A Landlocked Resource Rich Country with a Young Demography Unlocking the Development Potential of Vision “New Uzbekistan,” Islamic Finance and Credit and Investment Insurance

In many respects, the Republic of Uzbekistan has a lot going for itself. The country has a diverse economy that has witnessed wideranging markets and some political reforms to increase jobs, exports and prosperity in the past few years.

Uzbekistan benefits from abundant natural and mineral resources, a relatively low public debt, a growing workforce, and a strategic geographic position between China and Europe on the historical and now rejuvenated Silk Road. It is a landlocked country, blessed with a young demography of 36.05 million people – by far the largest and most densely populated in the region accounting for 45% of Central Asia’s total population.

The government of President Shavkat Mirziyoyev guided by its Vision “New Uzbekistan”, has invested heavily in education and human capital development over the last decade or so, which has resulted in a workforce ready and arguably most suited in the region to meet the country’s development challenges that lie ahead. The IMF projects Real GDP Growth to reach 5.3% in 2023, but if Uzbekistan’s economy outperforms in the next two years, the growth trajectory could hit between 6% to 8%, respectively.

Like in many countries, the country’s economic fortunes are beholden to the Ministry of Finance’s policy and ability in containing and fighting inflation (consumer prices), which is projected by the Fund at 11.8% in 2023. The good news is that the inflation rate has been flattening from 12.9% in 2020, with a downward trajectory reaching 10.8% in 2021, 11.4% in 2022, and projected to decrease to 6.5% in 2025.

Uzbekistan acceded to membership of the IsDB in 2003 but is a relative newcomer to the Shariah-compliant credit and investment insurance ecosystem, having become the 46th member of ICIEC only in 2019. Since 2003, the IsDB Group has approved a total of US$3.464 billion in development financing for Uzbekistan in different sectors, including transport, energy, water, sanitation, agriculture, education, finance, and health. Of this, over US$1 billion has been dedicated to the private sector and trade financing. As of 12 May 2023, the IsDB active portfolio comprises of 70 active operations for a total amount of US$1.931 billion.

To date, ICIEC has insured a total of US$758 million business activities in Uzbekistan, comprising US$495 million in trade and US$263 million investment-related transactions.

The above figures suggest that despite a huge proliferation of collaboration and financing in the last three years, the business activities and development cooperation between the IsDB Group and ICIEC with Uzbekistan, at best remains a “work in progress.” However, the bilateral and regional strategy ahead is encouraging and augurs well for near-tomedium cooperation, underpinned by close cooperation between Uzbek state agencies such as Uzbekinvest, (UZIPA), and (UzSAMA). Not surprisingly, the IsDB and ICIEC consider Uzbekistan a strategic partner that can play an essential development role in the region.

To date, ICIEC has insured a total of US$758 million business activities in Uzbekistan, comprising US$495 million in trade and US$263 million investment related transactions.

This includes Tashkent’s stated desire to put export credit and investment insurance and guarantees firmly on the credit enhancement and risk management solutions map. Equally important is the fact that President Mirziyoyev’s government has embarked on an ambitious policy to promote Islamic finance as part of its diversification of funding strategy. It has created a perfect storm for consolidating Shariahcompliant financing solutions as part of the overall financial services mix.

The future relations of the IsDB Group and ICIEC with Uzbekistan will be driven by the Group’s Member Country Partnership Strategy (MCPS) for Uzbekistan, which was launched in May 2023 on the sideline of the 2023 IsDB Group Annual Meetings in Jeddah. The MCPS for Uzbekistan is a five-year strategy document (2022-2026) which focuses on two main pillars with three cross-cutting areas:

Pillar 1 focuses on Supporting Economic Transformation:
The objective is to help Uzbekistan build a green, resilient and sustainable infrastructure that enables enhancing competitiveness, industrial and agricultural diversification of productive capabilities, supporting higher productivity, promoting exports, expanding formal-sector employment and strengthening the role of priority sectors that can generate high value added for the economy. In the implementation of this pillar, priority shall be given the supporting the private sector and promoting the business environment.

Pillar 2 focuses on Enhancing Human Capital and Enabling Environment:
The objective here is to support the economic transformation of the country by investing in human capital and improving welfare. The focusis also to improving access to healthcare and health outcomes, access to quality education in line with industry requirements, and mainstreaming the applications and use of ICT and digitalization across the board. The cross-cutting areas include i) integrating the perspectives of women and youth, ii) supporting climate change mitigation and adaptation, and iii) focusing on long-term capacity development.
Another potentially key driver is the development of a Regional Central Asia Connectivity Programme by the IsDB Group in partnership with the Asian International Infrastructure Bank (AIIB), focusing on improving intra-and inter-regional connectivity. The rationale behind the initiative is that given Uzbekistan’s landlocked geography, it is essential to boost regional integration and harmonize relevant legislation to enhance intraregional trade and investments. The aim is to leverage technological tools to help build a future promoting connectivity, competitiveness, and innovation in Uzbekistan with the region. ICIEC has repeatedly stressed the importance of investment in boosting GDP growth and enhancing development through increased productivity which are crucial for sustainable economic transformation. According to the World Bank, “investor confidence decreases when the direction of policymaking is unclear, uncertain or unpredictable.” The best indicator of investor confidence is the ease of doing business in an environment conducive to political and macroeconomic stability as well as a transparent system of corporate governance.

Since the accession of Uzbekistan in June 2019 till end June 2023, ICIEC has been steadily building its portfolio with Uzbekistan. The data is implicit.

i. Current Commitments in Uzbekistan reached US$36.81 million – 1.41% of total ICIEC Current Commitments.

ii. Exposure in Uzbekistan of US$350.161 million – 7.76% of total exposure.

iii. ICIEC Business Insured in Uzbekistan totalled US$719.36 million – 0.36% of total Business Insured, of which trade transactions accounted for US$456.21 million and investment insurance for US$263.14 million.

iv. New Commitments of ICIEC services for Uzbekistan totalled US$584.62 million – 0.5% of total New Commitments, of which trade transactions accounted for US$267.70 million and investment insurance for US$317.00 million.

v. The number of Uzbek entities that benefited from ICIEC’s services totalled 24 -0.11% of the total number of entities benefitting from ICIEC services, of which the number of Insurance Policies issued to Uzbek entities was 1 (one), and the number of Uzbek buyers and banks covered by ICIEC reached 23 respectively.

The future of Uzbekistan’s engagement with ICIEC could be greatly enhanced if it were to increase its current very low equity subscription of 0.08% to ICIEC’s capital, compared with Kazakhstan’s 2.28%and Turkmenistan’s 0.17%. One way Tashkent can do this is to commit and participate to the recent capital increase of ICIEC’s approved by its Board of Directors at the Corporation’s Annual Meeting during the 2023 IsDB Group Annual Meetings in Jeddah in May 2023.

One area ICIEC is destined to play a potentially important advisory and facilitating role is in Uzbekistan’s ambitious privatisation process. ICIEC, in this respect, has recently signed a Memorandum of Understanding (MoU) with the State Asset Management Agency of the Republic of Uzbekistan (UzSAMA), whereby the two entities will collaborate in exchanging experiences and expertise in the privatization process, including that of the banking sector.

Both parties have committed to advancing their cooperation to attract potential investors for privatized state assets in Uzbekistan. ICIEC is in contact with the PPP Development Agency and international banks to explore opportunities to support PPP projects in Uzbekistan’s energy and healthcare sectors. ICIEC is cooperating with international banks for their lines of financing to Uzbek banks and entities.

Enhancing De-risking and Credit Enhancement Business in ICIEC Member States

The importance of credit and investment insurance cannot be overstated. For an industry that has been around for over a century, the challenge ahead is not to pay endless lip service to its business case but to enhance awareness and market education among policymakers, regulators, multilateral, national and private sector insurers and Export Credit Agencies (ECAs), banking institutions, insurance providers, exporters, importers, investors and SMEs. This is particularly so in a global geopolitical and economic environment of persistent and evolving risks, precipitated in recent years by the onset and ongoing impacts of the COVID-19 pandemic, the supply chain disruptions and burgeoning fuel and food price rises caused by the Ukraine conflict, the ensuing global economic downturn and cost-of-living crisis which has slowdown the post-pandemic recovery towards pre-pandemic normalisation. The biggest challenge, however, is how to instil the culture of credit and investment insurance among the 57 Organisation of Islamic Cooperation (OIC) member states with its disparate back stories of economies, financial resources, trade and investment architecture, de-risking and payment systems and development agendas. Is there a two-tier approach to trade and investment risk mitigation already entrenched? Mr. Oussama Kaissi, CEO of ICIEC, considers the options for OIC countries as they seek to build on their trade and FDI potential and attractiveness.

Today, around 90% of all global trade relies on some form of credit, insurance or guarantees issued by a bank, insurer or specialist financial institution. As it has done for over a century, the credit insurance industry will continue to evolve and adapt to meet challenges – societal, environmental and economic – that lie ahead and support the real economy.

Credit and investment insurance typically acts as a catalyst that provides financing to the real economy through export and import flows and promotes foreign direct investment (FDI) movements across the globe. By protecting exporters and banks against the risk of non-payment, defaults and expropriation, credit insurance enables cross-border trade and investment.

As the latest data suggests from The Berne Union (International Union of Credit and Investment Insurers), the not-for-profit professional association representing the global credit and political risk insurance industry, the industry demonstrated great resilience and adaptability throughout the pandemic, the crisis in Eastern Europe and the global economic downturn. Over the year 2022, the credit and investment industry supported US$2.83 trillion of cross-border trade and investment (up 5% on 2021) with an additional US$68.6 billion in non-cross-border support for exporters. Berne Union Members, which include ICIEC, collectively provide payment risk capital worth US$2.5 trillion each year, insuring approximately 13% of the value of total global cross-border trade.

