender related nuances such as private pools.
Global Muslim spending on travel is expected to reach $238bn by 2019. Africa has a small share of the halal market, representing only 5% (Europe 51%), according to DinarStandard research signalling room for growth. There has been a 40% increase in tours to Africa year on year.
Success factors and recommendations
The study stated that the success of the halal tourism in Africa depends on the high population density, high rates of growth, and geographical proximity of GCC states, as well as the need for Islamic finance to fund infrastructure projects.
The study came up with several recommendations, most notably the need to develop a mechanism and standard for Islamic services covering all relevant financial and hospitality services, according to the approved international standards, while establishing ties with institutions and centers of Islamic finance in Malaysia, Dubai and London, and the establishment of an independent monitoring board to oversee the application of Islamic standards. Finally, to strengthen cooperation with financiers to Islamic finance products such as the Arab Fund for Economic and Social Development.
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