Muhammad Hammad

This report analyses six global mega trends, their impact on the countries that make up the Organization of Islamic Cooperation (OIC) and the role of Islamic finance to unlock the trendsetting potential to transform these markets.

The report identifies the six inter-related mega trends to impact OIC nations as: Uneven Macroeconomic Performance, Sharing and Platform Economies, Green Economy, Urbanization, Global Supply Chains and Future of Work. The first two look at shifting economies, which are playing out across OIC societies. The next two cover changing environments brought on by climate change and growing populations. The last two consider adapting ecosystems.

Mega-trend 1:
Uneven Macroeconomic Performance
During 2022 and early 2023, forecasts for the global economy were mostly negative, due to factors such as weakening economic activity, rising inflation, supply chain issues and rising interest rates. Each of these four factors are difficult enough to mitigate against individually.
While the 2020s is supposed to be a transformer decade in terms of development, its first half is considered the slowest for growth in GDP, according to the World Bank that cited wasted opportunities. As major central banks are expected to loosen monetary policies mid-2024, the outlook for developing economies has darkened due to slow global trade and very tight financial conditions.
Economic growth will vary across the OIC. For the GCC‟s hydrocarbon-rich states, growth is projected at 3.6% for 2024, which is higher than average global growth, due to strong oil revenues driven by a projected expansion in oil output. Faster growth is also expected in Algeria and Iraq.
The Islamic finance industry can help alleviate macroeconomic slowdowns. Products provided by Islamic financial institutions and Shariah-compliant financial instruments such as sovereign Sukuk can be tapped by issuers with high financing needs, such as Egypt. Egypt already established a US$5 billion Sukuk programme and issued its first Sukuk in 2023 for US$1.5 billion.

Mega-trend 2:
Sharing and Platform Economies
The digital or platform economy is becoming hard to overlook. It is the tendency for businesses to move towards digital platform business models. Today‟s consumers are more comfortable seeking services online while operators offer better value to their consumers through digital platforms.
The sharing economy has a huge potential to grow and evolve. According to Brooking, the market size of the sharing economy is estimated to reach US$335 billion by 2025. For the financial industry, crowdfunding, which is community-based funding or financing, has become a popular method to start or finance businesses.
Digital platforms based in countries in North America, Europe and Asia are the most powerful, according to the Global Digital Platform Power Index 2023 report produced by DinarStandard. Some OIC nations are covered in this Index but none of them was categorized among the top countries.
The Islamic Fin-tech sector has some examples of sharing economy platforms. The sector is estimated to be US$138 billion, or 1.2% of the global Fin-tech market in 2022/23, according to DinarStandard. While most Fin-tech entities focus on payments, crowdfunding stands out as a sharing economy platform.

Mega-trend 3:
Green Economy
Several new themes are affecting traditional economic sectors in significant ways and these disruptions are already transforming economies. In particular, the green economy has been expanding as governments, the private sector and individuals set a path towards net zero. Over 90% of the global GDP is covered by net zero targets.
Governments are increasingly focusing on the green economy in their efforts to adapt to and mitigate climate change. The green economy has a market capitalization of US$6.5 trillion in 2023, which is roughly 10% of the market capitalization of listed equities. This makes it the fourth largest industry, surpassing banks and energy sectors.
There is a long way to go for OIC countries with regards to the green economy. As it stands, none of the OIC economies falls within the top ten green economy markets or markets with green economy exposure as per data compiled by FTSE Russell. Out of the 57 OIC markets, only nine countries have green economy exposure. Among them, Pakistan has the highest country market exposure in the green economy as well as the highest market capitalization.
Governments are mobilizing higher levels of funding to enable the growth of green industries and supply chains as sustainability and the reduction of carbon emissions increasingly inform industrial policy. Governments across the world have introduced many different initiatives and incentives such as subsidies, grants, tax breaks and more accommodating strategies to boost green economic activity and trade.

