Problems Faced by Muslim Countries and the Role of Islamic Economics in Solving Them

8/6/2019 Problems Faced by Muslim Countries and the Role of Islamic Economics in Solving Them

1/32

1

8th IRTI DISTANCE LEARNING COURSE

PROBLEMS FACED BY MUSLIM COUNTRIES AND THE ROLE OF

ISLAMIC ECONOMICS IN SOLVING THEM

By

SENATOR PROF. KHURSHID AHMAD

Chairman, Institute of Policy Studies, Islamabad

INTERNATIONAL ISLAMIC UNIVERSITY,

ISLAMBAD

25TH NOVEMBER 2008


2/32

2

THE MUSLIM WORLD TODAYy 57 MUSLIM COUNTRIES MEMBERS OF THE OIC

y LAND AREA APPROXIMATELY 22% OF THE WORLD

y POPULATION (2004) 1.3 BILLION 20% OF WORLD POPULATION

(Including Non-Muslims) in Muslim Countries

y INCREASE BY 0.5 BILLION IN 25 YEARS 1980: 0.8 BILLION

y MUSLIMS REST OF THE WORLD (MINORITY POPULATION) 350 TO 400 MILLION

y TOTAL MUSLIM POPULATION 1.65 BILLION 23% OF WORLD POPULATION

y REGIONAL SPREAD OF POPULATION IN THE MUSLIM WORLD

y SOUTH ASIA 26.1%

y MIDDLE EAST & NORTH AFRICA 20.5%

y

SUB -SAHARA AFRICA 18.3%y SOUTH EAST ASIA 16.3%

y CENTRAL ASIA 14.3%

y EAST ASIA 1% (The Economist-Nov. 2003)

www.ips.org.pk


3/32

3

y 3 COUNTRIES (INDONESIA, PAKISTAN, BANGLADESH(0.5 BILLION : 37%OF MUSLIM POPULATION

y 7 COUNTRIES LESS THAN 1 MILLION EACH (Bahrain, Brunei, Cameron,Djibouti, Maldives, Qatar, Suriam)

y AGE COMPOSITION :

y 0-14 36%

y 15-64 (Working Population): 57.6 %

y 65 + 4%

y SEX DISTRIBUTION:

y Male 50.5%

y Female 49.5%

y RATEOF POPULATION INCREASE:

y 1985-1994 2.5% P.Y.

y 1995-2004 2 %

www.ips.org.pk


4/32

4

ECONOMIC SECTORS:y ECONOMIC SECTORS:

y AGRICULTURE 1990 17%OF GDP

2003 15%

y INDUSTRY 1990 34%

2003 37%y MANURACTURING : 1990 14%

2003 15%

y SERVICES: 1990 43%

y 2003 45%

y INDUSTRIAL VALUE ADDED AS%OF TOTALOUTPUT:

y 10 countries in the range of 30% or above

y (Malaysia, Iran, Indonesia, Saudi Arabia, Tunisia, Egypt, Turkey)

www.ips.org.pk


5/32

5www.ips.org.pk

y TOTAL GDPREALOUTPUT:

y 1990 $ 0.96 TRILLION

y 2003 $ 1.45 TRILLION

y PURCHASINGPOWERPARITY ADJUSTED GDP:

y

2007 7.740 TRILLIO

Ny 8%OFWORLD GDP (65.5 TRILLION)

y (EuropeanUnion $ 12.1 TRILLION)

y ( Arab League $ 2.323 TRILLION)

y Per CapitaOIC Average PPP $ 3,381 (40% ofWorld Average)

y Range $31,97 to $600y World Average : $ 8,477

(Source: Micropedia)


