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

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THE MUSLIM WORLD TODAY
 57 MUSLIM COUNTRIES — MEMBERS OF THE OIC
 LAND AREA — APPROXIMATELY 22% OF THE WORLD
 POPULATION (2004) – 1.3 BILLION – 20% OF WORLD POPULATION
(Including Non-Muslims) in Muslim Countries
 INCREASE BY 0.5 BILLION IN 25 YEARS — 1980: 0.8 BILLION
 MUSLIMS REST OF THE WORLD (MINORITY POPULATION) 350 TO 400 MILLION
 TOTAL MUSLIM POPULATION 1.65 BILLION – 23% OF WORLD POPULATION
 REGIONAL SPREAD OF POPULATION IN THE MUSLIM WORLD
 SOUTH ASIA 26.1%
 MIDDLE EAST & NORTH AFRICA 20.5%
 SUB -SAHARA AFRICA 18.3%
 SOUTH EAST ASIA 16.3%
 CENTRAL ASIA 14.3%
 EAST ASIA 1% (The Economist-Nov. 2003)

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 3 COUNTRIES (INDONESIA, PAKISTAN, BANGLADESH(0.5 BILLION : 37%
OF MUSLIM POPULATION
 7 COUNTRIES LESS THAN 1 MILLION EACH (Bahrain, Brunei, Cameron,
Djibouti, Maldives, Qatar, Suriam)
 AGE COMPOSITION :
 0-14 36%
 15-64 (Working Population): 57.6 %
 65 + 4%
 SEX DISTRIBUTION:
 Male 50.5%
 Female 49.5%
 RATE OF POPULATION INCREASE:
 1985-1994 2.5% P.Y.
 1995-2004 2%

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 ECONOMIC SECTORS:

 ECONOMIC SECTORS:
 AGRICULTURE 1990 17% OF GDP
2003 15%
 INDUSTRY 1990 34%
2003 37%
 MANURACTURING : 1990 14%
2003 15%
 SERVICES: 1990 43%
 2003 45%
 INDUSTRIAL VALUE ADDED AS % OF TOTAL OUTPUT:
 10 countries in the range of 30% or above
 (Malaysia, Iran, Indonesia, Saudi Arabia, Tunisia, Egypt, Turkey)

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 TOTAL GDP REAL OUTPUT:
 1990 $ 0.96 TRILLION
 2003 $ 1.45 TRILLION
 PURCHASING POWER PARITY ADJUSTED GDP:
 2007 7.740 TRILLION
 8% OF WORLD GDP (65.5 TRILLION)
 (European Union $ 12.1 TRILLION)
 (Arab League $ 2.323 TRILLION)
 Per Capita OIC Average PPP $ 3,381 (40% of World Average)
 Range $31,97 to $600
 World Average : $ 8,477
(Source: Micropedia)

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 INCOME PROFILE OF MUSLIM COUNTRIES

 4 COUNTRIES – High Income Group

 6 COUNTRIES – Upper Middle Income Group

 18 COUNTRIES – Lower Middle Income Group

 29 COUNTRIES – Low Income Group

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 MUSLIM COUNTRIES IN GLOBAL PERSPECTIVE
(1990’S) Muslim Countries Non-Muslim Countries All
(53) (109) (162)
 Growth Rate of Per Capita (%) 1.87 4.84 3.87
 Share of Manufacturing in GDP% 6.19 15.46 12.43
 Investment – GDP Ratio (%) 8.26 19.89 16.22
 Human Development Index 0.22 0.49 0.40
 Share of Exp on Education as % of GDP 1.21 2.49 2.07
 State exp on Health as % of GDP 0.56 1.92 1.47
 Geni Co-efficient 22.64 36.07 2.39
 Ratio of 10% of rich to poor 10% 7.23 13.16 11.55
 Population below $1 a day 31.35 20.94 25.18
 10. Population below national poverty line 39.47 33.82
36.31
 11. Gender Development Index 0.23 0.51 0.41
 12. Gender Empowerment Measure 0.029 0.14 0.102

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Of the 53 Muslim Countries 26 belong to low income
group; 12 in middle income group and 15 in high
income group. Corresponding figure for non-Muslim
Countries are 16, 34 and 51

Source: Syed Nawab Haider Naqvi, Perspective on Morality

and Human Wellbeing , The Islamic Foundation Leicester,
U.KK, 2003 Table 1, Pp.189-190]

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 II
State of the Muslim World — was it always that bad?
RELATIVE SHARE OF WORLD MANUFACTURING OUTPUT
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)

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,FRANCE
AND 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.)

