Abu Dhabi is well-positioned to handle shortfall in hydrocarbons revenues

Source: OBG.

Aided by hydrocarbons reserves that are among the world’s largest and substantial financial resources, Abu Dhabi has built up a strong foundation to become a regional leader and an increasingly important global player in a wide variety of sectors, including oil and gas, financial services, health care, aviation and renewable energy, says the Oxford Business Group (OBG) in an online introduction to The Report: Abu Dhabi 2016. However, a sustained focus on economic diversification and targeted investment in Abu Dhabi’s key non-oil sectors in recent years means the emirate is well positioned to weather the storm.

Subdued oil prices prompted a trimmed federal budget for 2016 as the UAE, like other countries in the region, tightened its belt in response to falling hydrocarbons revenues, the OBG notes. Plans for future development are mapped out in Abu Dhabi Economic Vision 2030, a comprehensive economic policy document that aims to reduce dependence on oil and gas, thereby creating a more sustainable knowledge-based economy.

The report includes a chapter on Islamic financial services. The sector has entered 2016 ready to weather the economic challenges presented by a subdued oil price and is well positioned to pursue growth where opportunities arise in the coming years, says the OBG.

"With total assets estimated at US$127 billion in 2014, the UAE has one of the largest shari'ah-compliant banking sectors in the world – the third-largest after Saudi Arabia and Malaysia," noted the consultancy in an online introduction to the chapter.

The OBG notes that beyond dedicated Islamic banks, the majority of the UAE’s 23 licensed lenders and many of the 26 foreign banks in the country have shari'ah-compliant services. "Moving forward, Islamic lenders can expect to benefit from domestic economic activity, including the projects attached to Dubai Expo 2020 and the opening up of Iran to increased trade and investment activity," the OBG further stated.

The chapter contains an interview with Tirad Al Mahmoud, CEO, Abu Dhabi Islamic Bank.

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Finance is No. 2 contributor to economy for Islamic banking pioneer Bahrain

Source: OBG.

The energy sector remains the biggest contributor to Bahrain's GDP, although its contribution to the economy has been falling, says the Oxford Business Group (OBG).

The kingdom’s financial sector represents the second-largest contributor to GDP, accounting for 16.5% in 2014, says the OBG. Bahrain is a recognised pioneer in Islamic finance; it was the first country in the world to introduce and implement rules specific to Islamic banking in 2001.

Manufacturing is the third-largest GDP contributor, accounting for 14.4% of the total in 2014. The kingdom is home to one of the world’s largest aluminium smelters.

Infrastructure upgrades are expected to enhance the kingdom’s logistics offerings and boost tourism.

The Report: Bahrain 2016 includes a chapter on Islamic financial services, and names Bahrain as home to "some of the most important standard-setting institutions in the global shari'ah-compliant arena", including the Central Bank of Bahrain (CBB). According to the OBG, takaful markets in particular have experienced rapid growth, with takaful firms accounting for around 22% of gross written premiums in 2012, up from 3% in 2001. The OBG also noted that in March 2015, the CBB issued its first one-week Islamic deposit facility based on a wakalah agent contract, by which the regulator invests cash on behalf of the lender.

This chapter contains interviews with Shaikha Hessa bint Khalifa Al Khalifa, Chairperson, Al Salam Bank-Bahrain; and Hassan Jarrar, CEO, Bahrain Islamic Bank.
 

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Finance to be a bright spot for Omani economy: OBG

Source: OBG.

Oman’s GDP grew 4.6% between 2013 and 2014 according to the Oman Central Bank, with hydrocarbons the main driver of the economy at almost 50% of GDP, says the Oxford Business Group (OBG) in an online introduction to The Rerport: Oman 2016.

Although the dip in oil prices has put pressure on government revenues, authorities are pressing ahead with spending plans for the sector, particularly in the downstream segment. The country’s infrastructure expansion plans are also moving forward, particularly at the country’s three ports as the country seeks to leverage its strategic position on the Strait of Hormuz and establish itself as a global transport and logistics hub, the OBG adds.

