Islamic finance emerged in the post-colonial period through the search to developan authentic Muslim identity in response to economic and financial matters. Sincethe late 1950s, modern Muslim economists (as academics) have been involved indeveloping an Islamic economic paradigm through the proposal of an alternativeIslamic system understanding with its foundational principles, institutions, workingmechanisms, and economic and financial instruments. By the 1970s, it was clearthat despite having Muslim states, the move into such a new paradigm was notpossible due to lack of political will in these countries. Consequently, the moraleconomy approach based normative Islamic economics had to be dismissed dueto the adverse political conditions. The underdeveloped nature of theoretical andpractical knowledge of Islamic economics also played a role in negating the discourseto developed an economic system of Islam. However, in an attempt to sustain the‘dream’, the efforts of social agents such as Muslim academics, economists, bankersand technocrats resulted in Islamic banking as the new institutional formation in1975 in the form of a commercial Islamic bank based on the earlier Islamic financialexperiences including the short lived Mith Ghamr (Islamic) social bank experiencein early 1960s in Egypt and Tabung Haji social (Islamic) investment institution in
Islamic finance in modern times emerged in the form of commercial banking in the mid-1970s as a response to the endogenisation of religious norms in shaping the norm and substance of financing to produce a moral economy-oriented proposition for developing economies and societies since Islam, as a religion, also provides the norms, values, principles and injunctions related to everyday aspects of economic and financial activity. While Islamic banking is a modern phenomenon, Islamic financing itself has been in practice within the periphery of the Muslim world ever since the Prophet Muhammad revealed such principles about fourteen centuries ago.
Islamic finance is considered a modern version of the historico-religious forms of financing generated through the normative principles of Islam along with the customs of Arabia during the time when the Qur’an was revealed fourteen centuries ago. While in its historic form institutionalisation cannot be located, the practice of Islamic financing has existed in the periphery of the Muslim world since the practice was taught to his disciples by the Prophet of Islam. This un-institutional form of Islamic financing had continued to exist throughout the centuries along with the decline in Muslim economies over the centuries and as well as during the colonial era.
We are delighted and honored to have edited Sustainable Development Challenges in the Arab States of the Gulf and appreciate the generosity of the people who have given us their support. First of all, we are extremely grateful to the attendees of the Gulf Research Meetings in Cambridge, UK, who participated in our workshops Sustainable Development Challenges in the GCC, in 2013, and Addressing the Sustainability Agenda in the Gulf Region, in 2014, who have given their trust and willingness to publish their work and experiences; without them this book would not be available.
Most of the contributors to this volume attended a workshop held in Cambridge, UK in late August 2014. The workshop was sponsored by the Gulf Research Center (GRC). Special thanks go to Dr. Abdulaziz Sager, chairman of the GRC, Dr. Christian Koch, director, Sanya Kapasi, administration manager, and Ms. Elsa Courdier, administrator. Also I would like to thank Kai Henning Gerlach and Dagmar Konrad from Gerlach Press. After the workshop I worked closely with all the contributors to upgrade and revise the papers. I cannot thank them enough for their valuable contributions. Finally would like to thank my assistant Ms. Alexandra Holden for her hard work.
This book is the outcome of the workshop that was held at the Gulf Research Meeting organized by the Gulf Research Center in Cambridge, UK in August 2014 directed by Mohamed Ramady and Annika Kropf (Workshop Number 5: Employed, yet Underemployed and Underestimated: Leadership, Ownership and Work Motivation in the Gulf). The Editors wish to thank all those who participated in the workshop and especially the Gulf Research Center and its Chairman Dr. Abdulaziz Sager for offering the opportunity to gather so many scholars with diverse interests and expertise who made this publication possible. The workshops would not have been possible without the dedicated guidance and follow up support by the GRC, especially Dr. Christian Koch, Sanya Kapasi and Elsa Courdier
The chapters in this book were selected from papers presented at the Gulf Research Center’s Annual Conference held at Cambridge 24-28 August 2014 and were redrafted taking into account comments made by participants in the Future of Yemen panel. The editors would like to acknowledge the contribution made by participants and to thank the GRC, especially Christian Koch and Elsa Courdier, for their excellent support at the conference and since. They also want to thank Shelagh Weir, John Shipman among others for commenting on some of the chapters in draft. Hanna Siurua of the King Faisal Centre for Research and Islamic Studies provided invaluable help in preparing the text. Above all they are very grateful for Helen Lackner who gave a great deal of time in helping with the editing and collaborating with the editors in writing the introduction.