A recent survey conducted for The Berne Union Export Credit Business Confidence Trends Index shows that the industry remains confident and positive, despite the high-risk environment and the global economic and geopolitical uncertainties. “Strong global trade performance in 2022 provides cause for optimism, but high inflation, widespread geopolitical risk and the increasing frequency of insolvencies/rising pre-claims means underwriters remain cautious through Q1 2023,” were the sentiments of an overwhelming number of respondents.

The Index tracks perceived demand, risk appetite and claims in the export credit insurance industry, based on quarterly surveys of Berne Union Members. To capitalize on business growth opportunities and increase resilience within key sectors, the survey recommends an approach based on five core features: ‘Adapt and Innovate’, Greater flexibility and support for finance across all stages of the trade cycle, More partnerships between public and private sources of finance and risk capacity, Reduction of barriers, Aligning of incentives, and Increasing coordination across different spheres.

Industry is Well Positioned

Respondents maintained that their industry is well positioned to support economic stability and energy security while also playing a pivotal role in advancing energy transition, food security and resilience, and climate adaptability goals.

Most industrialised countries, and many emerging economies, provide official support to cross-border trade and investment through ECAs. A number of global insurance companies have also introduced credit insurance products representing the private market. There are also four multilateral agencies that provide credit and political risk insurance, focused mainly on specific geographic regions. The latter category includes ICIEC, uniquely the only Shariah-compliant multilateral insurer in the world and a member of the Islamic Development Bank (IsDB) Group. The reality is that many OIC countries are bereft of a national ECA, a gap often unofficially filled by ICIEC by virtue of its de facto engagement with counterparties (usually ministries, state agencies, banks and export trade associations) and adoption by these partners.

Another reality is that of the 57 OIC and 49 ICIEC member states, only 15 are acceded to some sort of membership of the Berne Union, with the latest being the Export-Import Bank of Malaysia Berhad (EXIM Bank) which joined as an Observer Member and participant in the Berne Union’s Prague Club Committee. The 15 members include the Kuwait-based pan-Arab Dhaman (The Arab Investment & Export Credit Guarantee Corporation) and two members from Indonesia – Indonesia Eximbank and PT. Asuransi Asei Indonesia (Asuransi Asei).

Membership in a prestigious international professional body is essential or a panacea to the trade and FDI ambitions and shortcomings of several ICIEC member states. But the lack of participation in industry bodies such as the Berne Union, the Aman Union (the professional forum of Commercial and Non-commercial Risk Insurers & Reinsurers in OIC Member States and members of Dhaman and ICIEC), inevitably deprives partners involved in trade and investment activities in and with member states of getting the necessary exposure to the latest regulatory, legal, market, financial innovation and technical developments, trends, and processes pertaining to the industry. It also deprives them of engaging with potential partners, learning from the experiences of peer best-in-the-industry entities, exchanging ideas and forging partnerships for the future.

As risk absorbers and mitigators, the current status quo represents the credit and investment insurance industry in the OIC countries with both challenges and opportunities. Especially as the global economy is in a rebuilding and reimagining mode in the wake of the pandemic, as well as in pursuit of net zero goals for decarbonisation, and mitigating the impact of the supply chain disruptions caused by the Ukraine conflict, especially in fuel and foodstuffs, which has raised renewed questions about food security and building resilience to future shocks.

State of the Industry in Aman Union Member States

ECAs in AMAN Union member states have generally witnessed rising growth in their operations – both conventional and Shariah-compliant – largely linked to government COVID-19 mitigation emergency packages, the reality is that the culture of credit and political risk insurance (PRI) in many markets remains underdeveloped.

All stakeholders have a role to play to foster increased awareness of credit and PRI, including policymakers, multilateral and private insurers, reinsurers, private sector, businesses, SMEs and industry bodies such as our Union. The benefits and opportunities are implicit, especially in mobilising additional private capital for development from local banks and institutional investors. PRI and credit enhancement have a track record of effectively de-risking and thus catalyzing private investment into emerging markets through capital-efficient instruments.

Channelling investment into sustainable projects presents a sizeable growth opportunity for insurers, especially in infrastructure and development projects. Insurers can design products to reduce risks in infrastructure projects and increase their attraction to investors.

Turk Eximbank’s incisive Technical Performance Analysis 2020-2021 presented to the 13^th Aman Union AGM in Dubai in May 2023 shows steady progress of the export credit and investment insurance ecosystem but from a relatively very low base.

The main findings are revealing:
i. Total capital base of Aman Union (AU) member entities was US$13.6 billion at end 2021 – up on the US$10 billion in 2020. Saudi EXIM accounted for 59 percent of the figure in 2021.

ii. Total number of policyholders in 2021 reached 8,493 – up 11 percent on 2020.

iii. Total number of buyers increased from 106,000 in 2020 to 116,000 in 2021, of which Turk Eximbank accounted for 51 percent.

iv. Total AU Business Insured in 2021 reached to US$49 billion – up 17 percent on 2020.

v. Top 5 members accounted for 83 percent of total AU Business Insured, led by Turk Eximbank at 48 percent and ICIEC at 20 percent.

vi. Total Short term Export business increased to US$35 billion in 2021 from US$28.6 billion in 2021.

vii. MT Business insured decreased sharply to US$200 million in 2021 from US$1.7 billion.

viii. Investment Business Insured increased from US$2.5 billion to US$3.1 billion in 2021 with ICIEC accounting for 71 percent.

ix. In 2021, total premium reached US$240 million, up 19 percent on the previous year.

The data reveals a very fragmented export credit and investment insurance ecosystem with a handful of players dominating, especially ICIEC, Turk Eximbank and Saudi EXIM, and the very low base for almost all the various indicators. It shows the huge gaps relative to the developed markets in the advanced economies and the work that needs to be done by member states and entities in almost all facets of the credit and investment insurance architecture, ranging from enabling legislation, regulatory and tax frameworks, risk mitigation strategies, product innovation, capitalisation, market depth, competition, awareness and market education.

In March 2023, ICIEC organized and hosted the 1st Capacity Building Program for the users of the OIC Business Intelligence Center (OBIC) in March 2023, stressing the Role of Credit Information Sharing, Business Intelligence, and Digital Transformation in supporting trade and investment decisions and how the OBIC platform can be used as an improved Credit Risk Management tool that will facilitate access to finance for trade and investment, as well as the mitigation of risks related to those activities.

Benefits and Challenges

The efficacy, benefits and challenges of credit insurance could not be better illustrated by ICIEC’s experience in Senegal. Over the past years, ICIEC has supported numerous landmark transactions and projects in Senegal with an investment totalling US$3.6 billion through risk mitigation, credit enhancement solutions and guarantees. Notable projects include Blaise Diagne International Airport (AIBD SA), Stade du Sénégal (Abdoulaye Wade Stadium), Dakar Expo Center, the Market of National Interest, Hann-Fann Wastewater Collector, and the Dakar Truck Station.

According to Madame Oulimata Sarr, Minister of Economy, Planning & Cooperation of Senegal, “The ICIEC guarantees (and de-risking tools) have enabled the realization of several infrastructure projects in Senegal. ICIEC’s credit and investment insurance products play a major role in project risk mitigation, as they make them more attractive to investors. In addition, these products make it possible to ensure projects are more bankable with foreign investors who have a high-risk perception when it comes to investing in Africa or in developing countries.”

However, several ICIEC developing member states are confronted with various dilemmas. Despite its vital importance in project financing, insurance, they point out, often contributes to the increase in the cost of a project, especially in Africa, which suffers from an unfavorable and biased credit rating. “As you well know, the pricing of insurance premiums is partly based on a country’s credit rating and as rating agencies overstate risk on the continent, African countries find themselves paying very high premiums,” noted Madame Sarr. As one of the most important development banks in the world, the IsDB Group, including ICIEC, could play a key role with rating agencies to change this perception of overvalued risk on the African continent. ICIEC, like other insurers, operate in the real world accountable to shareholders, market conditions, various risk metrics and its mandate.

Senegal’s call to insurers for a reduction in insurance premiums because “lower insurance premiums would help reduce project costs on the continent and make the market more accessible to African private sectors” merits consideration. But this is subject to collaboration, negotiation and demonstrable progress in enhancing the credit insurance culture and ecosystem in member states – an ambition to which ICIEC is committed to.

The benefits for ICIEC member states are potentially game-changing – increased intra-OIC trade and investment, better socio-economic outcomes, greater capacity building, and resilience in meeting climate, food security and other challenges, ensuring that no one, whether businesses, SMEs, or individuals, is left behind. A much greater level of partnerships is needed to close gaps in resources, and capital, which would allow the underwriting of much greater volumes of business and investment insured, reinsurance treaties and guarantees, capacity building, better risk management, and reliable credit history and data collection.

Could underwater farming be a major contributor to a sustainable ‘blue economy’? If so, how will ICIEC help enhance the prospects and unlock the potentials for this new dimension in sustainable agriculture? By Tala Alsaati, Strategic Planning and Communications, ICIEC.

According to the United Nations (UN), using just 2% of oceans for sustainable farming could solve our global food shortage. Farming underwater is a revolutionary concept, but one that could provide a real alternative that will help improve global food security. The possibilities are exciting but not without consequences. In this article, we look into the current state of play, the economics, the opportunity, and the extent to which ICIEC could support aquaculture and underwater farming initiatives. One potential approach would be for ICIEC to offer coverage for equipment and resources used in these projects, as well as to facilitate and incentivize trade and investment in the goods produced.

