As countries around the world continue to experience uncertainty, the Islamic economy is emerging as a new growth driver
Apart from Islamic finance, sectors within the halal lifestyle market are also making their mark
- Muslim consumers are increasingly becoming a mainstay of the global economy. Their expenditure on food and lifestyle including halal fashion, travel and media grew 9.5 per cent to about $2 trillion (Dh7.34 trillion) in 2013 from previous years’ estimates and is expected to reach $3.7 trillion by 2019 at a compound annual growth rate of 10.8 per cent, according to Thomson Reuters’ State of the Global Islamic Economy 2014-2015 Report.
Add to this Islamic finance assets of $1.66 trillion as of 2013, which could go up to $3.5 trillion by 2019, with anticipated growth rates of about 15 per cent a year.
“Islamic finance is the fuel that drives the Islamic economy,” says Hussain Al Qemzi, CEO of Noor Bank. “It is common to the various sectors that make up the Islamic economy. Without it, the Islamic economy would not exist. How can anything be considered halal, whether it is food or pharmaceuticals, family-friendly tourism or cosmetics, if it is the product of conventional finance investment?”
There is growing evidence that Islamic economy will have a significant impact on the global economic landscape. Its customers are sharing their values, and such value-based needs are a steady driver for all sectors. “With impressive growth figures predicted over the next years, diverse sectors within the halal lifestyle market are asserting themselves in the global economy, boosted by the buying power of Muslim consumers,” says Nadim Najjar, Managing Director of Thomson Reuters Middle East and North Africa. A Muslim start-up culture is also emerging, which is another driver for Islamic economy that can become a game changer for the world economy.
“Muslims across the world are increasingly receptive to the diverse and sophisticated Muslim-friendly products and services that have become available over the years, especially in Western countries and multicultural societies,” says Abdullah Mohammad Al Awar, CEO of the Dubai Islamic Economy Development Centre, adding that “ideas to help Muslims better navigate this growing market and live a more balanced and content life carry huge business potential”.
Islamic finance is currently considered the most developed sector within the Islamic economy. The global number of Islamic financial institutions, including banks, takaful companies and investment and financing firms, has already exceeded 1,500. Global acceptance is growing, as is competition between Islamic and conventional finance. Larger Islamic banks are driving the industry by developing new products that add value to existing offerings, which, in turn, accelerates the transition to Islamic banking, particularly for non-Islamic entities, which, for example, have already discovered products such as sukuk as viable alternatives to conventional bonds.
“Islamic finance has a variety of benefits,” says Al Qemzi. “For example, its appeal is universal whereas conventional finance is shunned by many Muslims. It also offers a better, more ethical way of doing business. Since the global financial crisis, concerns about conventional banking and its way of doing business and its high-risk products have led to an increased appetite for an alternative ethical banking. Islamic finance offers that alternative.”
Apart from Islamic finance, key opportunities can be found in the halal food industry, where there are investment options across the value chain, the halal travel market, especially in family, business and luxury travel, and hospitality. In halal fashion, opportunities lie in e-commerce platforms, retail outlets, fashion branding, and franchising and distribution partnerships especially for the Western Muslim markets as the largest segment by value.
The Muslim media and recreation sector include segments such as lifestyle marketing, digital advertising, gaming, social media and global halal branding. In the pharmaceuticals and cosmetics sector, there is huge potential for products such as halal vaccines, ingredients manufacturing, as well as retail and wholesale partnerships.
“2015 marks the tipping point for Islamic lifestyle economy services moving from establishing a business case to focusing on building successful business models and quality execution strategies,” says Rafi-uddin Shikoh, CEO and Managing Director of DinarStandard, a New York-based advisory firm specialising in the Islamic economy. “As more Islamic economy success stories emerge the momentum is also starting to shift towards solutions that have a wider, values-driven, global audience appeal for socially responsible products and services.
Interview: Rise of Arab entrepreneurs
GN Focus spoke to Rami Al Malak, founder of Miella, an online portal for halal fashion, about opportunities for Muslim start-ups in a globally strengthening Islamic economy
How would you describe the existing ecosystem for entrepreneurs and start-ups in the Arab World?
The ecosystem is definitely growing and we are seeing increased sophistication by both entrepreneurs and investors. That said there are important factors that need to develop in order for the environment to continue expanding. For example, with the rarity of big exits and/or IPOs in the region, investors do not always get the larger returns they may be expecting on their investments. As a result, while there is liquidity in the markets, start-ups, especially in technology, don’t always have access to that capital and they end up appealing to a still limited number of sophisticated investors. Another area that we are still lagging behind in the Arab world is in the presence of world-class science and technology colleges.
Regionally, which countries in the Middle East have developed some form of start-up culture?
The UAE, Saudi Arabia, Bahrain and, to a certain degree, Egypt house increasingly active clusters of angel investors and venture capital funds seeking to invest and grow various start-ups. Governments are facilitating these activities with projects such as Dubai Technology and Entrepreneurship Centre at Dubai Silicon Oasis, for example. And accelerators like Astrolabs are also engaging with entrepreneurs across the Middle East and North Africa, helping scale their start-ups.
What role does entrepreneurship/innovation play in the Islamic economy?
Start-ups are one of the engines of growth for any economy, not just the Islamic one. From Microsoft and Oracle to modern-day superstars like Amazon, Google, LinkedIn, Facebook, and the world’s most valuable company, Apple, all companies have been the direct result of entrepreneurship. With every big success story like Microsoft, Amazon, Facebook and Apple, there are hundreds of failures, but that is part of the process, and entrepreneurs will continue to innovate in software, biotechnology and energy. And so, with growing ecosystems for entrepreneurship in the Islamic world, and game-changing initiatives to position Dubai as the global capital of Islamic economic jurisprudence, there has never been a better time to be a Muslim entrepreneur.