6/32

6

INCOME PROFILE OF MUSLIM COUNTRIES

y 4 COUNTRIES High Income Group

y 6 COUNTRIES Upper Middle Income Group

y 18 COUNTRIES Lower Middle Income Group

y

29 COUNTRIES Low Income Group


7/32

7

MUSLIM COUNTRIES IN GLOBAL PERSPECTIVE

(1990S) Muslim Countries Non-Muslim Countries All (53) (109) (162)

y Growth Rate of Per Capita (%) 1.87 4.84 3.87y Share of Manufacturing in GDP% 6.19 15.46 12.43y Investment GDP Ratio (%) 8.26 19.89 16.22y Human Development Index 0.22 0.49 0.40

y Share of Exp on Education as % of GDP 1.21 2.49 2.07y State exp on Health as % of GDP 0.56 1.92 1.47y Geni Co-efficient 22.64 36.07 2.39y Ratio of 10% of rich to poor 10% 7.23 13.16 11.55y Population below $1 a day 31.35 20.94 25.18y 10. Population below national poverty line 39.47 33.82

36.31y 11. Gender Development Index 0.23 0.51 0.41y 12. Gender Empowerment Measure 0.029 0.14 0.102

www.ips.org.pk


8/32

8

Of the 53 Muslim Countries 26 belong to low incomegroup; 12 in middle income group and 15 in highincome group. Corresponding figure for non-Muslim

Countries are 16, 34 and 51

Source: Syed Nawab Haider Naqvi, Perspective on Moralityand Human Wellbeing , The Islamic Foundation Leicester,

U.KK, 2003 Table 1, Pp.189-190]


9/32

9www.ips.org.pk

II

State of the Muslim World was it always that bad?

Region or Country/Year 1750 1800 1830 1860 1900

Europe 23.2 28.1 34.2 53.2 62.0

(Russia) (5.0) (5.6) (5.6) (7.0) (8.8)

(UK) (1.9) (4.3) (9.5) (19.9) (18.5)

USA 0.1 0.8 2.4 7.2 23.6

Third World 73.0 67.7 60.5 36.6 11.0

(India/Pakistan) (24.5) (18.7) (17.6) (8.6) (1.7)

RELATIVE SHARE OF WORLD MANUFACTURING OUTPUT

Paul Kennedy, The Rise and Fall of Great Powers , Random House, New York, 1987, p.149

PER CAPITA INCOME 1750

DEVELOPED COUNTRIES (i.e. USA, CANADA, AUSTRALIA, NEW ZEALAND, SOUTH AFRICA,EUROPE) - $182.00

MOST DEVELOPED COUNTRIES (i.e. USA, BRITAIN,FRANCEAND NEITHERLAND - $230.00

THIRD WORLD COUNTRIES - $188.00

[Source: POVERTY FROM THE WEALTH OF NATIONS By M. Shahid Alam, Macmillan Press, London 2000(Based on research done by Paul Bairoch and Kuznets Zimmerman-Lande.)


10/32

10www.ips.org.pk

III

WHAT WENT WRONG?

1. Colonial Rule, Exploitation and Development of under-developed.2. Imported/Imposed Capitalist Model and Dependence Syndrome.

a. Centre-Periphery Relations Continued after independance.

b. Delinking of economics from ethics, moral values and social and egalitarian

ideals.

c. Equating society with economy and economy with the market.

d. Falsifications resulting from the abstraction of the development model from the

historical and cultural context of the developing countries.

e. Total neglect of institutional factors.

f. Exclusive concern with efficiency, to the neglect ofJustice and human-well-

being. The myth of trickle-down

g. Elitist key role for entrepreneurs, capitalists and investors to the neglect ofother actors and stake-holders in society exclusion of the people and their

participation in the production process.

h. Marginalization of the role of government and non-profit-actors.


11/32

11www.ips.org.pk

3. Global Exploitative System:See: a). Joseph Stiglitz, Globalization And its Discontents, London,Allen Lane, 2002.

b). William Easterly, The Elusive Quest: Economists Adventures

and Misadventures in the Tropics, Cambridge, The MIT

Press, 2002

c). John Perkins, Confessions of an Economic Hitman, San

Francisco, Barret-Koahlu, 20044. Failure of the Domestic Governance:

a) Neglect of Education. Literacy 68% i.e. 450 million (32% illiterate.