Eliminating hunger on a global level will require adopting and implementing sustainable farming practices that produce a cycle of harvesting, while preserving our environment for future generations. With the global population projected to reach about 9.7 billion by 2050, the UN estimates that food production needs to increase by 60% to meet this demand. Underwater farming offers a promising solution to this challenge by providing fresh produce, increasing food production and supply, reducing the impact of climate change, and promoting sustainable farming method. Through underwater farming, marine life can be protected, CO2 removed from the atmosphere, and freshwater usage cut by 70%; while growing crop that can offer millions of people access to nutritious food, thereby ending food shortages. Ocean farming is a promising way to achieve the Sustainable Development Goals; a feasible path towards achieving Zero Hunger, Life Below Water, No Poverty, Good Health and Well-Being, Clean Water and Sanitation, and Affordable and Clean Energy.

Various initiatives are underway to develop underwater farming, including researching the cultivation of seaweed species, growing vegetables and fruits sustainably, and monitoring pests and diseases. The model requires less area and fewer inputs and can be more productive per unit of land. Additionally, underwater farming can reduce the risk of soil erosion, water contamination, and other environmental impacts associated with traditional agriculture. Underwater farming can reduce reliance on organic farming and biofuels to address food security, keeping prices lower and producing more for economic growth.

The future of financing vegetables and fruits farming underwater is an exciting and vital topic in the global economy, though initial costs may be higher than traditional methods, the marine environment’s abundant resources will boost profitability and economic growth, while helping to protect marine ecosystems. Exploring these options and developing financing mechanisms to support the development of the blue economy; The blue economy, centered around sustainable development and utilization of natural resources, including initiatives like aquatic farming, aquaculture, and other ocean-based activities.

The economic benefits of underwater farming to the blue economy are numerous, as it can provide food, jobs, and revenue to communities. To finance such initiatives, it is important to understand the economics of underwater farming and the potential for profit and return on investment. By making strategic investments, aquatic agriculture can transform global food security, reduce poverty, and promote economic growth.

Underwater farming is a key industry in the blue economy, with the potential to reduce poverty and finally eliminate hunger permanently. Financing new underwater farms is necessary, as the world population continues to grow. The expansion of private enterprises in underwater farming could reduce the financial burden for millions, reducing poverty and food insecurity in low-income areas. Government support for underwater farming is key to the long-term success of the blue economy. It is essential to find potential financing solutions that can help to offset the costs and reduce the risks associated with the project.

Governments, businesses, and international financial institutions should consider financing solutions to offset the high costs of setting up and maintaining aquatic farms. Government investment in underwater farming initiatives can offset the costs of setting up the project and incentivize businesses to invest in the technology. Private funding from investors is also an essential factor in financing underwater farming projects. International financial institutions can support such initiatives by providing resources, expertise, and financing. However, there are challenges in aquatic farming funding, such as the high cost of setting up the project, the risk of failure, and the need for more knowledge and expertise in the field.

Exploring ICIEC’s potential role in underwater farming

The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) could play a role in risk mitigation and insurance coverage for underwater farming projects. ICIEC could potentially provide coverage for equipment and resources used in underwater farming, facilitate trade and investment in underwater farming projects, and encourage the use of Islamic financing methods in line with Shariah principles, bringing together investors and project developers to exchange knowledge and best practices, supporting project development, and promoting the growth of underwater farming. ICIEC is committed to supporting initiatives that promote sustainable agriculture practices in a Shariah-compliant manner.

Since inception, ICIEC has had a significant development impact over 29 years, ICIEC has insured US$95 billion in trade and investment and provided US$1.5 billion in agriculture support. Underwater farming offers significant economic benefits to the blue economy, including providing nutrition and employment. To support the development and growth of the blue economy, ICIEC could also work with investors and state institutions to assess the feasibility and sustainability of these projects and provide risk mitigation services. Ultimately, the success of underwater farming depends on a variety of factors, such as water quality, temperature, market demand, and regulatory frameworks. However, with careful planning, innovative solutions, and the support of institutions like ICIEC, underwater farming could potentially be a viable and sustainable solution to global food security and the achievement of SDGs.

New partnerships and investments in this exciting field are needed, so that these potentials can become a reality. With a proper commitment to the blue economy and environmentalism, we can achieve food security and reach all the sustainable development goals. To meet current demands of food shortage and to cover future demand, this would require a 42% increase in land, 120% more water usage. Underwater farms will reduce our reliance on traditional farming that harms the soil and air that could produce 77% more greenhouse gas emissions. Not only does underwater farming provide access to fresh produce, but it also has the potential to significantly increase food production, while reducing the impact of climate change.

Lotfi Zairi, Lead of Operations for Sovereign Risks in the Underwriting Operations Department, ICIEC, addresses the questions about how ICIEC is working to enhance food security across OIC member states.

How does the ICIEC operations department fit and work with the wider IsDB family to promote food security across OIC member states?

In line with its mandate as a Multilateral Developmental Organisation, ICIEC endeavors to support its member states through impactful interventions on their respective economies, population, and environment. Due to the unprecedented crisis driven by the Russian – Ukraine war, ICIEC is extending its top priority to meet the emergency needs and strategic objectives of its member states regarding food security.

ICIEC has been actively engaged in the IsDB Group Food Security Response Program (FSRP), which was approved by an Extraordinary Special Meeting of the Boards of Directors of IsDB, ICIEC, and the Islamic Solidarity Fund (ISFD) on July 28, 2022.

This was initiated sometime earlier by the IsDB/ICIEC Board of Governors during the 47th IsDB Annual Meetings held in Sharm-El Sheikh, Egypt (1-4 June 2022) in the wake of the food crisis amid a record 56.3% increase in cereal prices.

What specific roles does ICIEC take in promoting food security across OIC member states?

Under FSRP, ICIEC focuses on the Least Developed Member Countries (LDMCs) by providing necessary support to active market players, including exporters, contractors, investors, and financial institutions. On an emergency and immediate response basis, ICIEC provides credit and political risk insurance (CPRI) solutions to facilitate the international trade transactions of food, seeds, fertilizers, and agricultural equipment.

On a strategic level, ICIEC plays the role of catalyst for the execution of foreign investments in the agriculture sector that contribute to food resilience through improving supply value chains, increasing food commodity production, and enhancing storage capacity.

Over and above the payment risk mitigation for the broad spectrum of economic players in the food and agricultural fields, ICIEC also mobilizes external financial resources for the benefit of member states via reinsurance arrangements to optimize the benefits of its member states.

This reinsurance support is possible via short-term, medium, and long-term portfolio-based treaties, as well as through ad-hoc facultative arrangements that ICIEC enjoys with international reinsurance institutions worldwide.

How much support has ICIEC provided to OIC member states under the FSRP program?

As of the end of March 2023, since the FSRP’s inception in July 2022, ICIEC approvals related to food security have reached US$301 million. This is already reaching 60% of the total amount of US$500 million pledged by ICIEC for the entire period until December 31, 2025.

This ICIEC contribution to food security support is distributed through all geographic zones of its Member States. So far, the beneficiaries are originating from Sub-Saharan Africa (Senegal and Uganda), MENA (Egypt), and Asia (Bangladesh, Indonesia, and Uzbekistan).

ICIEC’s contribution in this regard is mainly facilitating banking transactions in its member states, enabling the import of agricultural equipment, fertilizers, sugar, wheat and other grains, soya beans, canola, etc. This is in addition to enabling foreign investments for the modernization of the agricultural sector, which will reinforce the Member States’ resilience against food crises in the future.

Is support also primarily based on cooperation and framework agreements?

Aiming at maximizing its support to member countries in overcoming food security challenges, ICIEC has also initiated partnerships with several financial institutions and organizations. In this context, ICIEC signed MoUs with investment and banking institutions to cooperate in facilitating food trade and agricultural investments by blending financing facilities with risk mitigation services in the member states.

In the same context, ICIEC has initiated a business partnership with the Islamic Organization for Food Security (IOFS), a member of the Organisation of Islamic Cooperation (OIC), to promote food security, sustainable agriculture, and rural development in member states. Furthermore, ICIEC is part of the arrangements made with the International Islamic Food Processing Association (IFPA), a subsidiary of IOFS, for facilitating intra-OIC Agrifood and Halal trade.

What other new initiatives can ICIEC roll out to further support food security across member states?

An additional partnership is being discussed with the ISFD to replicate the ICIEC ISFD COVID-19 Emergency Response Initiative (ICERI) program for the FSRP, building on its successful synergy-based experience under the Strategic Preparedness and Response Program (SPRP), a holistic structure that IsDB Group developed to support member countries combatting the COVID-19 pandemic impact, restore interventions and restart growth.

Indeed, under that strategic preparedness and response program, by the end of 2022, ICIEC’s contribution reached US$1.4 billion in approvals for COVID-related transactions and projects. ICIEC was able to offer its risk mitigation solutions and capabilities in resource mobilization from the international market to benefit 15 member countries.

The food sector benefited to the tune of $169 million in those member countries. Also, US$655 million went to the energy sector, US$528 million to health, and $62 million to the SME sector. In addition, ICIEC’s approvals consisted of US$492 million under the Emergency Respond Track (R1), $490 million under the Restore Track (R2), and US$432 million under the Restart Track (R3).

Discussions are also underway to look at revising the ICERI model to offer broader coverage and better terms in coordination with ISFD. The ICERI program was efficiently used to register a total insurance approval of US$271 million. The spirit of its structure already offers a wide headroom for enhancement to support larger ticket sizes, longer tenors, and a more significant number of transactions.

ICIEC and the IsDB Group are well placed to promote food security in Côte d’Ivoire – mainly via financial packages and credit and political risk insurance (CPRI) solutions to bolster international trade for food, seeds, and fertilizers.

Côte d’Ivoire is far from an economic minnow. As the world’s top exporter of cocoa and raw cashew nuts, a net exporter of oil, and with a significant manufacturing sector, the country is the largest economy in the West African Economic and Monetary Union. And despite the COVID-19 pandemic and war in Ukraine, which has amplified food and energy prices and security, Côte d’Ivoire is experiencing one of the fastest sustained economic growth rates in Sub- Saharan Africa in over a decade.

