Ziad Bahaaeddin, the deputy prime minister, said last week that the country's currently suspended Islamic bonds, or sukuk, law would now be amended and reactivated. While he did not reveal details of the amendments, aimed at luring foreign investors, the re-emergence of sukuk as an investment option after the controversy the law has triggered raised question marks regarding the government's strategy. The legislation was approved by the government of ousted former president Mohamed Morsi, who hails from the Muslim Brotherhood group, last May after wide criticism from liberals and secularists. The law was controversial as some experts said its articles could open the door to using national assets like the Suez Canal and Telecom Egypt as collateral for bonds that might be confiscated by the bond holder in the event of the country's failure to meet its financial obligations. Ahmed Galal, finance minister in the post-Morsi government, was enthusiastic when he came to office in August about reactivating the law despite such criticisms. However, “he later told me that there were other priorities that the government needed to focus on,” Ahmed Al-Gebali, former technical advisor to the minister of finance on sukuk, told Al-Ahram Weekly. Galal dismissed the sukuk department staff, including Al-Gebali, at the ministry a few weeks after he was put in charge, transferring them to the debt management administration. “Up to now, there has been no indication that the ministry will hire a new manager for the sukuk unit as a successor to Muslim Brotherhood member Ahmed Al-Naggar,” said one source at the Finance Ministry who spoke on condition of anonymity. Al-Gebali, an expert in Islamic debt instruments who left his company in Canada last year to help apply the sukuk law under the Muslim Brotherhood, believes that the current government is not serious about re-considering the sukuk law. “Galal asked me last month to return to Cairo to re-activate the law. But I got the feeling that the senior management in the debt administration is taking the whole idea lightly, so I decided to go back to Canada,” Al-Gebali told the Weekly from Canada. Despite the assistance received from the Arab Gulf after the ousting of Morsi, Egypt's economy still needs the sukuk legislation to expand available avenues for funding. The country has a widening budget deficit, increasing to 14 per cent of GDP in the last financial year which ended in June compared with 11 per cent the year before, and a declining flow of foreign currency because of the continued political turmoil. “It is not right to neglect this important financial instrument just because it was engineered and passed by the Islamist government,” Mohamed Maaeit, vice chairman of the Egyptian Financial Supervisory Authority, said. Maaeit said that the stock market in Egypt would benefit from implementing the law as it would increase market liquidity and activity. Sukuk laws exist in many countries, including some without a Muslim majority population. Reuters recently conducted a survey that forecast that global sukuk issuance could reach $237 billion by 2018, and international investors who had participated in the survey are expected to allocate half of their portfolios to Islamic financial investments, around a third of which could be invested in sukuk. Investors in the Middle East and North African region overwhelmingly prefer dollar-based sukuk. Africa is also for the first time embracing large-scale Islamic finance as countries seek to tap cash-rich Middle Eastern investors to finance their large infrastructure programmes, according to the London Financial Times newspaper in October. The market for sukuk received a boost this month after Nigeria became the first major economy in sub-Saharan Africa to use the $100 billion-a-year Islamic market, followed days later by Senegal. Africa is home to roughly 400 million Muslims — about a quarter of the world's total — but until now only Gambia and Sudan have issued sukuk bonds, and these were for small sums on a short-term basis.
