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ISLAMIC FINANCE IN BRUNEI: Middle East

Posted by Connie R. Aponte on March 7, 2014 in Finance |

In the Middle East alone at least US$1.5 trillion in project financing is expected in the next ten years, and most of it will have strong Islamic financing aspects. 20Investment opportunities from MENA (Middle East and North Africa) region should not be underestimated:

• The Gulf States control around 40 percent of the world’s known oil reserves and nearly a quarter of global natural gas reserves.21In 2012, the Gulf states are estimated to earn around $572 billion in oil earnings in compared to $538 billion in 2011

• By 2006, the foreign assets of the Gulf Cooperation Council (GCC) had already reached US$1.9 trillion.22The net foreign assets of the six-member bloc are estimated to hit $2.1 trillion in 2013.

• The net capital outflows from the Gulf States in 2006 alone were US$200 billion.

• The McKinsey Global Institute estimated that the GCC’s accumulated foreign wealth could reach US$8.3 trillion by 2020.

A clear policy to increase share in global Islamic finance industry by Brunei will be very useful from various perspective. By becoming international wealth management center, Brunei will have the necessary expertise to make itself more self-sufficient and independence. The benefits of focusing on global market by building adequate capacity cannot be underestimated. While currently Brunei is blessed with good supply of oil, such supply is not unlimited. Furthermore, it is possible that new technology will emerge to replace oil. In any event, Brunei must prepare itself for such possibility.

There are similarities between Brunei and UAE. Most sovereign wealth funds in the UAE obtain their reserves from revenues accrued in the oil and gas industry. Similar to the UAE, Brunei Investment Agency has sovereign reserves of US$40 billion which are also derived from oil production activities.24 Brunei sovereign wealth fund (SWF) would be better managed once Brunei possesses world class-level internal expertise.

In addition, by becoming a global or regional wealth management center, Brunei would be able top tap investment from MENA region and others interested in diversification.

Currently, rich Muslim investors and sovereigns faced restrictions from Western countries, largely due to Islamophobia. If Brunei manages to set itself as international shariah-compliant wealth management center, Brunei would be able to attract these neglected investors as well.

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