With real GDP growth averaging 8.2% between 2012 and 2019 amid political stability, Côte d’Ivoire successfully contained the pandemic and maintained a growth rate in 2020 (2%). In 2022, growth was driven by private consumption, supported by public investment and wage increases in the civil service. Inflation averaged 5.2% in 2022, its highest level in a decade, linked to rising food, transport, and energy prices. “With soaring inflation, many people in West Africa are struggling to access basics such as food products,” says Ousmane Diagana, World Bank Vice President for Western and Central Africa.

However, medium-term projections are optimistic, provided structural reforms targeting macroeconomic stability are stepped up. The West African country remains on a positive economic trajectory, which will need to be strengthened to accelerate the structural transformation of its economy as envisaged in the new 2030 strategy. But malnutrition and food insecurity remain a challenge with significant regional disparities. Rural communities, notably in western and northern Côte d’Ivoire, are disproportionally more affected and vulnerable.

IsDB Group-ICIEC food security initiatives

The IsDB Group endorsed a US$10.54 billion comprehensive Food Security Response Programme (FSRP) package aimed at supporting member states in addressing the ongoing food crisis and scaling up the group’s continued efforts to contribute to strengthening its members’ resilience to food security shocks in the future.

The IsDB will contribute up to $5.7 billion in total financing to member countries, comprising new approvals worth $4.0 billion and fast-tracking of disbursements for existing projects worth $1.7 billion.

ICIEC has contributed to the IsDB Group’s FSRP by making a pledge of $500 million in insurance capacity over the three and half years (H2- 2022/ YE-2025), knowing that the FSRP is aligned with ICIEC Developmental Objectives and SDG 2 (zero hunger).

ICIEC’s contributions are being realized via the extension of Credit and Political Risk Insurance (CPRI) solutions to facilitate international trade transactions of food, seeds, fertilizers, and equipment related to agriculture projects, in addition to foreign investment in the agriculture sector aiming to increase the production and improving the storage capacity and resilience in member countries under the Building Food and Input Supply Value Chain initiative.

UN and World Bank frameworks

The UN World Food Programme (WFP) has also provided a strategic framework – the 2019-2023 Country Strategic Plan for WFP in the West African country – to mitigate Côte d’Ivoire’s pervasive food insecurity, malnutrition, and gender inequalities, which severely affect smallholder farmers as they struggle with issues of land access and frequent climate-related shocks.

The limited support for food crop production compared with the cash crop sector also continues to have a negative impact on the productivity of smallholder farmers who cultivate 84% of the arable land. Other underlying causes of these challenges include poverty, low education and literacy rates, poor dietary diversity, lack of awareness of good nutrition, health and hygiene practices, the prevalence of highly infectious diseases, and gender inequalities.

The World Bank is deploying short and long-term responses to boost food and nutrition security, reduce risks, and strengthen food systems. The actions form part of the institution’s global response to the ongoing food security crisis, with up to $30 billion in existing and new projects in areas spanning agriculture, nutrition, social protection, water, and irrigation. This financing will include efforts to encourage good and fertilizer production, enhance food systems, facilitate more significant trade, and support vulnerable households and producers.

The WFP’s $715 million Food System Resilience Programme is another approach. It aims to benefit more than four million people in West Africa by increasing agricultural productivity through climate-smart agriculture, promoting intraregional value chains, and building regional capacity to manage agricultural risks.

ECAs can play a significant role in backing the food and water sectors in this West African country. For instance, in August 2020, Swedish ECA, SEC supported a loan to finance the construction of 1,000 drinking water boreholes with solar pumps and the construction of drinking water supply plants and water pipelines to supply 189 Ivorian villages.

Green Future

As global food security challenges mount, tapping the potential of these ambitious climate-smart investments is essential for making Côte d’Ivoire’s economy more resilient, achieving inclusive growth, and combating food insecurity. ICIEC has already supported a raft of ESG-related projects in Côte d’Ivoire, which will positively impact climate mitigation.

“When these elements are put together, not only does it transform the economy, but jobs are created too. That allows young Africans to stay in Africa and make a living from their work by being in Africa,” says the World Bank’s Diagana.

The 2019-2023 Country Strategic Plan for WFP in Côte d’Ivoire, based on the 2018 Zero Hunger Strategic Review, aligns with national priorities. It also seeks to harness the comparative advantages of the various United Nations agencies operating in Côte d’Ivoire to provide a holistic response to food security and nutrition needs. Furthermore, ICIEC can play a more integral role in bolstering agency finance in the West African country, from supporting agriculture and water projects to solar schemes linked to farming.

Mr. Yerlan Alimzhanuly Baidaulet, Director General of the Islamic Organization for Food Security (IOFS), discusses the role of IOFS in advance of the occasion of the 48th Annual General Meeting of the IsDB Group on 10-13 May 2023, Jeddah, Kingdom of Saudi Arabia.

As an entity specialized in food security, can you please highlight the specific roles of the IOFS, from how it functions to how its activities are funded?

Yerlan Alimzhanuly Baidaulet: Allow me firstly to share that the IOFS core mission is ensuring food security, sustainable agriculture and rural development within the OIC geography. In this regard as per its strategic framework, IOFS should safeguard sustainable food security in OIC Member States through their socio-economic development and systemic promotion of targeted programs related to agriculture, science, and technology, humanitarian food aid and intra- OIC food trade.

Secondly, the IOFS has 16 strategic thematic programs, which were designed to respond to challenges identified within 5 main pillars (Food Security Governance, Food Crises Response, Capacity Building, Industrial development and Resource mobilization) towards boosting cooperation between Member States, national, regional, and international organizations for the benefit of agriculture and food sectors and the welfare of people within OIC geography, and Plan of Action for the systemic development of strategic commodities (wheat, rice and cassava) that would need close cooperation with Member States through the dedicated electronic Center of Excellency for all indicated commodities.

Thirdly, programming activities of IOFS are funded basically through mandatory contributions by the Member States or through partnerships with relevant international organizations, including the Islamic Development Bank (IsDB). It should, however, be clarified that the work of IOFS Secretariat emanates from the mandates and interests Member States have provided to. Therefore joint efforts among the Member States focused on the initiatives of IOFS, as the sole OIC specialized Institution focused on the matters related to food security, could also improve their respective agricultural policies. We have been meeting several high-level delegations from different Member States and continuously requesting them to embrace IOFS Strategic Framework and IOFS Vision 2031 as their own documents and as their tools to facilitate intra- OIC cooperation in the field of agricultural development and food security.

To conclude, it is important to note that the development of sustainable agriculture sector and food systems in OIC Member States is mired by a multitude of constraints concerning agricultural resources, infrastructure, policy and international commodity markets. Member States, therefore, are urged to work closely with the IOFS towards addressing such constraints delaying their agricultural efficiency for it to be used as the basic tool for ensuring national food security in OIC geography.

At present, the membership of the IOFS is comprised of 37 countries (out of 57 OIC Member States). Are there plans to get new States on board in 2023 and beyond?

Of course, we want to increase the number of Member States that have full-fledged status with the Organization. In addition to the indicated number of Member States, in 2022 the Republic of Turkmenistan joined IOFS with the Observer status. This is why when there are solemn gatherings at the OIC, including the recently held 49th Session of Council of Foreign Ministers (CFM) in Nouakchott, Mauritania, we call remaining OIC Member States yet not members of IOFS to seize the opportunity to sign its Statute. There is also a stand resolution of CFM calling these same countries to join the IOFS, and in my capacity as Director General of IOFS, I undertake visits to such countries with understanding of clarifying the important work the Organization is implementing and to show them how they would respectively enjoy the benefits of Membership. One of the visits, actually, paid the desired result, as when I was in Ndjamena, Republic of Chad, in May 2022, relevant local authorities embraced the Agenda of IOFS, and in July of the same year, they adhered to the Organization. We will therefore continue with this work, and we expect some countries to join this year and probably at our 6th General Assembly to be held on 02-03 October 2023 in Doha, State of Qatar. We may have new Members signing the IOFS Statute. We expect that the total IOFS country membership as the end of 2023 would exceed 40. In this regard, our country department is dealing with designing all country profiles and following up on all country visits and meetings of the Director General with high authorities of these countries.

What MoUs have IOFS recently signed in its bids to create awareness and promote the importance of food security among Member States?

The Islamic Organization for Food Security (IOFS) maintains a consistent collaboration with a variety of partners within the Member States, including but not limited to business and private entities, civil societies, non-governmental agencies and quasi governmental bodies. Since 2018 and till April 2023 64 memoranda of understanding (MoUs) and Action Plans have been signed with various partners, all aimed at raising awareness and promoting the significance of food security among the Member States. Recent MoUs were signed with Saudi NGO Almukarramah, D-8 Organization for Economic Development, Inter Islamic Network on Water Resources Development and Management (INWRDAM), Nagashima Holdings Co. Ltd, and Arab Bank for Economic Development in Africa. Additionally, IOFS collaborates closely with OIC institutions and has signed an MoU with the Union of OIC News Agencies (UNA), which supports all programs about food security awareness among the OIC Member States.

Which of the OIC Member States have been hit hardest by food security? Are there any emergency initiatives that can be rolled out immediately – and what does long-term support look like in comparison?

The state of hunger and malnutrition within the OIC geogtaphy is better understood by different reports issued by relevant UN Agencies, including the Food and Agriculture Organization (FAO) and the World Food Program (WFP), particularly the Hunger Hotspots Report 2021, conveying the drastic situation of food insecurity in 11 OIC Member States (Afghanistan, Burkina Faso, Mali, Niger, Nigeria, Sierra Leone, Somalia, Sudan, Mozambique, Lebanon and Yemen), which is affecting around 66 million people.