Finance is regarded as one of the most promising areas for lending growth. In the longer term, Oman Vision 2020 seeks to boost private sector participation in the economy and fuel small and medium sized enterprise (SME) growth in key sectors, including construction, retail, tourism and transport, says the OBG.

Source: OBG infographic. The largest share of non-petroleum industry in Oman is from the manufacturing sector, though growth in recent years has been slow.

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Malaysia is leading player in ASEAN: Oxford Business Group

Source: OBG.

Despite criticisms that ASEAN is falling short of its lofty aspirations, its policy drive has had a notable impact on Malaysia’s trade and investment relationships in Southeast Asia, says the Oxford Business Group (OBG).

"As a net capital exporter and investor in its own right, the country has made significant inroads in neighbouring Indonesia, Thailand, the Philippines and, most recently, Myanmar. This growth in cooperation points to ASEAN’s success in meeting some of its integration goals. Malaysian companies are most active in sectors such as banking, telecoms, palm oil, energy, construction and manufacturing. The push for integration within ASEAN is bearing fruit, with bottom-line numbers confirming that ASEAN is now Malaysia’s leading trading partner and export destination," states the OBG in the introduction to The Report: Malaysia 2016.

The report includes a chapter on financial services, including Islamic financial services. OBG notes that Malaysia is now reaping the benefits of being an early adopter of shari'ah-compliant financial systems, being a global leader in Islamic finance. "In the 23 years since commercial banks were allowed to offer Islamic banking products, the sector has emerged as a formidable force in providing funding to the Malaysian economy and beyond, creating additional high value at home and abroad," the OBG states in the chapter introduction.

Source: OBG infographic.

The chapter includes interviews with Nor Shamsiah Mohd Yunus, Deputy Governor, Bank Negara Malaysia; Mahendra Gursahani, Managing Director and CEO, Standard Chartered Malaysia; and Jaseem Ahmed, Secretary-General, Islamic Financial Services Board.

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Oxford Business Group to present Sharjah economic analysis

Source: OBG.

The Oxford Business Group (OBG) is working on its first report on the Sharjah economy.  

Sharjah has a long history. the Gulf’s first airport was established in Sharjah in 1932, and the emirate’s Port Khalid was the first container port to begin operating in the region. More recently, government-funded economic development programmes, the establishment of two economic free zones and the quickly growing number of small and medium sized enterprises (SMEs) have helped underpin the emirate’s growth trajectory, notes the OBG in an online introduction to The Report: Sharjah 2016.

OBG states that the ratings agency Standard & Poor’s reaffirmed its stable outlook for the emirate based on its low debt burden, a well-diversified industrial base and the government’s strong fiscal management in early 2016. The finance sector’s confidence in the emirate has been underscored by the strong investor demand for sukuk launched by the government in 2014 and 2016, it adds.

In late September 2016 the Sharjah Foreign Direct Investment forum will seek to highlight investment opportunities in sectors expected to fuel growth moving forward, namely healthcare, environment, tourism, and transport and logistics. 

Oxford Business Group announces The Report: Iran 2017

Source: OBG.

The Report: Iran 2017 by the Oxford Business Group (OBG) is on its way.

According to the consultancy, the lifting of economic sanctions is likely to provide a near-term boost to the Islamic republic’s economy, particularly its banking system which should see a significant drop in international transaction costs. At the same time, while strong capital inflows, including foreign direct investment and the repatriation of previously frozen assets will also help drive growth.

Iran is home to the second-largest natural gas reserves worldwide and the fourth-largest reserves of crude oil. As such, growth moving forward will be dominated by hydrocarbons exports, with oil production witnessing a significant uptick following the lifting of economic sanctions, OBG says. However, despite oil prices having rallied in recent months, concerns over volatility remain, largely fuelled by global economic uncertainty and the impact of the Chinese slowdown on neighbouring Asian markets.

