The Fight for Islamic Economy Leadership Explained by Dr. Cedomir Nestorovic
The Islamic economy as defined by Salaam – Global Islamic Economy Gateway encompasses seven pillars: Food; Finance; Fashion, Art & Design; Travel; Pharmaceuticals & Cosmetics; Digital; and, Media & Recreation. Today, it is one of the fastest growing sectors due to the increase in turnover and the addition of new areas that have not been open to Islamic economy before. According to the Global Islamic Economy Report 2015/2016 released by Thomson Reuters, Islamic economy now represents USD1.8 trillion in food and lifestyle expenditure and it is projected to reach USD2.6 trillion in 2020. Meanwhile USD1.35 trillion is invested in Islamic banking assets and projected to reach USD2.6 trillion by 2020. It is not surprising then that several countries jostle to position themselves as the leader of Islamic economy in order to reap the benefits from its growth particularly in these two areas.
Identifying leadership in the Islamic economy is not an easy task. The natural contenders would be Saudi Arabia, Iran and Turkey for their sheer size and historical importance. However, for reasons like religious and non-economic emphasis in Saudi Arabia, Ataturk’s legacy in Turkey, and trade embargo on Iran; these three countries fall behind in this leadership strife. Consequently, smaller countries emerge to join in the fight.
The first to enter the fray was Malaysia. Being the first country to establish stringent standards and certification rules for Halal food and one of the first to establish clear rules in Islamic finance, Malaysia strives to lead in all businesses related to Islam including being recognised by Tabung Haji, the institution organising the annual pilgrimage to Mecca, as the best hajj organiser in the world. The country has thus gained some leadership traction earlier on.
In 1990, the Gulf Kingdom of Bahrain seen as a trendsetter in Islamic Finance, has seen the AAOIFI (Accounting and Auditing Organization of Islamic Finance Institutions) established in Algiers quickly moved to Bahrain the following year where it stays till today. Many banks including western banks hence established their presence in Bahrain to tap on Islamic finance. However, unrest in Bahrain in 2011 caused some banks to pull back from the Kingdom. As a result, Dubai then appeared attractive to the banks.
Today, Islamic business is powering the engine of growth for Dubai due, to some extent, to the fatigue in Malaysia and the unresolved situation in Bahrain. In 2013, Dubai launched the Dubai Islamic Economy Development Centre with an ambition to drive 46 initiatives covering the development of Islamic finance, Halal food, hospitality, Islamic digital economy, Islamic fashion and design, and Islamic education.
Over in Southeast Asia, Indonesia, which is the largest Muslim country in the world, is fast catching up on the Islamic finance front. With an emphasis to establish regulatory framework and rules for complex financing, Indonesia is increasingly successful in raising sizable sukuks for infrastructural development. It has the political will, a large population size and a central Ulema organization (MUI), to attract money from the Middle East. However, Indonesia is not a net exporter of Halal products. It produces Halal food and other Halal products mainly for its domestic market. Therefore, Indonesia is not a player in the international market with its limited exports and protective trade practices. For example, frozen Halal chickens from Brazil (world’s largest exporter of Halal chickens) are not allowed into Indonesia.
Malaysia, on the other hand, has been traditionally strong in Halal business with its well established JAKIM and Halal certification standards. It is able to attract MNCs like Nestle to produce Halal products in the country for export worldwide. However, with the establishment of the Halal National Mark in Dubai, where Dubai hopes to regulate and develop the Halal food industry in the UAE, food producers such as Nestle may find it more attractive to shift their operations to Dubai in order to obtain the Dubai certification which is recognized in OIC (Organization of Islamic Cooperation) member states. Malaysia lacks funds while Dubai has strong connections to the OIC and financing support from the Emirates.
Let’s take a quick look at Thailand and Singapore. Thailand aims to be the ‘Halal Kitchen’ of the world in terms of the manufacturing of ready-to-eat Halal food products. With good manufacturing standards, high food safety, and an oversupply situation of domestic produce eg. rice and chickens, Thailand is poised to attract major MNCs to invest in food manufacturing in the country for international exports. There is huge demand for ready-to-eat meals, especially during hajj. While there is a shortage of meat in Saudi Arabia, meat and cattle in Pakistan have low safety standards. Thailand has also established its own Halal lab in Chulalongkorn University (www.halalscience.org). The other Halal lab is in UPM Malaysia (Universiti Putra Malaysia: http://www.halal.upm.edu.my/).
Singapore, however, continues to offer Islamic banking and finance as part of it strategic positioning as an international financial centre. Increasingly, local banks in Singapore do not see themselves playing a major role in Islamic finance.
The fight for leadership in Islamic economy is an ongoing one amidst the socio-economic volatility and geopolitical instability among the many Islamic nations. Notwithstanding the strife and challenges, Islamic economic trends and development are marked by two significant events in the Islamic world in 2015. First, the Global Islamic Economy Summit in Dubai in October 2015, followed by the World Islamic Economic Forum in Kuala Lumpur in November 2015, thus encapsulating the continuing rivalry between Malaysia and the United Arab Emirates (Dubai). Both countries want to lead the Islamic economy. If Malaysia’s supremacy was undisputed just a few years ago, Dubai now has huge ambitions to destitute Malaysia. In my view, there is a high probability that the centre of gravity for Islamic business and marketing will shift very soon from Malaysia and Bahrain to Dubai.
 Sukuks are Islamic bonds, structured in such a way as to generate returns to investors without infringing Islamic law (that prohibits riba or interest). Sukuk represents undivided shares in the ownership of tangible assets relating to particular projects or special investment activity.
 Jakim: Department of Islamic Development Malaysia in charge among other things of the halal certification in Malaysia.