As our work is based on the official mandates, we are now focused on implementing the Afghanistan Food Security Program (AFSP), based on the special resolutions of the 17th Extraordinary Session of OIC CFM, (Islamabad, Pakistan) as of December 2021. This is because, since the events that have unfolded in Afghanistan in August 2021 and culminated with the change of Government on 15th of the same month, international humanitarian agencies have been taking action to avoid the widespread famine continuously now affecting Afghans. It is understood from several reports that job losses and soaring prices as well a big proportion of drug addicted (as per UNAMA statement, 6 million, including kids and women), are creating a new class of hungry in Afghanistan. 22.8 million of Afghans – or more than half of the population – are not consuming enough food. The country has been on the brink of economic collapse, with the local currency at an all-time low, and food prices being on the rise. Acute malnutrition has been above emergency thresholds in 27 out of 34 provinces.

As for African countries, the 49th OIC CFM adopted the resolution on the IOFS Africa Food Security Initiative (AFSI) right after productive Year of Africa in 2022. In this context, we are in consultations with Member States and relevant Institutions to mobilize the necessary cofunding to implement the designed programmes and projects. For instance, we intend to develop the national food security reserves for Mauritania and other countries in the Sahel to ensure that they have food stockpiles in times of crisis. We have initiated there high-level consultations which the IOFS Team undertook in Nouakchott to exchange views with the local authorities on how to proceed. We expect to do the same with other Sahelian countries once the pilot project in Mauritania is successfully implemented.

Another case is an Integrated Water Plan in Niger with support of eminent technical partners as INWRDAM (Jordan), CEDARE (Egypt), and KGS (Kazakhstan Aerospace Authority)

Given the impact of the Russia-Ukraine war on supply chain in general, and the respective disruptions to wheat and barley exports globally in particular, are there any other macro-economic factors driving food security challenges in the OIC Member States? And how can further such challenges be mitigated by the IOFS?

My initial thought is that the Russia-Ukraine issue has, somehow, unmasked the current situation and level of food insecurity within many of OIC Member States. As such, while being unfortunate, it could also be an opportunity for all of us active in the field of food security and agricultural development within the OIC geography to rethink the way forward and how to scale-up joint efforts to mitigate the consequences from the crises we are witnessing.

You may be aware that there are other factors contributing negatively to food security aside the armed conflict. Those are, for instance, increasing population and level of urbanization, poverty, degradation of resources, high movement of refugees, and climate change, and the nefarious Covid-19 pandemic.

If we look closely to the issue of climate change, we come to the understanding that it is especially noticeable in the most of Muslim majority countries, having an historical tendency of an agriculture production to be unfortunately vulnerable to the weather. This situation is worsening by the population growth and other factors mentioned above, posing a real challenge for the food security for a major part of our Member States.

In this regard, the IOFS is working towards fostering climate-smart agriculture and agriinnovations for food production by implementing its Program “Climate Impact/ Resource Management” under IOFS Strategic Vision 2031. We at the IOFS therefore encourage programs related to climate change and the rational management of resources to reduce poverty and hunger in the OIC Member States based on three clear goals:

1. Combat desertification and mitigate the effects of drought with the particular focus on i) Irrigation environmentally friendly technology and ii) Sky management and clouds to cope with drought.
2. Agriculture & Natural Resources by i) Preservation of Agricultural Ecosystems and ii) Valorising natural resources.
3. Reducing Greenhouse Gas emissions in agriculture without compromising food security by cultivation practices to reduce carbon dioxide, Methane and Nitrous oxide in the soil, while encouraging organic farming and smart agriculture, as well as livestock and feed additives.

Basically, the Key Objectives of IOFS in the nexus climate change vs food security is to address problems posed by desertification, deforestation, soil erosion and salinity.

The second challenge is also related to technological gap that affecting most of the Member States, particularly in the field of basic agriculture. To this extent, the IOFS is, at present, developing the Vertical Farming Industry project aiming at using the most advanced technologies in this field and decrease of cost production of all 6 different components (like aluminum profiles, fertilizers, plastics etc.), which all are available in the IOFS hosting country, so the OIC Member States would easily afford and enjoy such a technological advancement.

The other issue influencing food security within the OIC geography is trade between regions and across borders, which may help adjust to changing conditions affecting food production as a result of climate change, well-functioning regional value chain across agro-food sectors also opens up opportunities for producers in developing economies (as most of the OIC Member States) to contribute to economic development in their local communities.

Also, the IOFS has developed a simple, understandable, and robust Index to measure the level of food security in member countries. The IOFS Food Security Index (FSI) is a critical tool in understanding the level of access, availability, and utilization of food resources among member countries. The FSI model is an essential instrument for monitoring and evaluating food security programs and policies and ensuring effective implementation. And therefore, IOFS pays special attention to conducting relevant studies to assist and promote the sufficient improvement of food security, statistics specially upon its unique Food Balance Database.

It is therefore very important for OIC Member States to scale up their intra-OIC cooperation in this particular field, as well, and the IOFS, as always, is ready to support the Member States by providing the platform for business exchanges, particularly, through its Subsidiary entity, Islamic Food Processing Association (IFPA) which recently relocated to Dubai (UAE) as a global business hub.

Food security in a fragile world has come starkly to the fore as an issue given the backdrop of conflict in Ukraine, recent natural disasters, climate change, and the impact on access to vital agricultural products and food. Here we look at the initiatives ICIEC has been supporting, the partnerships made, and the impact they can have in improving food security and underpinning the development of more resilient access to food.

The global food security crisis is having a particular impact on many OIC member states, and ICIEC is ready to address the challenges its member states face. Food security has always been one of ICIEC’s core objectives in its singular position as the world’s only Shariah-Compliant trade and investment insurer catering to the needs of its member states in the Islamic world.

The second of the United Nations’ 17 Sustainable Development Goals (SDG2) is to end hunger, achieve food security and improved nutrition, and promote sustainable agriculture. By the UN’s admission, the world is not on track to achieve SDG2 by 2030, and the Organization has asserted that a ‘profound change’ is needed in the global food and agricultural system to stand a chance of reaching the goal.

In the Food and Agriculture (FAO) of the UN, the data is stark. Chronic undernourishment is a burden for more than three-quarters of a billion people worldwide, and according to the World Bank data from 2020, at a time before the COVID pandemic had unrolled, the Middle East and North Africa (MENA’s) share of the world’s acutely food insecure people was 20%, disproportionately high compared to its 6% share of the global population. The combination of geopolitical tensions, the war in Ukraine, the aftermath of the COVID pandemic, high energy prices, and a slew of natural disasters and climate issues have all combined to increase food insecurity and commodity price pressures for countries that have had to import many vital agricultural goods.

ICIEC’s response is also part of a global context and can be set amid the backdrop of the UN’s Global Crisis Response Group on Food, Energy, and Finance (GCRG), which was set up in March 2022, and the Islamic Development Bank Group’s comprehensive Food Security Response Program (FSRP), launched last July. GCRG allows the UN Secretariat to coordinate the global response to the worldwide impacts of the war in Ukraine on global food, energy, and finance systems.

The IsDB Group’s contribution is a US$10.54 billion comprehensive FSRP package supporting member states, including 27 in Africa, in addressing the food security crisis. In that program, ICIEC has the potential to provide US$500 million in Credit and Political Risk Insurance (CPRI) coverage.

In all, IsDB Group backs total financing support of over US$20.6 billion for agriculture and food security in 1,538 operations – and its ‘One Group One Goal’ approach enables all areas of food security to be covered cohesively throughout the group.

ICIEC’s role in the routes to ensure food security

There are many different routes to ensuring food security – and one key track is to help provide the crucial infrastructure that underpins a country’s ability to transform its resources. Supporting the agricultural sector in member states to help improve food security and help end hunger has been a critical tenet of ICIEC’s endeavors.

Since it was established in 1994, ICIEC has supported more than US$ 1.5 billion in the agricultural sector, which has helped improve the incomes of farmers and food producers, particularly in the least developed member countries (LDMCs).

Regarding projects that underpin SDG 2, ICIEC has stood firmly on both sides of insuring the trade and investment needs of the agriculture sector in member states. In practical terms, that means providing comprehensive protection for exporters of agricultural goods, technologies, and equipment. That support allows exporters to sell goods into riskier countries and helps support their cashflows and potential operational risks.

Indeed, ICIEC’s CPRI for agricultural machinery exporters means the companies can export to more risky countries, which has the knockon effect of allowing governments and companies in those riskier countries access to more productive assets. This bridges the gap that enables countries to develop their local food market productivity and, for instance, ultimately helps them become less reliant on expensive imports.

For instance, in 2022, Komatsu, one of the world’s largest manufacturers of agricultural Machinery, was able to export vital agricultural equipment to Turkmenistan from Japan as a result of a US$40 million insurance policy issued to ING Bank (Tokyo branch). The cover to mitigate non-payment risk comes under the Non-Honouring of Sovereign Financial Obligations for the extended financing facility to the Government of Turkmenistan through the State Bank for Foreign Economic Affairs.

ICIEC in the FRSP – a mandate to 2025 that’s already ahead of the target

The FRSP program will reach through 2025 and is principally focused on working on cuttingedge interventions to address structural weaknesses and root causes of food insecurity in the medium and long term. Common themes need to be addressed, including low productivity, rural poverty, and lack of resilience in regional and national agricultural food systems. The six primary initiatives being undertaken are:

1. Building agricultural resilience to climate change
2. Food and input supply value chains
3. Improving market access and productivity for smallholders
4. Supporting rural livelihoods
5. Developing livestock and fisheries
6. Building resilient food supply systems.

