African Infrastructure Assets a Key Target for Middle East Islamic Investors

Tuesday, January 10th  2017 - DUBAI, UAE:  Major infrastructure projects in the Middle East and across Sub-Saharan Africa are increasingly becoming a key investment target for Islamic investors, according to Project & Infrastructure Partner at Jones Day, Nadim Khan. 

Billions of US dollars’ worth of project capital from the growing Islamic economy is a potential source of investment for the type of mega infrastructure that underpins economic and social development across Sub-Saharan Africa. However, the legal and regulatory environments in key African nations will need to evolve to better accommodate the needs of Sharia investors. 

“Infrastructure is the driving force behind the emergence and continued growth of Africa’s major new economies. And in order to sustain their trajectory and realize their promise they will need to continue to attract significant levels of project capital to fund their development,” said Nadim Khan. 

“The Islamic investment community has the capital, and it has the desire to engage in projects that deliver clear social and economic benefits to people and shareholders,” continued Khan, “so to close this gap a more carefully structured regulatory environment that enables Sharia transactions is needed.”

Infrastructure spending in the sub-Saharan region is projected to grow by 10% a year over the next decade – exceeding $180  billion by 2025 while maintaining its 2% share of the global infrastructure market. Yet while countries such as Nigeria, Ghana, Kenya and South Africa continue to spend billions of dollars on transformational domestic infrastructure projects, the Islamic investment community is currently underrepresented.  

Two years ago, South Africa issued a US$500m 5.75-year Sukuk - the largest Sukuk issuance from Sub-Saharan Africa at the time and only the third Sukuk to be issued by a non-Islamic country. 

“South Africa’s successful Sukuk issuance is a demonstration of promise and precedence for Islamic investment in Sub-Saharan Africa,” continued Khan.
“What ultimately sets Islamic investors apart is the inherent requirement to deliver meaningful social impact through every transaction. This value-driven approach to investing underpins Islamic finance and makes every new road, transport project and power plant in a developing country ideal for such investors,” he concluded. 

The Islamic economy is set to grow at 8 per cent compound annual growth rate (CAGR), from US$1.9 trillion (Dh6.9 trillion) now, to US$3 trillion by 2021 and the sector doubled  in size from 2011 to 2015, making it more critical than ever to engage Islamic banks.