12th WIEF concludes with new partnerships, recommendations for the Islamic economy

The 12th World Islamic Economic Forum (WIEF), held at the Jakarta Convention Center in early August 2016, has made recommendations for overcoming challenges highlighted by the global leaders and to address the issues of decentralisation and empowering future business, not only for the host country Indonesia, but also for Muslim and non-Muslim economies across the globe.

At the event, the country leaders highlighted that growing inequality continues to defy solutions for inclusive development and that centralised development tends to overlook or even marginalise large sections of society in many countries. They also pointed out that the unintended consequence of innovative technology often was the enrichment of a few; that the potential of the young population of the developing world has not been effectively utilised; and that enhancing media strategy to improve global perception of Islamic world investments and business potentials is important.

The recommendations include:

• Promoting and supporting an enabling environment to develop micro, small and medium enterprises (MSMEs), to address job creation and income generation as well as to unlock economic opportunities in rural communities; 
• Harnessing the use of innovative training to provide youth with modern skills to enhance their economic exchange value; 
• Expanding the use of Islamic finance to grow the halal ecosystem, modest fashion industry, infrastructure development and social finance; 
• Harnessing the use of disruptive technologies for the wider benefit of a more inclusive society; and 
• Developing strategies to enhance the potential of creative industries to spread economic growth.

The 12th WIEF, themed Decentralising Growth, Empowering Future Business, was a platform for the Indonesian government “to promote investment opportunities in the country and to market our products, whether they are products with halal certification or existing products deemed competitive in the international market,” said Sri Mulyani Indrawati, Indonesia’s Minister of Finance. 

Indonesia’s President Joko Widodo and Malaysia’s Prime Minister Najib Razak witnessed the inking of a pact between the Financial Services Authority of Indonesia (OJK) and Bank Negara Malaysia where three Indonesian banks under the ASEAN Banking Integration Framework are allowed to set up subsidiary offices in Malaysia and be treated like a local bank.

A bilateral meeting between President Widodo and the Sri Lankan Prime Minister, Ranil Wickremesinghe, has spurred the interest of Indonesia to help set up a railway system in Sri Lanka and for Sri Lanka to import Indonesian-made train carriages.

The President of Tajikistan, Emomali Rahmon and President Widodo discussed economic cooperation in the textile sector including cotton processing industry. President Rahmon has invited Indonesian business leaders to invest in projects in Tajikistan.

Another meeting between President Rahmon and the Prime Minister of Sri Lanka was reported to be focused on the establishment of bilateral cooperation between their two countries in constructing small and medium hydropower plants and launching joint minerals processing ventures in Tajikistan.

Ten memoranda of understanding worth US$899.6 million were exchanged at the event, including:

Malaysia’s Majlis Agama Islam Negeri Johor (MAINJ) signed an agreement with UMLand J-Biotech Park to spearhead the development of Johor Halal Park, envisioned to become the first premium bio-halal industrial park in Malaysia with world-class facilities and a halal ecosystem.

Bursa Malaysia and Indonesia Stock Exchange entered into an agreement of cooperation to develop the Islamic capital markets in Malaysia and Indonesia with the aim to establish both Malaysia and Indonesia as a leading Islamic capital market hub in the world.

Jakarta Industrial Estate Pulogadung (JIEP) and port operator Pelabuhan Indonesia II signed an agreement to develop Indonesia’s first international Halal Hub that will process and manage all containers based on shari'ah principles.

Another cross-border collaboration was a tripartite agreement made between Kumpulan Perubatan Johor, Malaysia and two Japanese companies – Sojitz Corporation and Capital Media Company to set up an Oncology Center at Rumah Sakit Medika Bumi Serpong Damai (RSMBSD) in Tangerang, Indonesia at the cost of US$12 million.

Three Malaysian property developers, namely Sime Darby, SP Setia Indonesia and I&P Group, will work with Indonesia’s PT Hanson International to jointly develop an affordable residential project for US$862 million in the Maja area in West Jakarta, Indonesia.