Within the FRSP, which spans to December 2025, ICIEC’s contribution of US$500 million in insurance capacity is being made through the extension of CPRI solutions to facilitate international trade transactions (food, seeds, fertilizers, and equipment related to agriculture projects) and foreign investment in the agriculture sector aiming at increasing the production and improving the storage capacity of, and resilience in member states under the initiatives on building food and input supply value chains.

In practice, ICIEC has been facilitating banking transactions in its member states to help with imports of agricultural equipment, fertilizers, sugar, wheat, other grains, soya beans, and canola. It has also been supporting investments to improve the modernization of the agricultural sector in member states.

By the end of the first quarter of this year, total approvals under the program relating to food security had already reached US$301 million, up dramatically from the total approvals that had already reached US$159 million at the end of December.

Who can access ICIEC interventions? In short, importers, contractors, investors, and financial institutions for member states. The main focus is on the Least Developed Member Countries (LDMCs), and beneficiaries come from all geographies, including Sub-Saharan Africa, Asia, and MENA.

The countries receiving approved support under FRSP by the end of March 2023 include Egypt, Uzbekistan, Uganda, Senegal, Bangladesh, and Indonesia.

ICIEC is also mobilizing external financial resources to get member states to benefit from its international reinsurance partnerships. This reinsurance support is possible through short, medium, and long-term portfolio-based treaties and facultative arrangements on automatic facility or a single transaction basis.

Building on the lessons learned during the COVID crisis

Under the Strategic Preparedness Response Program (SPRP) developed during the pandemic, ICIEC helped advance US$169 million to the food sector in 15 member states. The SPRP was designed in three parts (the three Rs) – to respond, restore and restart member states’ economies during and after the crisis and deliver immediate and long-term support for resiliency.

In the broader context, from US$514 million of approvals in 2020, the first year of the SPRP, ICIEC reached US$1.4 billion by the end of December 2022, nearly ten times the initially pledged amount of $150 million. This total applied to 46 transactions and projects in favor of 15 member states.

It also included US$271 million under the ICIEC ISFD COVID-19 Emergency Response Initiative (ICERI) program in cooperation with the Islamic Solidarity Fund for Development (ISFD). Discussion is progressing to expand the reach of the structures used under ICERI to use under FRSP and to help support more significant deals with longer tenors.

Putting partnerships on food security into practice

Ensuring and improving food security is a delicate topic and necessitates wide arms around deep partnerships to make it happen in practice. ICIEC emphasizes its outreach to public and private sector bodies through relationships with other multilaterals and industry bodies and direct contact with companies internationally.

ICIEC has signed Memorandums of Understanding and Strategic Partnership Agreements with the Islamic Organisation for Food Security (IOFS) and its specialist subsidiary, the Islamic Food Processing Association. ICIEC has been collaborating on food security enhancement since signing an extensive MoU two years ago with IOFS [See also the profile interview with IOFS Director General, HE Professor Baidaulet].

ICIEC also signed an MoU in 2022 with the Islamic Chamber of Commerce and Industry (ICCIA), an affiliated institution of the OIC and the umbrella body for the private sector in the 57 Islamic member states. Cooperation will be broad and includes helping the development of the Halal industry worldwide.

These arrangements allow for the sharing of ideas and specific cooperation in attracting and promoting foreign investment in agribusiness and food security as well as in the technical and financial infrastructure, such as due diligence, KYC, and credit search documentation.

Other notable MoUs with private companies in 2022 include that with Al-Rajhi International Investment Company (RAII), a subsidiary of Sulaiman Abdulaziz Al-Rajhi Awqaf Holding. This is one of the largest business groups in Saudi Arabia, with core activities including investments in the food and agricultural sectors, both domestic and international. The company owns the biggest organic agricultural project in Saudi Arabia and an integrated poultry project in Egypt, and it exports its products to neighboring GCC countries, Yemen, China, and Vietnam.

[For further information on ICIEC’s role in helping improve food security, see the interview with our team member Lotfi Zairi, the lead underwriter of operations for sovereign risks in the underwriting operations department at ICIEC]

We are happy to share an insight into ICIEC’s workings in our meet the team feature. Here we show you what key team members do with us, how and why. This quarter we introduce you to Miguel Kosasih, who is Country Manger at ICIEC’s Jakarta Office. We asked Miguel five questions to get a steer on his work in Indonesia, and wider Asia, and gain a view on the important role ICIEC is playing in Asia, particularly in the energy transition.

1.What is it you do at ICIEC, and how did you get here?

I’m currently serving as Country Manager for ICIEC’s Jakarta office in Indonesia. This position, which is a real privilege to have, is mainly a business origination and development role. I’m responsible for developing and expanding ICIEC’s de-risking interventions and portfolio for both inward and outward trade transactions and investments between ICIEC Member States in the South-east Asia (SEA) region, which includes Indonesia, Malaysia, and Brunei Darussalam.

I joined ICIEC in late October 2019, only a few months before the pandemic outbreak. Before that, I spent around 10 years working at PT Asuransi Asei Indonesia, which is Indonesia’s national Export Credit Agency (ECA). That was where I first got introduced to export credit and political risk insurance, and the ECA world in general. Prior to assuming the ECA role, I had a brief stint working on the legal staff at a private commercial bank, but I realised I wasn’t keen to pursue a career as a corporate or litigation lawyer, despite obtaining both my undergraduate and postgraduate degrees in international public law. I was initially drawn to becoming a public servant to the country either as a diplomat or trade attaché, but not long after I was immersed in this specialised industry, I realised that working for the national ECA offered the same level of contribution, given its strategic mandate to support the country’s exports through risk mitigation.

Having been assigned and rotated to various functions during my 10-year employment at the ECA, which included marketing, product development, reinsurance, underwriting, claims and recovery, I had the opportunity to acquire the technical know-how, experience, and operational oversight of how export credit and political risk insurance inquiries are managed and processed from front to back end. This is what prepared me for taking on this important role at ICIEC and made my transition to and familiarisation with ICIEC’s solutions and internal processes a lot easier.

2. What does your typical day involve/tell me about your team in Indonesia and how it works, and the markets you cover in Asia?

At ICIEC’s Jakarta office, I work in tandem with another colleague, Shaiful Kamarul, who is assigned as Senior Country Manager. He essentially led the establishment of the office and started ICIEC’s ground operations in the country and region in 2018, one year before I joined ICIEC. He is a Malaysian national, which makes our overall communication and coordination in distributing the tasks and responsibilities easier, given our similarities in culture and language. He focuses more on the Malaysian market, and I on Indonesia. Inquiries for (and from) Brunei Darussalam and other Asian markets such as Singapore, Hong Kong and China are distributed equally between us.

ICIEC’s Jakarta office is integrated within the Islamic Development Bank (IsDB) Group Regional Hub of Indonesia, which in total, comprises around 30 employees. The hub is led by an IsDB hub resident, who is supported by an IsDB country manager, several operation team leaders and supporting staff, all managing the interventions of the IsDB for the same SEA member countries as ICIEC. We also have colleagues from our sister entity, the International Islamic Trade Finance Corporation (ITFC), which is the trade financing arm of the IsDB group.

The IsDB Group synergy has been one of the key success factors for raising ICIEC’s brand awareness and expanding its interventions in Indonesia and the SEA region. We have an existing insurance policy with ITFC, where we provide them with non-payment/credit default risk insurance cover for Indonesian export clients that they finance, allowing ITFC to expand its trade financing interventions to support private sector Indone- sian exporters’ working capital requirements which eventuallycontributes to the member states exports.

We also work closely with our IsDB colleagues in identifying and originating potential transactions for joint intervention. As Indonesia is a direct borrower from the IsDB, our IsDB colleagues work closely with the government, especially at the ministerial level, which helps us at ICIEC identify potential pipelines of strategic projects where ICIEC could also contribute through its risk mitigation/de-risking solutions complementing the overall interventions of the IsDB Group to our member states.

All colleagues of the regional hub have formed a close bond with each other, which has created a family-like working atmosphere and makes coming to the office, while putting in the extra working hours to ensure smooth coordination with our HQ in Jeddah (as Jakarta is four hours ahead of Jeddah), even more enjoyable.

3. How does your role empower your clients – energy transition in Asia?

One of our key roles/functions as business development is to identify the financing and investment needs of our member states to support their national development plans and connect those needs to the resources that we/ ICIEC have in our own network. This is the same approach we apply when it comes to supporting our member states throughout their ‘net zero’ journeys in executing their energy transition plans as per their National Determined Contributions (NDCs) and commitments as signatories to the Paris Agreement.

As Asia is the highest contributor to the globe’s CO2 emissions (52%), there is an astounding $40 trillion estimated funding gap for Asia to achieve its net zero targets by 2050. If you include Central Asia, we have around 12 member states from the continent. Each one of these is economically (and politically) differently situated. Each has different energy transition blueprints, climate frameworks and policies, resources/means and timelines to achieve their net zero targets. Some member states have easier access to financing/liquidity than others.

Business development is placed at ICIEC’s front line for its member states; hence it’s our role to do any necessary canvasing, to conduct and participate in dialogues with key stakeholders involved in each country’s climate framework, to identify the gaps that our member states governments require support for and treat those gaps as opportunities for ICIEC to step in and mobilise its resources through our de-risking solutions.

Indonesia, for example, requires around IDR3.416 trillion/$221 billion to reach its NDC target in 2030 (reducing CO2 emissions by 29% or 41% with international assistance) and around IDR28.2 trillion/$1.8 trillion to become net zero in 2060. The government can only spend around 35% ($60 billion) of its budget to reach its NDC target in 2030 and is reliant on other sources to fill this funding gap.

