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Tuesday, May 28, 2024

Major role for Sukuk in funding GCC infrastructure projects

by The Media Office

© Shutterstock: Dubai Metro: The first monorail in the Middle East

Sukuk are expected to play a major role in providing necessary funds for infrastructure projects in the GCC over the next decade as they and other countries in Asia look to carry out projects worth a total $8 trillion, according to a new report conducted by Islamic bank, Kuwait Finance House Research.

Infrastructure spending has been one of the key drivers for economic growth in the GCC over the past ten years and sukuk have played a crucial role in this sector, the report says.

The nature of sukuk combined with their flexibility allows them to be structured in various different ways which has attracted corporate and sovereign entities to choose Islamic bonds as a viable alternative financing instrument.

The report adds that infrastructure projects and funding needs in both the GCC and Asian regions are expected to support the sukuk market this year and next, given that an important dimension of the infrastructure investments has centred on efforts to turn the region into an “internationally significant transportation hub”.

A separate report by Standard & Poor’s Ratings Services says, “In an era when the world’s conventional banks are producing fewer and shorter loans and companies are considering The GCC countries and the Asean region are now the focus of global investment according to comments at the ‘Inside Investor Asia Forum 2012’. Developing countries are now the “engines of global growth” with the shift in the balance of power in the world economy, said Sheikh Hamad bin Faisal bin Thani al-Thani, Chairman and Managing Director, al khaliji bank. “The economic power has shifted eastwards – to the GCC region and Asean countries; we are the focus of global investment now,” Sheikh Hamad said in his keynote address to the forum. He added that the GCC Common Market is expected to become a $2 trillion economy by 2020 compared to near $1 trillion today. Highlighting the strength of the GCC economies, Sheikh Hamad said the region’s recent enviable growth rates have gained world attention.“The GCC is not only seen as exporters of oil and gas, but as investment destinations with major infrastructure projects”, he added. Economic power is shifting eastwards: Forum other options for finance, Standard & Poor’s believes that Islamic financial instruments could become a key funding source, especially in the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates) and Asia.”

The report, “Beyond Borders: The GCC and Asia Could Rev Up Their Economies - and The Islamic Finance Market,” adds, “These regions, with established Islamic financial regulatory bodies, are centers of the growing estimated $1 trillion market. At the same time, Asia and the GCC are seeking huge amounts of capital to pay for their soaring needs for new infrastructure.”

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