In the post-colonial arena following the advent of World War II on the African continent, the cultural line of demarcation has become the Arabic Islamist North – littoral Egypt, Libya, Sudan, Tunisia, Algeria, Morocco – and the mostly Animist and partially Christian central and sub-Saharan south.
However, despite the Arabic history of slave-trading and subjugation of its native African majority, numbering in the hundreds of millions, Islam has become the fastest-growing religion on that continent, bringing with it its political, as well as economic, influence.
Flush with oil wealth, the super-rich Gulf States are discerning profitable opportunities among the hundreds of millions of Muslims and others, who live on the other side of the Red Sea.
Africa’s economies are growing at more than six percent annually, thanks primarily to the commodities boom. It’s a given that the huge continent harbors the largest concentration of a highly sought-after variety of resources.
Despite the fact that the bulk of Africa’s 800 million population is still among the least economically developed in the world, a greater number than ever are evolving into positions where bank accounts are a matter of course.
Gulf State bankers are counting on the fact that such a growing middle class, especially from the Muslim north, will turn to Islamic finance. They hope that indigenous firms will have money through Islamic banks known as Sukuk.
Credit agency Moody’s believes Sukuk has an exceptional future. Although worth a lackluster $18 billion at present, its potential is estimated to grow to $235 billion by 2012 – about half of what it estimates as the gross domestic product of Africa’s Muslim population.
So far, Gulf State banking initiatives have been limited to a few countries where Islam is dominant. Sudan, where only Sharia-compliant finance is allowed in the North dominates holdings of over half of Africa’s Islamic banking assets.
A number of these Gulf banks, familiar with the country’s language and oil resources, have joined forces with Sudanese investors to open Islamic banks.
Last year, the first Sukuk from Africa was issued by a Sudanese cement firm. Reportedly, the Sudanese government also tapped the market in January, selling bonds to Gulf investors to sidestep American economic sanctions over the Arab dominant minority’s indifference to the massacre in Darfur.
But so far, Sudan’s banking industry remains embryonic. Few African countries combine the strong desire to promote Islamic banking with heavy demand from Muslim customers.
A niche market
Moody’s credit service claims that as yet, Islamic banking should be considered a luxury product- more amenable to growth in nations with established banking systems, like South Africa and Kenya.
South Africa’s only Islamic bank, Al Baraka, was set up in 1989. Last year, Kenya licensed two Islamic banks, Gulf African Bank and First Currency Bank, exclusively back by Gulf investment.
With Kenya providing a relatively stable economic climate, despite recent political unrest, Western banks, such as Britain’s Barclay’s was the first to offer an Islamic bank account, named LaRiba, meaning “no interest,” consistent with Sharia law. South Africa’s ABSA’s Islamic banking division offers the latest in phone, Internet, and branch banking.
Islamic finance in Africa is a niche market, and probably will remain so for some time. Few countries’ laws are suitable for Islamic “no interest” banking.
This, in itself, creates a sizeable obstacle to even Islamic business organizations that want to support these institutions. Nigeria, Africa’s most populous nation, with 70 million Muslims and a booming banking sector, should be fertile ground. With major internal problems, however, this major oil producer has its hands full attempting to maintain its current commercial infrastructure.
One of Islamic banking’s most promising areas of growth may be in project finance and bonds. The continent’s vast need for infrastructure is matched only by the shortage of investment funds. Gulf investors could help bridge that gap. Project finance is well suited for Islamic financial instruments, which need to be backed by physical assets.
Gulf Finance House, an Islamic bank investment based in Bahrain, signed a $1.4 billion deal in Morocco to fund two tourism projects, started in 2006. Senegal is said to be contemplating issuing a sovereign Sukuk. This rush to Africa could well equate commercially, what European powers did in the last four centuries throughout Africa.
Morris R. Beschloss writes frequently for The Desert Sun