Together with the IsDB Group, we have been in discussion with several key state-owned institutions that require financing to support Indonesia’s energy transition plan, which is included under the ‘SDG Indonesia One-Green Finance Facility (SIO-GFF)’, a platform devised by the Indonesia MoF to blend public and private financing (blended finance) aimed at channelling SDG-related infrastructure projects including energy transition, the first phase of which will mainly be focused on gradually decommissioning Indonesia’s coal-fired power plants and the second phase will be focused on developing new renewable energy assets.

4. What is the one thing about ICIEC that you think should be better understood by the wider world?

ICIEC’s role in our member states’ energy transaction and sustainable development, in general, is essentially catalytic. As an insurance provider, we may not be able to directly provide the financing to the projects, but we can mobilise resources by connecting those projects, and their stakeholders to the financial institutions that we work with that are already frequent users of our Political Risk Insurance/Foreign Investment Insurance policies, and that are also well familiarised with our internal due diligence and credit approval processes.

The financial institutions that are our policyholders not only benefit from the reduction on their risk-weighted assets, ensuring they obtain some degree of capital relief provided to them under our insurance policies but are also able to benefit from our Preferred Creditor Status (PCS) if, under a worst- case scenario, our member states borrowers fail to honour their financial obligations to our financial institution partners/insurance policyholders.

In addition to mobilising the financial resources, through our non-payment/contract frustration insurance programme, ICIEC can also bring in EPC companies that are well experienced in specific infrastructure sectors allowing our member states to get the expertise and technology transfer necessary to complete their strategic projects.

In essence, ICIEC offers a variety of de-risking solutions which enables us to support a particular project from different angles through different stakeholders.

5. What is your ‘superpower’?

If I were to define my own superpower as a unique quality or trait, it would be an innate drive to support those around me. I strive to assist my colleagues whenever they need guidance on work-related matters, believing that sharing knowledge and exchanging experi- ences strengthens our collective intelligence. This, in turn, elevates the standards of the entire institution and reinforces my commitment to fostering a culture of teamwork and support.

A focus on Indonesia from the perspective of how Indonesia engages with renewable energy and decarbonisation initiatives. Here we look at the themes emerging in export and project finance through the perspective of a funding strategy for Indonesia. How are the private sector, export credit agencies, development banks, and organisations such as ICIEC engaging with financing energy transition in this OIC Member State

Indonesia has been an active project and export finance market over the past five years. According to TXF Data, Indonesia was the second biggest user of ECA debt in Asia-Pacific, with a total volume of roughly US$80 billion since 2018, only second to Vietnam.

Deal volume was mostly driven by the power sector (around US$7 billion of export credits over the same period), followed by manufacturing & equipment (US$2.4 billion) and telecommunications (US$570 million).

Conventional power, from coal and oil to gas-fired power generation, accounts for 90% of baseload power in Indonesia. So, the world’s 16^th largest economy has a long way to go before realising carbon neutrality by 2060, even with the government’s ambitious targets. That means significant long term financing will be needed.

Climate mitigation targets

The government of Indonesia has always had a strong commitment to tackling climate change and achieving the Sustainable Development Goals (SDGs). For example, in 2016, under its Nationally Determined Contribution (NDC) to limit global warming by 1.5 degrees Celsius, Indonesia ratified the Paris Agreement and pledged to reduce emissions by 29% under its efforts and by 41% with international support by 2030.

But more recently, in 2022, according to the latest Enhanced NDC document from the Glasgow Climate Pact, Indonesia has committed to increasing its targets to reduce greenhouse gas emissions. The target has now increased from 29% to 31.9% and from 41% to 43.2% with international assistance by 2030.

The energy sector, specifically, with a focus on the energy transition to new and renewable energy, is expected to reduce emissions by 358 million tons of CO2e with its efforts and 446 million tons of CO2e with international support.

Renewables capacity

Indonesian decarbonisation can be compounded by upping renewable energy generation – which stands at 3,000GW – given the favourable geography of the country comprising solar, hydro, wind, bioenergy, ocean, and geothermal.

But renewables as a sector have only been financed to the tune of US$540 million over the past five years, which is very small when pitted against the volume of conventional power finance over the same period. In short, there is real potential for agency finance – as well as Islamic finance – in Indonesia, especially for green projects, as ECAs and DFIs can provide significant comfort to both international and local banks eyeing this asset class.

And with ICIEC well placed to support this OIC Member State, given its ESG-related investments and Shariah-complaint product suites, there is real potential for greater ECA involvement in the Indonesia renewables market.

The TXF perspective

Winding down carbon-intensive assets is essential if the race to net zero is to be won. But accelerating the deployment of energy so that renewable energy comprises at least 34% of all power generation by 2030 means that green projects need to be top of the financing agenda.

International ECAs are no strangers to Indonesia, but there is an imperative to shoulder more green projects. This is especially key in fledgling renewables sectors, such as floating solar schemes.

A precedent financial template exists in Indonesia for a floating solar project deal. In 2021, the Cirata reservoir in West Java was used for the 145MW Cirata floating solar project, developed by PT Pembangkitan Jawa Bali Masdar Solar Energi (PMSE), a joint venture between Masdar and PT Pembangkitan Jawa‑Bali (PJBI), a subsidiary of Indonesian state-owned energy company PT Perusahaan Listrik Negara (PLN). PJBI holds a 51% stake in PMSE, while Masdar holds a 49% stake. The project benefits from a 25-year PPA with PLN at a tariff of US$0.0582/kWh.

While the Cirata deal reached close without ECA or DFI support, this nascent sector is expected to gain momentum over the coming years. Sunseap Group also signed an agreement in 2021 with local development authority BP Batam for the construction of a 2.2GW floating solar project at the Duriangkang Reservoir in Batam. The Cirata financing has been seen as a marker of the success of the burgeoning floating solar sector in several Asian markets.

Also, expect ECA support to emerge on the refinancing and reinsurance agreements, not just for green projects, but for conventical power too. Gas-fired plants in emerging market economies will be needed in the short term to help dovetail the energy transition. After all, gas is significantly less carbon-intensive than oil and coal plants. And while ECAs have retreated from supporting coal (unless ultra-supercritical technology is used), gas is very much a transitional fuel in the wake of the pandemic and the war in Ukraine.

Indonesia has been an innovator in financing its large sovereign Sukuk in 2021, with the dimension of the green Sukuk, an Islamic bond designed to finance green investments, and has recently issued its first SDG bond. We profile HE Suminto Sastrosuwito, Director General of Budget Financing and Risk Management at Indonesia’s Ministry of Finance and get his views on his role in financing and how Indonesia plans to finance the energy transition.

How do you view the role of the Ministry of Finance of the Republic of Indonesia in supporting Indonesia’s agenda on the energy transition?

Suminto Sastrosuwito: The energy transition is vital, given that the world is currently dealing with the consequences of climate change. It is also critical for Indonesia given that 90% of the country’s energy sector remains reliant on fossil energy, which is one of the main contributors to greenhouse gas emissions. Indonesia has considerable resources of renewable energy, more than 3,000 GW, comprising solar, hydro, wind, bioenergy, ocean, and geothermal.

The Government of Indonesia has a strong commitment to tackling climate change and achieving Sustainable Development Goals (SDGs). In 2016, Indonesia ratified the Paris Agreement (through Law No. 16 of 2016). In the Nationally Determined Contribution (NDC), in order to prevent global warming of 2^oC, the Government of Indonesia has pledged to reduce emissions by 29% under its own efforts (business as usual) and by 41%, with international support, by 2030. In 2022, according to our latest Enhanced Nationally Determined Contribution (NDC) document, Indonesia has committed to increasing its targets to reduce greenhouse gas (GHG) emissions. The target has increased from 29% to 31.9% [by the country’s own efforts alone] and from 41% to 43.2% with international assistance by 2030.

The government even raised this target towards net zero emission (NZE) by 2060 or earlier in accordance with the Glasgow Climate Pact to limit global warming by 1.5^oC. In particular, the energy sector, with a focus on the energy transition to new and renewable energy (NRE), is expected to reduce emissions by 358 million tons of CO2e with its own efforts and 446 million tons of CO2e with international support.

The target is quite ambitious and requires substantial financing, for which I believe the Ministry of Finance is playing a leading role in formulating a financing strategy. The commitment signifies the need for dedicated and long term financing, which is estimated to be worth at least 25% of Indonesia’s Gross Domestic Product (GDP), just to achieve the 2030 target. It is estimated that the government could only cover less than 30% of the financial needs through the state budget (APBN), while the private sector is expected to participate [to cover] 22% to 25% of capacity. Consequently, an additional 40%-55% of financing must be raised from other sources.

Therefore, the Government of Indonesia has issued a number of fiscal incentives or tax facilities to mobilise private investment in green projects and green industry, including tax holidays, tax allowances, as well as facilities on VAT, import duty, and property tax. In addition, the Government also provides facilities for green projects procured through the PPP scheme, such as the project development facility (PDF), the viability gap fund (VGF), and government guarantees.

We also develop innovative financing strategies through the optimisation of the state budget and mobilising funds from external sources. Various innovative financing instruments have been created to support the transition. The issuance of green Sukuk has been carried out since 2018 to fund the transition towards a low-carbon economy. Some Special Mission Vehicles (SMVs) have been established to mobilise and manage funds or develop sustainable projects, including the Indonesia Environment Fund (BPDLH), SDG Indonesia One (managed under PT SMI), and the Indonesia Investment Authority (INA).

We also encourage collaboration with development partners and optimising the role of SMVs, including PT SMI, IIGF, and Geo Dipa Energi, to contribute to the implementation of policies related to climate and energy transition. Furthermore, we coordinate with other core ministries and related institutions to ensure synergy and synchronisation of the climate policies taken by each institution. Lastly, we also actively promote these initiatives both in domestic and international forums to encourage collaboration and maximise opportunities to attract investment and financing from global communities and the private sector.

