Dakar: The government of Senegal is aggressively working to address the challenges hindering sales of its maiden Sukuk as the country is determined to elevate itself to the position where it can lead the West Africa in Islamic Finance having its 94 percent population being Muslims.
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.
According to Mbacke, 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.
He said, “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. 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.
Mbacke said, “Absa Group Ltd. (ASA), a Johannesburg-based unit of Barclays Plc, offers Islamic banking services and is prospecting in West African markets.”
“As far as market potential, West Africa is better positioned than South Africa because it has a bigger Muslim population,” he added.
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 raised 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.
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.
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.
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. Investors in the Gulf would keep an eye on Senegal and that would help us,” Mbacke concluded.