In the field of education, Brainy Bunch inked an agreement with PT Brainy Bunch Indonesia, giving the Indonesian company the rights to set up Brainy Brunch Islamic Montessori preschools in Indonesia.

Additionally, the 12th WIEF has set the course to strengthen the role and increase global recognition of Indonesian MSMEs. In her closing statement, Indonesian Finance Minister Sri Mulyani Indrawati said that the 12th WIEF has successfully explored the crucial role of MSMEs in driving economic growth. “This effort reaffirms the fact that empowering MSMEs by facilitating their larger participation in the mainstream economy will spur innovation and improve efficiency that provides enterprises the competitive edge to navigate through the ever-evolving business landscape.”

In the closing session, the Chairman of the WIEF Foundation, Tun Musa Hitam, stated that the agreements between Indonesian and regional corporations proved that the 12th WIEF has been a strategic platform for important collaborations to strengthen and connect economies in the Muslim nations with their regional and global counterparts. “This reflects our confidence, courage and decisiveness in responding to our current economic challenges, in which collaborative model that enables joint value creation is important and necessary in order to create a level playing field between the Muslim and non-Muslim world to spread economic growth,” he said. 

The WIEF Foundation, a not-for-profit organisation based in Kuala Lumpur, Malaysia organises the annual WIEF, a platform showcasing business opportunities in the Muslim world, and runs programmes of the various initiatives of the Foundation that strengthen people partnership and knowledge exchange between Muslim and non-Muslim communities across the globe. The forum, while focused on the development of MSMEs, also discussed topics relating to the expansion of the global halal ecosystem, enhancing the inclusiveness of Islamic finance, the support of startups and the development of the creative industry.

KSA firms display mixed sentiments for Q316

• KSA’s oil & gas sector has displayed a bearish outlook for Q316 and the non-hydrocarbon sector has maintained its forecast for Q316 
• The manufacturing sector is the most optimistic for Q316
• A third (31%) of non-hydrocarbon firms expect to invest in business expansion; for the hydrocarbon sector, the corresponding proportion is 30%

Dun & Bradstreet South Asia Middle East (D&B), in association with the National Commercial Bank released the D&B Business Optimism Index (BOI) survey for KSA for Q316. The survey reveals mixed sentiments for firms in KSA.

Dr Said Al-Shaikh, Group Chief Economist, NCB, said that despite some recovery in oil prices towards the end of the second quarter, raising to the mid-US$40 to US$50 a barrel range, the hydrocarbon sector BOI of Q316 slipped back into negative territory at -2 points after recording 3 points in Q116. "The negative momentum impacted business outlook, as only 38% of the participants in the survey expect no hindrance to their business," he said. "Looking beyond hydrocarbon, the BOI of the non-hydrocarbon has maintained similar expectations to the previous quarter at 21 points." 

More than half (56%) of the participants were aware of the national Vision 2030 and of the National Transformation Program (NTP) 2020, which is part of Vision 2030. Vision 2030 is a blueprint for excellence grounded in KSA's place as the heart of the Arab and Islamic worlds; a drive to be a global investment powerhouse, and to leverage on the country's strategic location to become a global hub connecting Asia, Europe and Africa. 

The Vision 2030 and NTP 2020 seems to have brought some optimism, thus preventing the BOI of the non-hydrocarbon sector from further deterioration, Dr Al-Shaikh added. He said, "Moreover, a sharp fall of contracts awards witnessed over the first half of 2016, recording approximately SR48 billion, not only impacted the construction sector BOI with a reading at 11 points and 12 points in Q216 and Q316, but other sectors were also impacted with varying degrees. In turn, the Q316 BOI for trade and hospitality dropped sharply to 18 points from 32 points in Q216. Reflecting the positive impact of Vision 2030 and NTP 2020, approximately 30% of each of the non-hydrocarbon firms participating in the survey indicated their expectation to invest in expansion in Q316."

