Countries throughout the Gulf Cooperation Council are drawing up sweeping plans to transform themselves into diverse, advanced economies no longer solely reliant on oil for their wealth, and Islamic finance is set to play a major part in helping these countries achieve their goals.

Saudi Arabia, the United Arab Emirates, Bahrain and Qatar each have their own Vision 2030 to reform their countries by that year. The Kuwait National Development Plan aims to hoist the country into the top 35 percent of countries in all relevant indicators by 2035. Oman is drawing up plans for a Vision 2040.

The shock of the 2014 oil price crash and the damaging effect on GCC countries' finances has jolted their governments into action. There are common themes running through all or most of these transformative visions. Chief among them is an aim to diversify Gulf economies away from sole reliance on natural resources.

Greater presence for private sector
To this end, governments will encourage a greater presence for the private sector and a more encouraging environment for small and medium-sized enterprises (SMEs). Government administrations will be reformed to improve efficiency and transparency, assisted by online and electronic disclosure, while some government services will be outsourced to the private sector. There will be substantial welfare and labour market reforms, and reductions in the generous subsidies Gulf citizens have long enjoyed for essentials such as fuel, electricity and water.

Foreign investment and participation will also be encouraged. Several of the GCC countries are vying to establish themselves as financial hubs for the region. Saudi Arabia plans under its Vision 2030 to establish a $500 billion mega city, NEOM, on the Red Sea coast that will operate as an economic free zone. This free zone, like others in the United Arab Emirates, such as the Dubai International Financial Centre (DIFC), will have its own regulations and laws separate from those of the country around it.

To support these developments, the various Visions will also involve some major transport infrastructure investments, and there are wide-ranging plans covering education and healthcare provision, culture and entertainment, tourism, home ownership, care for the disabled and elderly, youth and sports. There are also various plans to raise inclusivity through improving rights and conditions for overseas workers, and to increase female participation in the workforce.

Gulf economies increasingly tapping Islamic finance
Many in the Islamic finance industry believe they can help the Gulf governments achieve their visions. With global assets of $2.2 trillion in 2016 expected to rise to $3.8 trillion by 2022, according to the ICD-Thomson Reuters Islamic Finance Development Report 2017, Islamic finance is becoming an increasingly important area of finance that Gulf economies are tapping into to broaden their economies. After a small downturn in the industry in the immediate aftermath of the oil price crash in 2014, the industry is now showing signs of resuming the stellar growth it enjoyed following the global financial crisis.

Gulf governments’ promotion of Islamic finance has helped in their efforts to diversify economies and to bring more private capital into their countries. Islamic finance has the added advantage of boosting financial inclusion in a region where relatively few people have bank accounts. It has been particularly helpful in making finance available to small and medium-sized enterprises, or SMEs, which have long been underserved in developing economies but are widely considered engines of economic growth.

Gulf governments turning increasingly to sukuk
Elsewhere, government investments that will be made in areas such as infrastructure development can be supported by debt, particularly in times of historic low interest rates, and governments are turning increasingly to sukuk to raise capital. In March, Bahrain began marketing an international issue of dollar-denominated Islamic bonds rather than proceed with a proposed conventional bond sale because of some investors’ pricing demands. Saudi Arabia issued its first international sukuk last year, and in April this year completed the issuance of a new sukuk aimed at helping it finance the country’s budget deficit.

Another area of concern to be addressed by the various Gulf Visions is the environment, particularly with regard to renewable energy, pollution reduction, and waste and water management, and here too Islamic finance can play a big part.

Companies’ bottom lines and reputations can both be boosted by integrating environmental, social and governance (ESG) factors in business decisions. A recent survey by the RFI Foundation found that the “unique features of Islamic finance, especially in Islamic social finance, can be used to create new long-term linkages between finance, society and the environment.”

Conference to highlight role of Islamic finance on national economic agenda
In order for the industry to grow and be able to contribute further to the Gulf countries being able to achieve their visions, it is imperative that the different strands of the industry meet and agree on shared principles so that greater standardisation of Sharia-compliant financial instruments and regulations are able to attract still more people to Islamic finance.

A particularly good way of achieving this is through international conferences. On May 2, the Central Bank of Kuwait and the Islamic Financial Services Board will hold a high-level conference in Kuwait on Islamic finance as a universal value proposition and the role of

Islamic finance in the broader national economic agenda
Central Bank of Kuwait Chairman Mohammad Yousif Al-Hashel said in March that “Islamic finance offers a universal value proposition which can drive sustainable, inclusive growth and shared prosperity for all.”

Discussions at the conference – which has attracted major industry players including ministers and other policy makers, , central bank governors, heads of regulatory bodies and international standard-setting organisations, rating agencies, CEOs and Shariah scholars among others – will centre on the role Islamic finance can play in fulfilling government strategies to develop diversified and sustainable economies, as well as on developments in the industry such as disruptive technologies and building strong regulatory regimes.

The May 2 event will be organised by the Central Bank of Kuwait and the Islamic Financial Services Board (IFSB), in collaboration with Thomson Reuters. For more information on the IFSB Annual Meetings 2018 & CBK-IFSB Conference on Islamic Finance, please click here. 

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