Mega-trend 4:
Urbanization
According to the United Nations, more than 4.3 billion people, or more than half of the world‟s population, live in urban areas. In high-income countries such as in the GCC and in the Americas, over 80% of inhabitants live in urban areas.
Urbanization has been growing globally – where in 1800 A.D, less than 10% of the world‟s population lived in urban areas, in 1960 this number jumped to 33.6% and in 2021 to 56.5%. Urbanization is expected to increase as incomes rise and employment shifts away from sectors typically set up in rural areas, such as agriculture. These facts and figures indicate that urbanization as a mega-trend is increasing in magnitude.
The OIC as a whole has a high level of urbanization. The average urbanization rate of the 57 member states was 57% in 2021, just a nudge higher than the global average of 56%. 58% of OIC countries have an urbanization rate of over 50%, according to the latest data from the UN Population Division. The GCC has the highest average rate of urbanization in the OIC, with over 50% of the region‟s population living in urban areas.
The financing gap for sustainable urban development is widening, and it is hindering economic growth and living standards in developing countries, according to UN Habitat. Cities fight the biggest battles against climate change and inequality, which is a substantial concern for the OIC considering the grouping‟s high level of urbanization.

Mega-trend 5:
Global Supply Chains
63% of executives at 275 companies surveyed in September 2022 by Bain & Company ranked supply chain resiliency as very important compared with other business objectives. The survey findings covered five different industries – advanced manufacturing and services, tech, retail, energy and natural resources, and consumer products. The findings also found that many industries that affect consumers‟ daily routines are heavily focused on supply chain issues.
There are at least two reasons why the global supply chain matters. First, they facilitate global trade. Second, the rise of sustainability and ESG-related concerns has also highlighted the issue of global supply chains. According to a 2021 study more than 50% of global emissions: food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight are responsible for over half of all global greenhouse gas emissions.
OIC markets‟ performance on key trade barometers, such as logistics and exports, suggest more work needs to be done to improve their performance. For example, the average score on the World Bank‟s Logistics Performance Index 2023 for OIC markets (2.67) is lower than the average for non-OIC countries (3.13).
Some of the prominent examples of solutions offered for Shariah-compliant supply chain finance (SCF) fall under three broad categories: invoice financing, supply chain financing and management, and sustainable Shariah-compliant supplier finance. The size of the Islamic trade finance market globally is at least US$186 billion.

Mega-trend 6:
Future of Work
The future of work is rapidly evolving: Most of the focus on the changes taking place in the future of work are understandably around the role of tools based on artificial intelligence (AI). Technological advances are expected to create considerable disruption in job markets across the world, with initial signs pointing to a pronounced effect on both job creation and destruction. For instance, a 2023 WEF study suggests 4 million digitally-enabled roles will arise in digital commerce and trade.
Technological developments are changing the nature of work: Currently, technologies such as ChatGPT and Microsoft‟s Co Pilot, which rely on foundational large-language models (LLMs), are in a nascent stage. Early studies are uncovering that less experienced workers, such as those who are new or low-skilled, are the primary beneficiaries of LLMs.
OIC countries lag non-OIC countries on governments‟ AI readiness, according to data from Oxford Insights‟ Global AI Readiness Index over 2020–2023. The study found a gap of at least 10 points in the OIC and non-OIC average scores in any given year during that four-year period. Moreover, there is a high concentration of countries in both the non-OIC Top 10 and the OIC Top 10, suggesting digital divides exist both in the non-OIC and OIC sets of countries.
For example, all of the non-OIC Top 10 are advanced economies, suggesting high concentration by economic development stage in the non-OIC group, while six out of 10 OIC Top 10 countries (UAE, Qatar, Saudi Arabia, Oman, Bahrain and Brunei) are “high income” nations as of 2024, according to the World Bank‟s classification, suggesting high concentration by economic development stage in the OIC group as well.
While there are a couple of macro studies on the future of work that cover the OIC – the OIC Labour Market Strategy 2025 (whose target date is fast approaching) and the UN has had a system strategy on the future of work in place since 2019– many OIC countries do not have dedicated strategies to address the implications of the future of work.