Source: NCB. Dr Said Al-Shaikh, Group Chief Economist, NCB, speaking during the launch of the results.

Hydrocarbon sector

The survey for Q316 reveals a bearish outlook for Saudi Arabia's oil & gas sector, with the composite BOI slipping into negative territory in Q316 to -2 from 3 in Q216. With respect to the business environment 38% of the firms do not expect to face any obstacles in their operations, while concerns about the adverse impact of low crude prices have dominated sentiments as 43% of the firms think that this factor might prove to be a hindrance. Thirty percent of the oil & gas companies have indicated plans to invest in business expansion in comparison to 55% which said they will not undertake such moves.

Non-hydrocarbon sector

Saudi Arabia's non-hydrocarbon sector has maintained its forecast for Q316 at the previous quarter's level, with the composite BOI staying steady at 21. Regarding the business environment in Saudi Arabia, firms are more upbeat about the third quarter than they were for Q216: 51% expect that no negative factors will hurt their businesses in Q316 versus a corresponding 39% in Q216. Business sentiment is most dented by low oil prices (13% have cited it as a key hindrance), issues related to government rules & regulations (13%) and competition (7%). Further, 31% of the firms intend to invest in business expansion, while 52% have indicated that they will not.

Sector analysis

The manufacturing sector's optimism outlook has bounced up from the series low seen in the first and second quarter of 2016; the composite BOI has improved to 27 in Q316 from 22 in Q116 and Q216. The demand, hiring and net profits BOIs have strengthened on a quarterly basis as businesses expect new projects from new clients and an overall increase in demand. Additionally, the business scenario has improved with 59% of them not expecting any obstacles to their operations in Q316 compared to 27% in Q216. A third (31%) of the manufacturing companies intend to invest in business expansion in Q316 against 54% that have indicated that they will not.

The outlook for the finance, real estate & business services sector has reached a new low; the composite BOI slipped from 24 in Q216 to 23 in Q316. While the BOI for volume of sales has edged up on a quarterly basis, the indices for the remaining parameters have turned lower. Nearly half (48%) of the firms in this sector have said that they do not expect any negative factors to adversely impact them during Q316. Additionally, 34% of the respondents expect to undertake investments in business expansion, compared to 45% who will not.

The trade and hospitality sector's forecast for Q316 is at the lowest level recorded; the composite BOI has dropped to 18 from 32 in Q216. All five parameters comprising the composite index have registered declines. Even though the composite BOI has dropped, business environment expectations have improved; 53% of the firms do not expect any hurdles in Q316 compared to 36% in Q216. A third (31%) intend to undertake investment in business expansion in Q316, while 38% will not.

The composite BOI for the construction sector has edged up by a single point from 11 in Q216 to 12 in Q316. The outlook for the construction sector remains weak as crude oil prices continue to remain low, which has suppressed new projects. However, the forecast for the business environment is stable: 40% of the construction companies do not anticipate any hurdles in Q316 compared to a corresponding 41% in Q216. A quarter (26%) of the firms in the construction sector intend to undertake investment in business expansion in Q316 (66% will not take up these plans).

The transportation, storage & communication sector's forecast in Q316 has increased from 7 in Q2, 2016 to 14 in Q316. On a quarterly basis the indices for volumes, new orders, net profits and hiring have strengthened, but that for selling prices has worsened. Half (52%) of the firms in this sector do not expect any obstacles during Q316 (48% in Q216). A third of the respondents hope to undertake investments in business expansion in Q316 versus 60% that do not intend to undertake such plans.

The current survey shows that small and medium sized enterprises (SMEs) have a modestly brighter forecast than the large companies, with composite BOIs of 22 and 18 respectively. SMEs are more optimistic than large companies on all parameters. SMEs hold a modestly firmer outlook with respect to the business environment with 53% of them compared to 49% of the large companies expecting no obstacles to their operations in the coming quarter. For both groups, the leading concerns are the impact of low crude prices and government policies, rules & regulations.

