Dr. Mohamed Hamidosh – International consultant and former senior executive at the African Development Bank
Sukuk, long confined to regional niche markets, have become the primary vehicle for infrastructure financing in Asia and the Gulf region. In Africa, despite the huge need, its use remains marginal. It’s not because of a lack of projects, but because the legal structure is inadequate. At a time when PPPs are seeking a second wind, sukuk could be the catalyst for new discipline in public financing.
For two decades, Africa has primarily financed infrastructure through PPPs backed by sovereign debt, concessional loans, guaranteed bilateral loans, and bank debt. Although these mechanisms have brought tangible progress, they have also revealed limitations, including debt accumulation, frequent contract renegotiations, incomplete risk transfer, and weak mobilization of long-term savings. In this context, the question is no longer just about increasing construction, but finding other ways to finance it. It is precisely in this area that sukuk combined with public-private partnerships are entirely appropriate.
As Africa’s infrastructure needs far exceed the financial capacity of countries, the combination of sukuk and PPPs stands out as a reliable alternative to traditional financing. However, this potential can only be fully exploited if African projects are legally structured to be truly investable assets.
The African Paradox of Infrastructure Financing
For more than two decades, Africa has financed infrastructure using a combination of sovereign debt, concessional loans, guaranteed bilateral loans, and PPPs that rely primarily on bank debt. While these mechanisms have enabled real progress, they have also created an accumulation of vulnerabilities, including rapid debt growth, contract renegotiation, donor dependence, and limited transfer of real economic risks.
In this context, the issue is no longer just to build, but to obtain sustainable financing. It is precisely at this point that sukuk backed by real assets introduce conceptual disruption.
Sukuk: Financing assets instead of debt
Unlike traditional bonds, sukuk do not represent a simple debt obligation to the issuer. It gives investors economic rights to real assets, usufructs, or cash flows generated by an identifiable project. This distinction is fundamental and transforms the relationship between investors and projects. In traditional bond financing, investors are exposed to the credit risk of the country or concessionaire. In sukuk, they are exposed to the economic performance of legally framed assets. Loans are no longer just contractual. It becomes structurally fixed in the real economy.
This logic strengthens the traceability of funds, limits the use of undifferentiated budgets, and imposes discipline on project selection, construction, and monitoring. For Africa’s infrastructure, this requirement represents a decisive advantage.
Sukuk doesn’t eliminate risk, but it does make it more readable, easier to share, and easier to manage.
Underlying contract structure
The main legal documents of a sukuk deserve to be clearly defined.
Ijarah is a rental contract. Investors hold economic rights to specific assets and receive rental payments. In infrastructure, Ijara is typically used to finance assets that are already constructed or in operation.
Istisna is a construction contract. This allows assets to be financed based on precise contract specifications. The infrastructure project covers the construction phase before the operational phase followed by Ijara.
Wakalah is the mission of the management team. Investors entrust the management of their assets and economic flows to agents based on predefined rules, giving them great flexibility even in complex structures.
Hybrid structures combine these agreements to reflect the actual lifecycle of a PPP project, from construction to operation, while ensuring legal and financial continuity.
Therefore, sukuk is based on several legal contracts that determine the economic nature of investors’ rights.
Ijara relies on leasing assets or usage rights and generates regular rental income. Istisna’a finances the construction of an asset according to contractual specifications and is often followed by Ijara during the operational phase. Wakala organizes administrative powers delegated to agents.
Hybrid structures combine these mechanisms to reflect the reality of PPP projects during construction, commissioning, and operation.
Although these structures are flexible, they require strict drafting of contracts that comply with national law, Islamic law principles, and international standards.
Systematized global market
At the global level, Islamic finance has reached critical mass. Assets exceed USD 4.9 trillion. In 2024, the outstanding amount of Sukuk outstanding will exceed the symbolic threshold of USD 1 trillion, and in 2025, the annual issuance amount will exceed USD 300 billion.
These figures confirm that sukuk are now fully integrated instruments in international capital markets.
In contrast, Africa remains a close second, with recent annual issuance of around $3 billion. This contrast reflects flaws in legal and institutional structures rather than a lack of need.
This gap is not a lack of opportunity, but rather a lack of legal and institutional project readiness.
African countries that use Sukuk
Contrary to what is still widely believed, sukuk are not foreign to Africa. Several countries have already taken this step, with different approaches and objectives, but with one common view. This means that Sukuk enables diversification of funding sources and expands the investor base.
In 2018, Morocco paved the way for North Africa with its domestic sovereign Ijarah sukuk, with the aim of creating a participatory financial ecosystem and creating a benchmark yield curve for the local market.
Egypt reached a major milestone in 2023 when it issued its first international sovereign sukuk of USD 1.5 billion, which was almost oversubscribed. The operation confirmed the willingness of Gulf and Asian investors to sign Africa, provided the legal framework is secure.
