TRADE & INVESTMENT
Laying the foundation for growth
For more than 30 years Gulf Cooperation Council (GCC) investments were concentrated largely in the US and European equity markets. With globalisation this started to change. GCC countries began to explore non-conventional markets. China and south Asian countries started to attract their attention.
Islamic finance began to evolve to capture investment opportunities in Muslim countries, first in the GCC itself and next in South Asia.
GCC investments started to flow into the MENA region and Africa. GCC imports of foodstuff from Latin American countries have always been high, but investments in Latin American countries have been limited. But the economic status of Brazil, as a member of BRIC (the four largest high-growth emerging economies: Brazil, Russia, India and China), is starting to attract GCC investments.
Origin of wealth
Until the formation of OPEC in 1960, the price of oil hovered around $1 a barrel. GCC countries were hardly able to pay for basic necessities, and most were burdened with debts. Egypt, in particular, supplied teachers and financial assistance.
But the Arab-Israeli war of 1973, launched by Egypt and Syria to reclaim the land they lost during the 1967 war, and the oil embargo that followed, took the price of a barrel of oil from less than $3 a barrel to more than $30. That was an unprecedented windfall for any commodity. Oil prices have since continued to increase, despite more production and discovery of new reserves.
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COUNTRY FOCUS: SRI LANKA
All hands on deck
Sri Lanka is set to embark on a progressive era of growth as the country moves from a war-dominated economy to a peace-driven economy. According to the Central Bank of Sri Lanka (CBSL), the country’s economy has experienced exponential growth since the prolonged war finally ended.
In March 2005, CBSL amended the banking act No 30 of 1988 and issued an ordinance to include provisions for Islamic finance in which Sri Lanka became one of the few countries to have specific legislation for Shariah-compliant financial operations. The amendment provided flexibility for conventional financial institutions to establish windows to offer Islamic banking and finance products and services.
The Islamic finance directive issued by the CBSL supervision department defines Islamic banking and two of its fundamental elements clearly in the legislation. Receiving money for the investment in a commercial venture agreed based on the profit-and-loss sharing principles including mudaraba and musharaka contracts. Second, a contract based on buy and sale on a deferred payment option such as mudaraba.
The Islamic banking sector in Sri Lanka is estimated at around us$900m. Sri Lanka has numerous Islamic financial services providers, including market leader Amana Investments, Muslim Commercial Bank, People’s Leasing Company—Islamic Financial Services Unit, First Global Group, and ABC Investments (Baraka Islamic Financial Services).
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