Assad Shaikh, Associate Director - Research & Advisory Services, Dun and Bradstreet South Asia Middle East said: "Sentiments in the region are subdued with respect to firms in the kingdom's hydrocarbon sector. The BOI score for this sector is recorded at -2 in Q3, 2016 from 3 in the previous quarter, weighed down by lower scores for selling prices and profitability. On the other hand, the current survey revealed that the composite BOI for the non-hydrocarbon sector is firm at the previous quarter's level of 21.

"The impact of low oil prices has dented the optimism with respect to the business environment which has turned lower for oil & gas firms as 38% have indicated that they do not expect any factors to impact their operations. The proportion stood at 51% for the non-hydrocarbon sector.

"With regard to investment in business expansion in Q316, sentiments of both groups are comparable (30% intend to invest in such plans for hydrocarbon firms versus 31% for non-hydrocarbon firms)."

The D&B Business Optimism Index is a measure of the pulse of the business community, serving as a benchmark for investors and policy makers. As the latest addition to D&B's global series, the Business Optimism Index on Saudi Arabia, done in association with The National Commercial Bank, is issued on a quarterly basis. The next Business Optimism Index on Saudi Arabia will be released in October 2016.

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State of The Global Islamic Economy 2015/16 projects US$2.6 trillion spend on halal food, lifestyles by 2020

Source: State of The Global Islamic Economy 2015/16. Infographic on DinarStandard website. Malaysia has the most developed Islamic economy for halal food.

The Thomson Reuters State of Global Islamic Economy 2015/16 report is available for download from Thomson Reuters' Zawya portal. The report defines and provides an overview of the Islamic economy as well as its future potential to facilitate investments and industry growth.

The report acts as an annual barometer of the health and development of the Islamic economy industry worldwide, based on the Global Islamic Economy Indicator. The Indicator, introduced in 2014, is a composite index that presents the current outlook of the Islamic economy sectors across 70 countries beyond the growth of assets, focusing on awareness, governance and social metrics. 

According to the report, the Islamic economy is growing at nearly double the global rate. Muslim consumer spending on food and lifestyle reached US$1.8 trillion in 2014 and is projected to total US$2.6 trillion in 2020. Global assets of Islamic banks exceed US$1.3 trillion, and are set to double by 2020. 

Islamic economy sectors covered by the Global Islamic Economy Report 2015/16 include:

• Food & beverage
• Islamic finance
• Travel
• Fashion
• Media/recreation
• Pharmaceutical
• Cosmetics/personal care

Source: DinarStandard.

The Global Islamic Economy Report 2015/16 also includes a special focus report on the Islamic Digital Economy.

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IDB calls for working group to help develop Islamic finance for SMEs

The President of the Islamic Development Bank (IDB), Dr Ahmad Mohamed Ali, has called on OIC member countries and the World Islamic Economic Forum (WIEF) to establish a working group that will study and exchange expertise in utilising Islamic finance for the development of small and medium sized enterprises (SMEs). President Ahmad was speaking in Kuala Lumpur, Malaysia to delegates of the 11th WIEF, which took place from 3 to 5 November 2015. 

“I suggest the immediate establishment of a working group, among OIC institutions and specialised business forums like WIEF, to study the ways and means of leveraging support by Islamic finance to SMEs, through research and exchange of expertise,” said the IDB President. 

“Likewise, the partnership financing, the core element of Islamic finance, is an important source of funding for SMEs that can provide opportunities for entrepreneurship, jobs creation and income generation.

“The growing sukuk industry at the global level gives a tangible evidence that Islamic finance will play a major role in development financing especially for large-scale infrastructure.” 

He stressed that the IDB Group is committed to providing solutions in the development of the requisite legal, regulatory, supervisory and shari’ah frameworks for the development of SMEs. He also called on all multilateral development banks and government institutions to work towards mainstreaming Islamic finance, especially in mobilising resources for the implementation of the sustainable development goals.