KARACHI, Feb 15: The threat of war in the Middle East is a wake-up call to the Muslim states to mobilize, individually and collectively, the current massive inflow of money and professional skills into the region for building social and physical infrastructure, says a leading economist based in Saudi Arabia.
An improved regional infrastructure would facilitate trade and investment and fuel economic growth that would impart the Muslim states the collective political strength to have a say in world affairs.
This view is gaining ground in governments whose stability is threatened by increasing public resentment against a possible US-led war against Iraq.
Some governments have issued bonds to mop up the windfall of 9/11. Iran has recently floated a 500-million euro-denominated bond and plans to mobilize yet another one billion euros. The Islamic Development Bank with triple “A” rating is set to launch $300 million dollar bond. Recently, Malaysia has raised $600 million. These government securities carry return ranging from 4.5 per cent to 7.5 per cent against US government papers’ yield of a mere 1.25-1.5 per cent.
But, there is some thinking emerging in Arab and other Muslim states that concrete proposals for co-operation among Muslim states be discussed at the Islamic summit scheduled to be held at Kuala Lumpur in October this year.
During his short visit to Karachi last week, Mr D.M. Quraishi, adviser to Islamic Development Bank, told Dawn that the central banks of the Muslim states have a total forex reserves of $225 billion. Of these, at least 10 per cent could be spared for sponsoring a regional bank to finance social and physical infrastructure.
He felt that a regional bank, with a paid-up capital of $50 billion, subscribed by Muslim states, could be set up and should not pose much of a problem. Highly-trained professionals are also coming back to the Middle East from the United States and they could be gainfully employed in the regional bank and infrastructure projects.
Currently, Europeans are stated to be focusing on Muslim countries with huge foreign exchange reserves to mobilize funds for their financial markets.
Pakistan has also built forex reserves of $9.5 billion, a part of which is intended to be used for retiring expensive multilateral debts.
Soaring remittances are being either spent on buying and selling existing assets in stock exchanges and real estate or going into wasteful expenditure or are kept as bank deposits. They are not being utilized for increasing production and employment.
If the remittances are not utilized in raising the country’s production and employment, the capital would again fly to industrialized economies and into avenues of investment there, once the global situation stablizes, warns Mr D.M. Qureshi.
The current dispersal of capital from the global financial centres to the periphery offers opportunity for investment and development, that should not be missed.
Like European Union, Pakistan has high stakes in preventing war in Iraq and working for peace. Bulk of the remittances come from the Middle East. The Arabs have been investing in the financial sector. The latest acquisition by UAE nationals, is the United Bank.
Exports to Gulf Cooperation Council (GCC) countries specially UAE have gone up by 50 per cent over the past five years or so to $1.25 billion. Oil accounts for about 25 per cent of imports that are financed by nearly $1 billion Saudi grant.
European Union is GCC’s biggest trading partner. The Gulf is EU’s fifth largest market. According to an FPCCI research report, the trade between the two groups have gone up from $37 billion in 1999 to $51.5 billion in 2000, with a trade surplus of $12 billion in favour of the EU.
According to Pakistani residents in Dubai visiting Karachi, the investors are now adopting a wait-and-see approach because of the threat of war. The war, if it comes, could lead to political destabilization in the Middle East and hurt traditional trading partners.
However, the global march of events indicates that time is on the side of peace. Goaded by war threat, a multilateral effort to “disarm” Iraq peacefully led by France and supported by Germany, Russia and China is helping the Americans achieve their objective without resorting to military action. The chances of war are receding, with France assuming the leadership of the “doves” which constitute the majority in the United Nations Security Council. With major powers divided, a war enhances the risks to the existing world global order.
The Muslim countries have to work for peaceful environment to achieve high economic growth. Foreign capital tends to flow into high growth economies. According to some estimates, the inflow of direct foreign investment (FDI) into China now exceeds the volumes of FDI attracted by the US. America is in recession and China has a high growth rate. And it is regional co-operation that can fuel the growth rates in the Muslim states.