Fifty-seven Muslim countries have billions of investment funds but are unsure where to park them. Many of them are starkly poor, whereas others wonder as to what to do with their burgeoning billions, rather even trillions? Is it not similar to: water, water everywhere, but not a drop to drink?
The search for parking Islamic countries’ investment funds, varyingly reported at $3 to 5 trillion, is getting frantic, after 9/11. Arab and other Muslim countries find the environment in the US— the former investment magnate— to be unwelcome, if not utterly hostile. At the same time, even before Washington’s invasion of Iraq, European investment flows into America already had slowed down in the wake of 9/11 and the prolonged stagnation of the US economy.
“Billions of dollars are likely to be pulled out from the US,” says a top financial expert specialising in international investment flows. “This trend is likely to strengthen,” say other experts just back from Almaty’s intra-investment conference of 57 Muslim countries, grouped under the Jedda-based Organisation of Islamic Countries (OIC).
The OIC countries have abundant capital, a very large pool of underutilized funds, and an increasingly resourceful Muslim diaspora spread across the globe. The group’s natural resources and energy exports were 40 per cent, while the rest of the world exports were 60 per cent in 2001. Oil exports alone were 50 per cent, rest of the world contributed the other half.
The investment conference has just concluded at Almaty, Kazakhstan. Sponsored by the Jaddah-based Islamic Development Bank (IDB), the conference heard experts from a wide range of countries. Its theme was, “Cooperation among OIC member countries for intra-investment.”
It coincided with 28th annual meeting of the IDB’s board of governors. Finance ministers, heads of central banks, monetary authorities, and financial, investment and banking experts attended. It took place at “a crucial point of time for Islamic countries to plan and select their future investment destinations,” said a participant.
Pakistan attached a considerable importance to the conference as it offers a productive environment for foreign direct investment (FDI), a large programme in sectors like industry, telcom, IT, financial services, oil and gas development. It also has a large privatization programme of its major state-owned enterprises including banks, telecom monopoly, industrial units, and oil production and marketing. The sale is open to foreign investors. Islamabad sent its top financial and investment experts headed by Dr. Abdul Hafeez Sheikh, Minister for Investment and Privatization. Finance Minister Shaukat Aziz, and a governor of the IDB. Dr. Sheikh presented the keynote address to the conference, which adopted most of his recommendations.
Dr. Ahmed Benbitour, former prime minister and minister of finance, Algeria; Mr. Soumaila Cisse, Commissioner, UEMOA and former minister of finance, Mali; Dr. Perviz Davoodi, former president, Organisation of Investment, Economic and Technical Assistance (OITA), Iran; and Mr. Batalov Asker Bulatovich, president, Kazakhstan Investment Promotion Centre, “Kazinvest”, were the panelists who addressed on the subject from the perspective of Arab, African, Asian and CIS Region, respectively. Mr. Bolat Zhamishev, Deputy Chairman, National Bank of Kazakhstan chaired the conference.
How far have OIC countries lagged behind in economic cooperation? How far did they fail in joining hands in intra- regional investment? How far were they unable to generate trade among themselves? Looking at the statistics, their failures are staggering.
Dr. Hafeez Sheikh, says that the total FDI that flowed into developing countries in 1998 was $166 billion, of which only $16.4 billion or 10 per cent— went to OIC countries. “The situation is no different today,” he said. “Over 70 per cent of this FDI, went to less than 20 per cent OIC countries. It means, 45 OIC countries, representing almost 25 per cent of the UN members, received less than three per cent of the total FDI flows that year,” he explained.
Intra-regional foreign trade that is easy to manage—and expand— did poorly, too. The OIC failed to loosen the Western hold over foreign trade of the region, or even modify trade flows that would have been cost-effective.
As late as 2001, the OIC merchandise exports totalled $520.2 billion, only 8.6 per cent of the total world merchandize exports that year. “Despite this miniscule figure, it was an achievement for the OIC. It was highest in the last decade. The lowest share was 6.4 per cent in 1998,” Dr. Sheikh pointed out. The IDB in its official summing up said the conference “emphasized the need for closer economic cooperation among member countries of OIC, by strengthening their networking capacity in order to promote intra-investment and mobilize adequate resources for achieving sustainable development and alleviating poverty.”
The conference has recommended the following measures: At the national level: member countries need to create a conducive business environment that would give greater confidence to local investors and is equally attractive to foreign investors. Enhance the role of private investors in national investment promotion agencies and actively pursue all efforts to harmonize investment codes and other legislations between OIC members.
At the regional level: Form a joint investment promotion team of senior officials, leading businessmen and thought leaders. It will be tasked to revitalize existing institutions, agreements and other arrangements to promote intra- investment at the OIC, regional and sub-regional economic organizations. Revise an OIC strategy and plan of action to strengthen economic and commercial cooperation taking into account recent developments and new challenges.
Setting intra-investment target with a time schedule, similar to the one adopted for intra-trade at the OIC level. Holding Devos-style economic summits to provide regular impetus to promote intra-investment. A “Direct Investment Acceleration Scheme” should be launched to create enabling conditions for member countries to trade shares on inter-exchange basis, and launch private sector-managed funds for major clusters. Launching and networking ‘“communication and knowledge-sharing initiatives.” A “forum of investment promotion centres from OIC member countries” should be established to enhance the ongoing economic cooperation.
At the IDB group level: Scaling up IDB group activities by promoting and financing joint ventures among private investors from member countries, and reciprocal investment in free trade zones. Enhancing the role of ICIEC and ICD in promoting intra- investment and launch an “Investment Promotion Scheme.”
Enhancing the IDB Group partnership and networking with regional economic cooperation organizations as well as multilateral and bilateral financial institutions to promote and facilitate intra- investment. Providing assistance for developing databases on investment statistics on intra-investment, investment opportunities and potential investors. Sharing experience between member countries to develop conducive business environment and appropriate regulatory framework for promoting intra-investment, and strengthening cunsultancy services in member countries.
The task now laid out for Arab and Muslim countries is enormous. Their previous record of cooperation has been negligible. Dr. Sheikh, for instance, points out “the OIC Common Market has remained just “an idea” since it was adopted in 1974. The OIC Treaty on Investments has received only 19 ratifications, out of 57, since 1981. The OIC Strategy and Plan of Action remains merely on paper since 1994.”
Dr. Sheikh urged the conference to establish and support “four important clusters in OIC.” These clusters are one each for financial services, energy, agri-business and IT development, for which separate Islamic Funds should be created.
“The current global situation provides a golden opportunity for the OIC region as enough capital is available from within its member countries, its investors are looking for an alternate for the West, and a lot of wealthy Muslim Diaspora has developed around the globe.” The question now is: will the Arab and Muslim countries seize this golden opportunity?