During Indonesia’s G20 Presidency, the government encouraged climate-related finance and sustainable infrastructure as being among the main agendas. Furthermore, as a concrete step forward in energy transition, in November 2022, during a side event of the G20 Forum, the Ministry of Finance proudly launched the Energy Transition Mechanism (ETM) Country Platform. The platform is aimed at mobilising international and private participation in financing ETM projects in a blended finance scheme.

Can you tell us about the path to success of the global Sukuk in 2021, particularly the green Sukuk? How are its proceeds being used?

Suminto Sastrosuwito: Indonesia has successfully raised over US$6.8 billion through multiple rounds of green Sukuk issuances in global and domestic markets. The proportion of green investors has also shown a trend increase, from 29% in the 2019 global green Sukuk to 33% and 57% in the 2020 and 2021 global green Sukuk issuances, respectively, and 36% in the 2022 global green Sukuk. These showcased how the global community is willing, if not committed, to take part in the green recovery movement. The shifting paradigm of investment towards a more sustainable preference has supported the green Sukuk market as a growing source of finance to address climate change even amid the pandemic. Hence, there is a remarkable momentum for public private financing of SDGs unfolding across the globe.

More governments are turning to public finance instruments to catalyse private investments for economic, social, and environmental goals. As a result, the number of thematic bonds and Sukuk (such as green, social, and sustainability bonds and Sukuk), and the size of the market, are growing, and green and responsible investors are getting more excited about the coming years.

Further to investing in projects reducing GHG emissions – projected to be up to 10.5 million tons of CO2e – proceeds from Indonesia’s green Sukuk have supported the construction of over 690 kilometres of railway tracks, an increase of 7.3 million kWh of electricity capacity, and improved solid waste management for more than 7.8 million households.

What are your plans for fundraising internationally in the Sukuk market in the future, particularly given international financial headwinds (and dollar strength) now? Do you plan to issue more SDG bonds?

Suminto Sastrosuwito: For Indonesia, international Sukuk issuance is intended to diversify the government’s financing instruments as well as broaden our investor base. It is not only part of our overall debt portfolio management strategy for achieving optimal cost and risk, but it also contributes to the growth of the Islamic financial market, specifically Sukuk.

We believe that as we head into 2023, the market backdrop will remain supportive for a new Indonesia Sukuk issuance. In line with this, we are confident that investors would be highly supportive given Indonesia’s strong credit profile and supportive supply and demand dynamics.

We expect the Sukuk industry to remain strong, given elevated oil prices and strong demand from Middle Eastern investors. Furthermore, given ample funding, GCC sovereign issuers are expected to issue fewer bonds next year.

As for the Sukuk structure, the current asset-light Wakala structure has already been widely accepted by Islamic investors globally and is aligned with the requirements of Islamic investors (including UAE investors, following the adoption of AAOIFI Shariah standards).

Indonesia is committed to tackling climate change issues through fund mobilisation, one of which is green Sukuk issuance.

As for thematic Sukuk, Indonesia has demonstrated thought leadership in pursuing Sukuk and green structures and unlocking liquidity in key investor hotspots such as the Middle East and Europe.

To further strengthen its leadership in green structure innovation, Indonesia will maintain its status among the world’s most sophisticated sovereign issuers through constant and consistent development in the thematic Sukuk markets.

What lessons can you share with other OIC Members planning to raise funding using Islamic finance (for instance, what have been the challenges and how have you managed to overcome them)?

Suminto Sastrosuwito: The enactment of Law No.19/2008 on Sovereign Shariah Securities, [namely Sukuk Negara] led to the government of Indonesia issuing IDR4.7 trillion in sovereign Ijarah Sukuk in that year alone. Since then, total issuance has now reached IDR1,919.77 trillion through various Sukuk structures and issuance methods (auction, book building, private placement), both in rupiah and foreign currency (US dollars).

With 13 years of growth, Sukuk Negara has played a vital role not only as an instrument of state budget financing, including funding infrastructure projects but also as a key driver of Islamic finance sector development in Indonesia.

Many supporting infrastructures for Sukuk Negara issuance have been established and improved, including the legal framework for its issuance and management, Sukuk structure and underlying assets, methods of issuance, and types of instruments, as well as the development of a domestic and international market and investor base.

Aside from the market infrastructures mentioned, the country needs to keep making progress and have a strong presence in the market in order to move forward.

To put emphasis on the challenges in our latest development of green Sukuk:

1. Thematic bonds/Sukuk necessitate additional effort: framework preparation, framework review by a third party, impact reports, and report assurance (audit) by an external auditor.
2. It’s important to have the right partners who are knowledgeable and trustworthy to help with framework development, issuances, including investor meetings, and impact reporting.
3. The need for strong commitment and coordination from all stakeholders, especially line ministries,
4. To encourage more parties to issue green/SDG instruments, incentives, particularly pricing benefits (‘greenium’), are required.
5. There is still much work to be done to combine Islamic finance and social finance for efficiency and convenience of transaction, including providing incentives to encourage involvement.

How are you working with the private sector to help energy transition financing in Indonesia?

Suminto Sastrosuwito: To achieve the NDC commitment, climate change mitigation costs need to be around US$281 billion (according to the Third Biennial Update Report 2021). The state budget capacity could only finance about 20-27% of the total financing needs. Meanwhile, the private sector is expected to operate at 22-25% of capacity. Consequently, there is a funding gap of approximately 40-55%. The energy and transportation sectors have the largest needs, at around US$246 billion.

The roles of the private sector and global investors are very important to support the energy transition, especially to fill the financing gap. We also realise that aligning investment with sustainability goals is crucial as investors’ concern over sustainability issues tends to increase. Therefore, we have developed various schemes for involving the private sector.

As I mentioned, we launched the ETM country platform in November 2022. The ETM framework’s design allows for widespread investor participation, including the private sector. The country platform encourages blended finance to open financing opportunities from various sources, such as multilateral development banks (MDBs), climate funds, philanthropists, and the private sector. As the manager of the country platform, PT SMI is an SMV under the Ministry of Finance. PT SMI has gained experience in playing the role, as in 2018, a blended finance platform named SDG Indonesia One (SIO), managed by PT SMI, was established to mobilise funds for climate actions from philanthropists, donors, climate funds, green investors, MDBs, international institutions, commercial banks, sovereign wealth funds, and institutional investors.

Another scheme for private sector participation with a focus on infrastructure has been developed through Public Private Partnerships (PPPs). PPP in Indonesia has been applied to some green projects and will be further encouraged to support more similar projects, including new and renewable energy. As part of our commitment to promote sustainable infrastructure, we will implement Quality Infrastructure Investment (QII) and have formulated Environment, Social, and Governance (ESG) standards that will be applied to government support provided to infrastructure projects. It not only covers the PPP scheme but also other government fiscal support for infrastructure, such as government guarantees.

Also, a special fund called Dana Pembiayaan Infrastruktur Sektor Panas Bumi (Dana PISP or Geothermal Fund) has been set up to help the development of geothermal energy projects. The facility has a de-risking feature to reduce risk and cost in the exploration stage. The facility is eligible for government drilling, SOE drilling, and private drilling. The Geothermal Fund platform has also collaborated with several external sources of funding (loans and grants from an MDB). Therefore, a blended finance model has been established under this Geothermal Fund platform. PT SMI is mandated to manage the Geothermal Fund and collaborate with other SMVs in implementing the facility, namely PT GDE and PT PII/IIGF.

We believe that those comprehensive financing frameworks and government support – both established and under development – will engage the attention and enthusiasm of private investment.

How does Islamic financing sit within your Integrated National Financing Framework Assessments and the UN ASSIST programme on sustainable finance to bridge the SDG financing gap in Asia?

Suminto Sastrosuwito: Islamic finance offers the most viable solution because it is flush with capital, and the principles behind it are pretty much aligned with the core values of the SDGs. By 2024, the total value of Islamic finance is expected to reach US$3.5 trillion, and the volume is expected to rise even further. Islamic finance also tends to be less averse to risk, offering a more sustainable financing system that could be more robust and resilient than conventional financing. All of these factors combine to make Islamic Finance the best alternative source of financing for the SDGs. Concretely, Islamic finance has also increasingly adopted sustainability criteria and is thus well positioned to maximise social impact and address the SDGs.

And the green Sukuk initiative, which is supported by UNDP through the UN ASSIST Joint Programme, becomes one clear example of how this is achieved. Through the multiple rounds of Indonesia’s green Sukuk investments since 2018, over US$6.8 billion has been mobilised towards the country’s climate change action. This initiative has shown the Government’s commitment to addressing climate change and mainstreaming innovative financing to achieve the SDGs while also strengthening Indonesia’s position in the global Shariah market.

How optimistic are you about financing the energy transition in Indonesia, as these are undoubtedly challenging times in terms of international supply chain dislocations, inflationary pressures, and climate necessities? What does success look like from a five-year view?

Suminto Sastrosuwito: The government has drawn up a roadmap for the energy transition to achieve the target of net zero emission (NZE) in 2060. Among the strategies in the roadmap is the early retirement of Coal-Fired Power Plants (CFPP). It is expected that before 2025, CFPP and Gas Engine Power Plants will be replaced by New and Renewable Energy (NRE) power plants with a baseload of up to 1.1 GW, and another 1 GW until 2030.

In achieving that goal, the Government of Indonesia faces at least three challenges: (i) efficient usage of limited fiscal capacity, (ii) a just energy transition, especially for affected workers and communities, and (iii) non-NRE power plants tend to be more affordable to fiscal capacity and consumers. Therefore, we expect that the ETM framework can overcome these challenges.

The current challenges with high global dynamics also potentially affect the achievement of energy transition targets. But looking at Indonesia’s positive economic outlook and strong political willingness, we are optimistic that the energy transition in the country will stay on track. A promising market, a conducive investment climate, and economic performance will guarantee investors’ confidence.