Islamic Bonds In Sub-Sahara: UAE Now No. 4 For Foreign Investment

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Written by Staff

From Zawya.

A number of African countries have opted to issue sukuk, or Islamic bonds, as an alternative to raise funds for projects. Last year, South Africa became the first non-Muslim country in Sub-Saharan Africa to issue a sovereign sukuk. Valued at $500 million, it was readily taken up by Middle East investors.

Gambia is a frequent issuer of local currency sukuk, while Senegal raised more than $200 million in a local currency Islamic bond last year to fund a number of infrastructure and energy projects.

“Although comprehensive information on investment flows between the Middle East and sub-Saharan Africa is not available, the strength of demand for recent sukuk bonds by sub-Saharan issuers is evidence of Middle Eastern investors’ interest in sub-Saharan Africa investment,” notes Standard Chartered Bank in a report.

“Nearer-term, deeper markets and a Middle-Eastern investor base more familiar with Africa should help to advance sub-Saharan Africa sukuk issuance.”

Trade between the two regions has risen fivefold to $35 billion in 2014 compared to $7 billion a decade ago. Sub-Saharan trade with the Middle East has grown 12 percent annually since 2000, compared to 27 percent with China and 18 percent with India.

“We see scope for increased engagement by Middle Eastern countries in key sectors including agriculture, infrastructure and finance in sub-Saharan Africa. Sukuk issuance, enabling sub-Saharan Africa issuers to diversify and tap a Middle Eastern investor base, will be driven by substantial infrastructure needs.”

The two regions are coming closer with Emirates airline, Etihad airlines and Qatar Airways improving trade networks with sub-Saharan Africa countries. Dubai-based firms are actively engaged in port operations in sub-Saharan Africa and private equity investors form the Middle East are significant investors in the region, according to Standard Chartered.

Middle East investors have actively sought African assets, especially in infrastructure projects such as ports and telecommunications and power generation. Gulf companies alone have invested as much as $30 billion in African infrastructure over the past decade, according to the Economist Intelligence Unit.

According to Ernst &Young, companies from Gulf states increased their share of African foreign direct investment projects to 9.1 percent in 2014. It said Saudi firms launched 11 FDI projects in Africa last year, up from just three in 2013.

“Middle Eastern investors were especially strong in real estate, hospitality and construction (26.9 percent of their projects), financial services (20.9 percent) and consumer products and retail (19.4 percent),” E&Y said in a recent report.

The UAE emerged as the fourth-largest foreign investor in Africa in 2014, after the U.S., the U.K. and South Africa.

“UAE companies now invest more money in Africa than those of any other nation (in the Middle East), and create the most jobs,” the report added.

 

Read more at Zawya.