Security issues in the Gulf region have been of critical importance to global stability over a prolonged period. Seldom, however, have they reached as critical a turning-point as they have now. Three factors account for their current salience. First, shifts in the demand for Gulf oil have transformed the Gulf ’s economic relationships with outside countries. Rapidly increasing demand from Asian countries (especially China and India), declining demand from the United States and a static level of demand from the European Union, have propelled China and India into the positions of the Gulf ’s first and third largest trading partners. Second, developments in the Middle Eastern region have posed destabilising challenges and threats to all of the Gulf countries. The challenges and threats have been both external to the Gulf region and within it (or, at least, with a reach which directly affects Gulf regimes): the ongoing conflicts in Iraq, Syria, Yemen and Israel/Palestine in particular, and the nuclear issue in Iran. Finally, the shifting global balance of power, with China, India, and Russia (and to some extent the other two BRICS countries) pursuing more assertive foreign policies than before, the external presence in the Gulf becomes more open to debate and contest. Beyond the confines of the Gulf itself, moreover, there is the wider issue of control of the sea-lanes in the Indian Ocean, which are essential to the export of Gulf oil and the import of the critical needs of Gulf countries.
In 2011, the world witnessed a tide of political changes in the Arab world, a region notorious for its political turbulence and unpredictability. Yet, the world was taken by surprise by the events of the so-called ‘Arab Spring’. This series of events established, perhaps, the beginning of a new era of non-violent political activism and resistance against well- and long-established unpopular regimes in the region. The stability and longevity of the political systems dictated political relations and alliances in the world for a long time. Hence, the global reaction was a mixture of feelings – tension, surprise and even fear about the changes that were taking place, even though they were expected in some quarters. None could claim that they knew that such “creative anarchy” was capable of bringing about such quick and widespread changes and challenges that may not be limited to just political changes.
We would like to thank Georgetown University in Qatar and Gerd Nonnemanfor their financial assistance in this project. We would also like to thank QatarUniversity and the Gulf Research Center Foundation, especially Christian Koch, fortheir support and encouragement both in conceiving and completing this project.Special thanks to our contributors for their feedback, counsel, and expertise aboutthe variety of topics and issues covered in this book. Finally, we owe our editor,Malcolm Campbell, a debt of gratitude for his patience and advice throughout theprocess.
There is now little doubt that the Gulf region’s primary economic relationships are shifting from West to East.1 This book documents this trend and examines some of the political and strategic issues which follow from it. While the overall trend can be seen in terms of a West to East re-orientation, the re-orientation is in fact more complex than this. The key element is the orientation towards the newly-industrialising economies of Asia, and most specifically towards China and India. In some respect the leading developed economies of Asia, Japan and South Korea, occupy a similar position to Western countries, with a declining (but still very strong) share of Gulf trade.
Changing geopolitical realities have seen the Gulf region turning to Asia and Africa to build new economic links, while strengthening old ones. This proactive internationalism is visible not just in economics and energy, but also in politics and security where a host of new agreements has been developed. This work provides an overview of the ways in which the GCC states now need to move ahead with reforms that will reflect issues such as raised expectations from a period of high revenues and the region’s demographics.
Spurred by high oil revenues, credit growth and economic diversification, real GDP growth rates in the GCC countries have been high in international comparison. They have been comparable to those of other emerging and developing markets and considerably higher than those of the world or the advanced economies on average (see Figure 1). Qatar and UAE, in particular, have witnessed breakneck development with growth rates in double digit territory until 2008. In 2009, only two GCC countries faced a mild recession (Kuwait and the UAE). While the IMF expects GCC growth to lag emerging and developing economies in the years to 2015, it will still remain at or above the world average. Together with growth in intra-GCC trade in the wake of the GCC customs union, this will inexorably lead to increased demand for financial services.
In most important regards, the economies of the GCC have been doing exquisitely well during the last decade – but in one critical area, there has been stagnation, if not regression: levels of labor productivity and, closely related, the involvement of locals as employees in the private economy. While public sectors in the GCC are increasingly nationalized, private labor markets remain dominated by foreigners: The share of national employees in the private labor force lies between one percent and a quarter in the various countries of the region. Due to decades of unrestricted labor imports from the developing world, average wages in the private sector are very low, as are skills levels and productivity. The region is locked into a development path where many businesses have substituted the minimization of labor costs for skills and productivity development – to the detriment of nationals, who can seldom compete on price and who, due to the availability of public sector employment, have limited incentives to work on their marketable skills in any case.