Primary Education Enrolment 89%

Secondary School Enrolment - 44%

Universities: 853 (only USA 1500) 2 only from Turkey among the top 500.

Privatization of education

HDI (3 variables, GDP, per capita (PPP), Life expectancy at birth and literacy).

High 7

Medium 28

Low 18.


12/32

12www.ips.org.pk

b). Neglect of Research and Innovation. No major contribution in science and technology after 1424 AD.

Lowest No of researchers per 1000 population 19 OIC Countries.

Lowest Research Articles, magazines, - 28 OIC Countries.

Research Articles provided by 24 OIC Countries last 20 years flat or

declining numbers.

c). Neglect of health

d). Neglect of basic facilities, housing, sanitation (62%) clean water (74%)

e).Absence of Democracy Peoples participation/Empowerment: 13 democracies free elections.

31 Pseudo-democracy

5 Absolute Monarchy

3 Open dictatorship

5 In transition.

f). Freedom of Press: Free Press 4

Partly Free -14

Controlled 39


13/32

13www.ips.org.pk

g) Corruption-(Abuse of public office and private gain) 159 Countries

o 6 Medium Countries - 5.1 to 6.3o 42 Below 5o 6 of the most corrupt Muslim Countries.

(Transparency International Report 2007)

5. Lop-sided Development:- Neglect of production sectors High Consumption Economies, lackingsustainable base.- Dependence on a few items/minerals, agriculture.- Lack of indigenous research, technological innovation and adaptation asagainst simple import of technology- Low value added

- Weak Heavy Mechanical Industry- Dependence on outside world.- Lack of integration Regional self-reliance.


14/32

14www.ips.org.pk

SIZE OF ECONOMIES

5 GDP larger than +$100 Billion 5 $ 50 100 Billion Most between $5-15 Billion.

Per Capita (real) Average 1990 $10002003 $ 1100

Highest Bahrain $ 20,000.00

Poorest @200-300INFLATION. 4.6% IN 2002 (2000:4.7%)

BALANCE OF PAYMENTS: 18 deficit16 surplus2003 Total surplus $56.7 Billion

GROSS INTERNATIONAL RESERVES 2003 $329 Billion (1990 $83

Billion)EXTERNAL DEBT; 18 Severely indebted

1Moderately indebted1Less indebted

Total external debt 2003: $ 692 Billion


15/32

15www.ips.org.pk

[Most indebted Indonesia ($132 billion) Turkey ($132 billion,Malaysia ($49 Billion), Pakistan ($34 Billion, Egypt ($ 31Billion)

INTRA-OIC TRADE FROM 5% in 1990 to 13.5% in 2003

Exports $ 73.5 billions Imports $ 77.3 billions Share of intra-OIC Trade in Total Trade of OIC countries Exports 12% Imports 14%


16/32

16www.ips.org.pk

PART IV

DEVELOPMENT : ISLAMIC CONCEPT

Focus on human development man-centred, development of manand his physical and socio-economic environment. Human well-

being and welfare. Human participation a pivotal factor.

More comprehensive concept inclusion of material, moral andspiritual aspects individual and social, motivational and

institutional, public and private. This implies that developmental

policy and activity are not only multi-dimensional but also inter-

disciplinary. They involve quantitative as well as qualitative

changes.

Development in an Islamic framework envisages simultaneousfocus on four dimensions


17/32

17www.ips.org.pk

o optimal utilizationand developmentof resources that God has

endowed to man and his physical environment.

o Their judicious use and equitable distribution in a manner

that ensures promotion and organization of all human

relationships on the basis of justice (Adl) and beneficence(ihsan),

o Balanced, stable and sustained development avoiding wasteand misuse of resources, elimination of zulm (injustice) andexploitation of other humans, achieving financial and price

stability and seeking inter-personal, inter-regional, inter-

sectoraland inter-temporal equity, and,

o A fair degree ofself-reliance, including collective self-reliance

of the Ummah, envisioning a global system based on genuine

pluralism, making it possible for all nations and cultures to co-

exist, compete, and cooperatein a just world order.