Nigeria has emerged as the most active country in West Africa, with a flurry of domestic issuances aimed at funding federal roads. Sukuk has become more than just a financial instrument, it has become an operational infrastructure policy instrument.
Senegal has integrated Sukuk into its sovereign financing strategy with the issuance of CFAF 330 billion, confirming the compatibility of this instrument with the UEMOA market. Ivory Coast and Togo have also used regional sukuk to diversify their sources of financing.
Already in 2014, South Africa had issued a US$500 million international sovereign sukuk, primarily to expand its investor base and assert its presence in Islamic capital markets.
Overall, the projects financed mainly concern roads, administrative facilities, public facilities, social infrastructure and, in some cases, energy projects.
These experiences demonstrate that sukuk are fully applicable to the African context. It also shows that its development remains fragmented due to a lack of legal harmonization, contractual standardization and dissemination of financial engineering expertise.
The challenge for Africa is therefore no longer to prove that sukuk are possible, but to move from an isolated experience to a true continental infrastructure financing strategy.
Why Sukuk powers the PPP model
Compared to traditional PPP financing schemes, sukuk offer three major improvements. This enhances asset traceability, diversifies the investor base, and imposes stronger contractual discipline.
Projects that can be financed from sukuk are generally better structured, better managed and more reliable projects in the long term.
Legal structuring: invisible assets
Sukuk PPPs are based on three inseparable pillars: PPP contracts, special purpose vehicles (SPVs) and Islamic contracts. Each plays a specific role, but it is their consistency that determines the profitability of the project.
The PPP contract constitutes the project matrix. Define risk allocation, performance obligations, payment mechanisms, termination provisions, and compensation schemes. In a sukuk PPP, this contract is directly conditional on the stability of the cash flows used to reward investors, making it an indirect financial asset.
SPV represents the legal enclosure of a project. Separate assets, contracts, and cash flows from the rest of a public or private balance sheet. Receive economic rights, direct cash flows and ensure investor protection. Without a robust SPV, there is no risk isolation or financial reliability.
Islamic contracts (ijara, istisna, wakalah, or hybrid structures) ensure compliance with Islamic law, but above all provide a legal interpretation of the economic relationship between assets and investors. These define the precise nature of the rights held, such as usage rights, rights to cash flows, or control rights.
In a Sukuk PPP, these three pillars do not function independently. These form an integrated contract system. Once this coordination is ensured, the project becomes legally bankable. Otherwise, even technically sound projects become financially unviable.
10 legal reforms to make PPPs compatible with Sukuk in Africa
Mobilizing financial engineering is not enough for sukuk to become a vehicle for structuring PPP financing in Africa. Most important is the legal and institutional architecture of the project.
Fiscal neutrality of sukuk: ensures that there is no double taxation when transferring assets or usage rights. Legal recognition of economic ownership: Enables a clear separation between legal ownership and economic rights. A secure framework for SPVs: ensuring SPV governance, risk ring fencing, and bankruptcy treatment. Standardization of PPP contracts: Incorporating clauses that meet the requirements of sukuk investors. A modern, enforceable security posture: Enables rapid registration and enforcement of warranties. Systematic direct contracting: contractually organizing the relationship between public authorities, concessionaires and investors. Clear redundancy compensation mechanism: Define a predictable and bankable formula for compensation in the event of redundancy. Explicit recognition of Islamic contracts: Legal recognition of ijara, istisna, wakalah, and hybrid structures. Enforceable international arbitration: ensuring effective recognition and enforcement of arbitral awards. Credible and systematic Sharia governance: Establish a recognized and independent Sharia oversight system.
Conclusion: Law as new infrastructure
Africa is not lacking in infrastructure projects. There is still a lack of projects that are legally and financially ready for investment. As long as infrastructure is conceived primarily as a technical object rather than as a structured contract asset, financing will remain weak and dependent on public guarantees.
Sukuk is integrated into a legally robust PPP and provides a practical response to this weakness. This strengthens contractual discipline, improves asset traceability and expands the investor base, while reconnecting finance and the real economy. It does not replace other methods, but it does impose more rigor.
In a global context where the sukuk market is reaching critical mass, Africa has significant catch-up potential. This catch-up will require modernizing the legal framework, standardizing PPP contracts, and professionalizing investment structures.
In the end, the question is not whether Africa should rely on sukuk, but whether it is prepared to turn its projects into legally investable assets. It is at this sensitive and decisive moment that the future credibility of Africa’s infrastructure financing will be determined.
source:
LSEG–ICD, Islamic Financial Development Index 2024-2025. Fitch Ratings Global Sukuk Market Monitor 2026. S&P Global Ratings, Africa and Sukuk Market Review 2024; Islamic Financial Services Board, Stability Report 2025. World Bank/IsDB, Islamic Finance and Infrastructure 2025;Nigeria DMO, Sovereign Sukuk Program Report. South African National Treasury Sukuk Statement. IMF, Senegal Multiple Choice Questions 2023.
