'Gulf investors not comfortable investing big in African markets'

Gulf investors are not very comfortable when it comes to investing in African markets which are not mature in terms of Islamic finance and they are reluctant to put large amounts of money in those markets.

According to Adam Green, Senior Editor with the Economist Intelligence Unit's Thought Leadership, the region will need roughly $90 billion annually for infrastructure but Islamic finance is going to contribute only a small portion of it.

“In the case of South Africa’s sukuk, there was strong interest from GCC for GCC investors are very comfortable on sukuk instruments to be used as a form of financing. They have enough experience on the African continent and they can play an important role. There is a lot of trust and confidence on South Africa. But when you get into broader Sub-Sharan African region, Gulf investors don’t have experience. So when it comes to making big investments, they want to focus more on developed and established markets.”

Based on figures collected last year, Gulf investments through public and private sources in African infrastructure was around 10 per cent, said Green.

“The general figure is that $90 billion annually is needed for infrastructure deficit and around half of that is forthcoming. There is a multi-billion dollar need for infrastructure financing in Africa. Islamic financing is going to have a minority share of it because not all countries are using those instruments and are not comfortable with them – though Islamic finance is tailored to structure well for the infrastructure,” he added.

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.

There are a handful of countries such as Nigeria, South Africa, Sudan and a few others which are opening doors to Islamic finance by taking concrete measures and issuing various instruments, he said, adding that it suggests that not all 54 African countries will go big on Islamic finance but they will be significant enough to make it worthwhile.

"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 their presence felt in these markets with their leadership and excellence,” said Hamad Buamim, President and CEO, Dubai Chamber of Commerce and Industry.

 

Follow Emirates 24|7 on Google News.