Senegal is trying to position itself as a center for Islamic finance in West Africa, where about 52 percent of the population is Muslim, as the government pursues changes that will enable the first sales of sukuk.
Senegal still needs to adjust its policies to be able to sell debt that complies with Islam’s ban on interest after postponing a plan last year to sell such bonds, said Mouhamadou Lamine Mbacke, managing director of the African Institute of Islamic Finance, a Dakar-based company that advises governments and financial institutions and is working with the authorities on the rule changes. About 95 percent of the nation’s population of 12.7 million is Muslim.
South Africa and Nigeria, the continent’s largest economies, are among nations looking to Islamic finance to raise money for development and both have rules in place to sell the debt. In the eight-nation West African currency union, Senegal stands out for relative stability after electing a new president last year and the need to finance everything from energy to infrastructure and agriculture, according to Mbacke.
“As we have relative political stability, we want investors to invest in Senegal and then use Senegal as a place from which to invest in West Africa,” Mbacke said in a March 8 interview in his office in Dakar. “Dakar could become a hub for Islamic finance.”
Senegal, with a $14 billion economy, is making a push with the global market for Islam-compliant financing set to double to $3 trillion by 2015, according to Standard & Poor’s. The U.K. is considering reviving plans to sell Islamic bonds as part of an initiative to boost Britain’s role as a center for Shariah- compliant financing, according to a Treasury statement March 11.
‘Prospecting’ Markets
Absa Group Ltd. (ASA), a Johannesburg-based unit of Barclays Plc, offers Islamic banking services and is “prospecting in West African markets,” Mbacke said. “As far as market potential, West Africa is better positioned than South Africa because it has a bigger Muslim population.”
In South Africa, less than 2 percent of the 52 million people in the country are Muslim, while Nigeria’s population of 160 million is split roughly between Christianity and Islam.
The market for bonds that comply with Islam’s ban on interest is expanding as borrowing costs plunge. The average yield on sovereign sukuk tumbled 126 basis points, or 1.26 percentage point, last year to 2.65 percent, according to the HSBC/Nasdaq Dubai Sovereign US Dollar Sukuk Index. The yield was 2.87 percent March 12, the index shows.
Falling Yields
Yields on Senegal’s $500 million of 8.75 percent bonds due May 2021 fell 2.4 basis points to 5.84 percent by 1:36 p.m. in Dakar, down from 5.93 percent at the end of 2012. Average emerging-market dollar-denominated bond yields have risen 1 basis point this year to 5.53 percent March 12, after falling to a record-low 5.49 percent Jan. 23, according to JPMorgan Chase & Co.’s EMBI Global Index.
Nigeria approved rules for selling sukuk on Feb. 28, the nation’s Securities and Exchange Commission said in an e-mailed replay to questions yesterday. South Africa completed changes to finance laws last year and plans to raise $5 billion in foreign debt over the next three years that may include a sukuk issuance, National Treasury said in October.
The Gambia, which shares borders with Senegal on three sides, sells three-month sukuk along with Treasury bills at its weekly central bank auctions. At a sale yesterday, the sukuk yielded 9.61 percent, compared with 9.52 percent for regular debt of the same duration.
Senegal, the second-biggest economy in the West African currency union after Ivory Coast, is set to see growth accelerate to 4.3 percent this year from 3.7 percent in 2012, according to the International Monetary Fund.
New President
Senegal ranks 155 out of 187 countries on the United Nations’ Human Development Index, which measures indicators including education, income and gender equality. It’s ranked the highest among countries in the West African union, a group that includes Mali, where French and African troops are battling for control of two-thirds of the country’s territory that was overrun by Islamist insurgents last year.
Senegal elected a new president in 2012 after protests against attempts by Abdoulaye Wade to remain in office. President Macky Sall has started investigations into the previous government, reviewed state institutions and cut spending to boost investor confidence. Selling sukuk would help lure investment to the country from areas such as the Persian Gulf, said Mbacke.
“Raising a sukuk was giving Senegal a lot of visibility to the country,” Mbacke said. “Investors in the Gulf would keep an eye on Senegal and that would help us.”
(Bloomberg Business Week / 14 March 2013)
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