Islamic Finance

Belt and Road Initiative puts Islamic economy at the forefront

| 06 November, 2018 | General
 White Paper Media
Belt and Road Initiative puts Islamic economy at the forefront
Photo for illustrative purposes only. Asian Infrastructure Investment Bank (AIIB) president Jin Liqun speaks at an international forum on the "Belt and Road" Legal Cooperation in Beijing, China July 2, 2018. REUTERS/Jason Lee

China’s infrastructure and trade initiative holds massive potential for Islamic finance and multiple other sectors in the Muslim countries along its route

The Belt and Road Initiative (BRI) announced by China in 2013 will usher in a windfall of opportunities across Islamic economy sectors, as around 27 of the 65 countries that have signed up for the transcontinental economic development scheme are Muslim-majority, said industry experts and academics.

“The strategy spans the Chinese mainland region towards the Middle East and beyond to Africa. So, there is no doubt that the opportunity this region unfolds and presents is quite tremendous,” Abdulla Mohammed Al Awar, Chief Executive Officer, Dubai Islamic Economy Development Centre (DIEDC), told Salaam Gateway on the sidelines of the Global Islamic Economy Summit (GIES) 2018 last week.

“This region has a lot of Islamic economies and jurisdictions that have a large Muslim consumer base, so it is naturally befitting that the Islamic economy sectors will contribute to the development of the Belt and Road Initiative, whether it is through Islamic financing or trading of halal products. There is more than one opportunity there,” he added.

HUGE INVESTMENT IN INFRASTRUCTURE

Launched by Chinese President Xi Jinping in 2013, the BRI is one of the largest infrastructure and investment projects in the world, covering more than 68 countries, including 65 per cent of the world’s population and 40 per cent of the global gross domestic product (GDP). 

China is spending nearly $150 billion per annum in the countries that have signed up to the initiative, which includes the six Gulf Cooperation Council (GCC) countries among the 13 from the Middle East.

According to the latest figures from the National Bureau of Statistics of China, the merchandise trade between China and countries along the route has already exceeded $5 trillion, with China’s total investment in economic and trade cooperation zones in these countries reaching $28.9 billion in the last five years.

Regionally, the UAE is leading the way. The bilateral trade between the UAE and China is expected to touch $58 billion this year, having crossed $35 billion in the first nine months of 2017, the UAE’s Economy Minister Sultan Al Mansoori said during the three-day state visit of Chinese President Xi Jinping in July. 

OPPORTUNITES FOR ISLAMIC FINANCE

For Islamic finance, the opportunities are boundless, experts said.

“Trade and investment growth from the belt and road initiative through the UAE in general and Dubai, in particular, is likely to open up huge opportunities for local and regional Islamic financial institutions. These institutions will be key players in catalysing fund mobilisation,” Dr. Adnan Chilwan, Group Chief Executive Officer of Dubai Islamic Bank, said while addressing a panel at GIES 2018.

“It is not just about Islamic finance. The Islamic economy in general can benefit from it – we are talking about hospitality, fashion, pharma and many sectors. Islamic finance is just a catalyst to drive and support all the other key sectors.”

Speaking alongside Chilwan, Professor Wang Yiwei, Director of the Institute of International Affairs, Centre for European Studies, Renmin University, said the very principle of asset-backed financing and risk sharing, which is at the core of Islamic financing, can play a significant role in raising funds for projects related to infrastructure development.

“The involvement of leading Islamic institutions from the Middle East is expected to help mobilisation of liquidity from the region,” he said.

Professor Nabil Baydoun, Vice Chancellor Academic Affairs at Hamdan Bin Mohammed Smart University, Dubai, added that Islamic finance could help bridge the funding gap. Nearly $4 trillion is required for the initiative until 2023, he said.

“There is a need. There is a funding gap. There is money there. It is very easy to make a case for Islamic finance,” he said at the panel discussion.

SOCIAL GOALS

There are a lot of opportunities as China funds infrastructure projects through BRI, which impacts a lot of Muslim-majority countries, according to Responsible Finance & Investment (RFI) Foundation Chief Executive Officer Blake Goud.

“Where possible, these projects should try to take advantage of both the shift in Islamic finance towards responsible finance practices as well as China’s increasing engagement in developing green finance,” Goud told Salaam Gateway. 

“The projects financed as part of the initiative should be aligned to the fulfilment of the social development goals (SDGs), should take account of environmental and social risks in the construction phase and should include sufficient analysis relating to physical risks from climate change,” said Goud.

“This way, they can be long-term, durable and productive contributors to the economic, social and environmental development of the countries involved in the belt and road initiative,” he added. 

Dr. Paul J. Hopkinson, Associate Head of School for the School of Social Sciences, Heriot-Watt University Dubai Campus, added: “It’s a major development for this region and other adjacent regions as well. One thing that will grow as a result of the BRI is Islamic finance.”

“There will be significant growth in the Islamic finance involvement in those projects, which will give a boost to the Islamic economy,” said Hopkinson.

CRUCIAL FOR SUCCESS

Muslims spent $2.1 trillion across the food, beverage and lifestyle sectors of the Islamic economy in 2017, with spending in these areas projected to reach $3 trillion by 2023, according to the State of the Global Islamic Economy Report 2018/19. 

Food and beverage accounted for the largest share of spending with $1.3 trillion, followed by fashion ($270 billion), media and recreation ($209 billion), travel ($177 billion), pharmaceuticals ($87 billion) and cosmetics ($61 billion).

The core sections of the land and maritime Silk Roads are the Middle East, Central Asia, South Asia and Southeast Asia, areas where Islam is a dominant religion, Dr. Hashim Suleiman Hussein, Head of the United Nations Industrial Development Organisation, Investment and Technology Promotion Office – Kingdom of Bahrain, told Salaam Gateway.

“Therefore, Islamic countries are very critical for the successful implementation of the BRI. Islamic countries have a lot to gain and contribute towards being an active player in this new world economy.”

While the major beneficiary, for now, is trade, especially when looking at the trade balance between the Islamic countries and China, Hussein believes this could be shifted through the development of robust partnerships between entrepreneurs, which will ensure the achievement of “real development” and is “the only way forward to a win-win situation for all sides”. 

In July this year, President Xi pledged a package of $20 billion in financial aid to the Middle East nations to spur economic growth in the region.

“This serves as a clear testimony that there is still a huge room for development and economic cooperation between China and the Arab world,” Hussein said.

(Reporting by White Paper Media; Editing by Emmy Abdul Alim emmy.alim@refinitiv.com)

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