This represents search for a NEW PARADIGM and not merely change

WITHIN the current paradigm of Economics and Development.


18/32

18www.ips.org.pk

VTHE QURANIC FOUNDATIONS

TAWHID (UNITY / ONENESS OF GOD)

HIDAYAH (GUIDANCE)

ISTIKHLAF (VICE-REGENCY/STEWARDSHIP)

Khalifa is a designation given to the Prophet Adamand by extension to all of mankind and signifies that

God has made Mankind His own representative onearth with limited authority and clearly defined

responsibility to fulfill the commands of God. Thisenvisages a positive role for humans, entrusted with

the mission to fulfill Divine Will on earth. Thismission also puts them on trial:


19/32

19www.ips.org.pk

God will judge how human beings use or misuse the freedomand authority given to them.

The Implications of this concept, among others, are:

oHuman stewardship the responsibility to mobilize

develop and manage all resources endowed by God, in

accordance with the value-framework spelled out by

Divine Guidance. Life fulfillmentand not life denialbeing the assignment.

o Human equality and Universal brotherhood.

o Resources human and physical to be treated as a Trust

(amanah)and used in the service of humanity for the benefit of

all; (al-Quran 2:29) to be used rightfully, with no authority to

waste, destroy or squander them.

o Human freedom and accountability.


20/32

20www.ips.org.pk

ADALAH(JUSTICE) Ibn Taymiyyah has put the Islamic positioncategorically when he says:Justice is an imperative on everyone, towardseverything and everyone. Injustice is absolutelynot permissible irrespective of whether it is to a

Muslim or a non-Muslim or even to an unjustperson. Ibn Khaldun, on the basis of juridical as well ashistorical analysis said: Injustice is destructive

for civilization.

In the light of this commitment toAdalah(justice), the general Islamic imperatives inrespect of development would be:


21/32

21www.ips.org.pk

= growth must be accompanied by distributivejusticeo= there should be inter-personal, inter-sectoral, inter-regional and inter-temporal

equity.o= The benefits of development must be sharedby all.o=Development should not be at the cost ofother human beings or the needs of posterity.

As such without justice there can be no realdevelopment, well being or peace in society.


22/32

22www.ips.org.pk

Other Quranic concepts that impinge on the concept ofdevelopment are:

Rububiyyah(Universal Sustenance) Tazkiyyah (Purification plus growth) Falah (WellBeing)

Quwwah (Competitive Strength)

Economic implications of these imperatives wouldinclude:

I. Need fulfillment for all members of human society

irrespective of faith, colour and gender.II. Opportunities for seeking respectable living for all.


23/32

23www.ips.org.pk

III. Just incomes policy ensuring adequate rewardfor effort asfard.

IV. Equitable distribution of income and wealth, i.e.asset re-distribution along with transfer

payments.V. Safety and support networks for the weaker

elements of society.VI. Stability in the value of money.

VII. Principle of individual effort but also collectiveresponsibility (fard kifayah)

VIII. Market mechanism with moral filters and

regulatory and affirmative r ole of theGovernment


24/32

24www.ips.org.pk

PART VI

MAJOR CHARACTERISTICS OF ISLAM-BASEDDEVELOPMENT STRATEGY

Development strategy based on these values would be

characterized by the following:

1. An INTEGRATED approach to development: moral,spiritual and material.

2. Development targets expansion of productionthrough innovative and judicious effort with a view

to ensure need fulfillment and well being for all and

to establish a strong, viable and growth-orientedeconomy.

3. Hayat-e-Taiyyeba(good life) in this world as astepping stone to successful life inAakhira(Life

after death).


25/32

25www.ips.org.pk

4. Motivation moral incentives along with material

rewards and deterrents. Self interest with social and moral

responsibility and accountability.

5. Moral filter along with socially agreeable filter

mechanisms at all levels of consumption, production and

decision-making as a supplement to the market

mechanism.

6. Man-centred and well-being-centred approach.

7. Production/Consumption mix useful, fruitful, waste-

avoiding, environment friendly.

8. Maqasid as-Shariah

Protection of DinProtection of IntellectProtection of BodyProtection of Family/ProgenyProtection of wealth (material resources)


26/32

26www.ips.org.pk

9. Property as a trust right to private ownership and

profit motive with moral and social responsibility.

10. Financial restructuring ensuring ribaelimination,

avoidance ofgharar(ambiguity and excessive uncertnity),check on mysir (speculation and gambling)and reduction in

concentration of wealth

11. Distributive justice including transfer payments and

inheritance.

12. Positive and goal-orientated role of government.

13. Reorganization of the entire economy, and not merely

the financial sector.

14. Self-Reliance and collective self reliance of Ummah

economic cooperation and integration to face global

competition and challenges.


27/32

27www.ips.org.pk

VIIISLAMIC ECONOMICS ; UNIQUE ROLE

1. Failure of dominant economic paradigm search foralternatives. Current Crisis a moral as well as an economic crisis

Lessons for the Muslim World. It has five major dimensions:I. MoralII. MotivationalIII. Conceptual,IV. Institutional andV. Operational.

Islamic Economics has a direct bearing in respect of each of them.


28/32

28www.ips.org.pk

2. More realistic, balanced, integrated and harmoneous development.3. Sustainable Development:

a. Physical Economy and Money Economyb. Asset based value added Approachc. Ecological dimensions.

4. Based on Peoples faith, values and aspirations:Gallup Survey 91% Muslim men and women want Islam.

50% - Shariah as the only source of Law. 90% - Shariah as a source of Law

[Source: John Esposito and Dalia Mugahed, Who Speaks for Islam?Oxford, 2007]

8 Muslim States have made Shariah source of law 12 have made Islam as State religion. 17 No mention of religion; only 2 have declared secularism as state

policy Azerbijan and Turkey.


29/32

29www.ips.org.pk

SUGGESTED READINGSM. Umar Chapra, Muslim Civilization: The Causes of Decline and the Need for

Reform, The Islamic Foundation, Leicester, U.K. 2008.

M. Umar Chapra, Islam and the EconomicChallenge, The Islamic Foundation,

Leicester, U.K. 1992.

Munawar Iqbal and Rodney Wilson, Islamic Perspectives on Wealth Creation,

Edinborough University Press, 2005.

Joseph Stiglitz, Globalization and Its Discontents, Allen Lane, London, 2002.

Khurshid Ahmad, The Challenge ofGlobalCapitalism: An Islamic Perspective, in

Making Globalization Good Ed.by John H. Dunning, Oxford University Press,

2002, Pp. 181-209

Khurshid Ahmad, Islamic Approach to Development: Some Policy Implication,

Institute of Policy Studies, Islamabad, 1994.


30/32

30

SUGGESTED READINGS (contd.)

Khurshid Ahmad, Islamizing Economy: The Pakistan Experience, in Islamization of

the Pakistan Economy, ed. By Robert M. Hathaway and Wilson Lee, Woodrow Wilson

International Center for Scholars, Washington, 2004, pp. 37-44

y Khurshid Ahmad, Some Thoughts on a Strategy for Development under an IslamicEagis in Islam and the new International Economic Order; The Social Dimension,

International Institute of Labour Studies, Geneva, 1980, pp. 127-143

y Syed Nawab Haider Naqvi, Perspectives on Morality and Well Being, The Islamic

Fundation, Leicester, U.K. 2003.

y Saqib Jawaid Anwar A; Hassan, Muslim World Almanac, Makkah Printing nd

Publishing Co., Kingdom of Saudi Arabia

www.ips.org.pk


31/32

31www.ips.org.pk


32/32

32www.ips.org.pk

Documents

Problems Faced by Muslim Countries and the Role of Islamic Economics in Solving Them