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 III
WHAT WENT WRONG?

1. Colonial Rule, Exploitation and Development of under-developed.

2. Imported/Imposed Capitalist Model and Dependence Syndrome.
1. Centre-Periphery Relations Continued after independance.
2. Delinking of economics from ethics, moral values and social and egalitarian
ideals.
3. Equating society with economy and economy with the market.
4. Falsifications resulting from the abstraction of the development model from the
historical and cultural context of the developing countries.
5. Total neglect of institutional factors.
6. Exclusive concern with efficiency, to the neglect of Justice and human-well-
being. The myth of ‘ trickle-down’
7. Elitist — key role for entrepreneurs, capitalists and investors to the neglect of
other actors and stake-holders in society – exclusion of the people and their
participation in the production process.
8. Marginalization of the role of government and non-profit-actors.

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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, 2004
4. 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.

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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

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

o 6 Medium Countries - 5.1 to 6.3

o 42 Below 5
o 6 of the most corrupt — Muslim Countries.
(Transparency International Report 2007)

5. Lop-sided Development:
- Neglect of production sectors – High Consumption Economies, lacking
sustainable base.
- Dependence on a few items/minerals, agriculture.
- Lack of indigenous research, technological innovation and adaptation as
against simple import of technology
- Low value added
- Weak Heavy Mechanical Industry
- Dependence on outside world.
- Lack of integration – Regional self-reliance.

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SIZE OF ECONOMIES —
• 5 — GDP larger than +$100 Billion
• 5 — $ 50 – 100 Billion
• Most between $5-15 Billion.

Per Capita (real) Average — 1990 $1000

2003 $ 1100
Highest — Bahrain $ 20,000.00
Poorest — @200-300
INFLATION. 4.6% IN 2002 (2000:4.7%)

BALANCE OF PAYMENTS: 18 deficit

16 surplus
2003 Total surplus $56.7 Billion
GROSS INTERNATIONAL RESERVES 2003 $329 Billion (1990 $83
Billion)
EXTERNAL DEBT; 18 Severely indebted
1Moderately indebted
1Less indebted
Total external debt 2003: $ 692 Billion

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

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%

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 PART IV

DEVELOPMENT : ISLAMIC CONCEPT

• Focus on human development – man-centred, development of man

and his physical and socio-economic environment. Human well-being
and welfare. Human participation a pivotal factor.

• More comprehensive concept – inclusion of material, moral and

spiritual 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 simultaneous

focus on four dimensions —

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 o optimal utilization and development of 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 waste

and misuse of resources, elimination of zulm (injustice) and
exploitation of other humans, achieving financial and price
stability and seeking inter-personal, inter-regional, inter-
sectoral and inter-temporal equity, and,

o A fair degree of self-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 cooperate in a just world order.

This represents search for a NEW PARADIGM and not merely change
WITHIN the current paradigm of Economics and Development.
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 V
THE QURANIC FOUNDATIONS

TAWHID (UNITY / ONENESS OF GOD)

HIDAYAH (GUIDANCE)
ISTIKHLAF (VICE-REGENCY/STEWARDSHIP)

Khalifa is a designation given to the Prophet Adam

and by extension to all of mankind and signifies that
God has made Mankind His own representative on
earth with limited authority and clearly defined
responsibility to fulfill the commands of God. This
envisages a positive role for humans, entrusted with
the mission to fulfill Divine Will on earth. This
mission also puts them on trial:

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 God will judge how human beings use or misuse the freedom
and 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 fulfillment and not life denial
being 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.

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 ‘ADALAH’ (JUSTICE)
• Ibn Taymiyyah has put the Islamic position
categorically when he says:
•‘Justice is an imperative on everyone, towards
everything and everyone. Injustice is absolutely
not permissible irrespective of whether it is to a
Muslim or a non-Muslim or even to an unjust
person.’
• Ibn Khaldun, on the basis of juridical as well as
historical analysis said: ‘Injustice is destructive
for civilization’.
• In the light of this commitment to Adalah
(justice), the general Islamic imperatives in
respect of development would be:

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= growth must be accompanied by distributive
justice
o= there should be inter-personal, inter-
sectoral, inter-regional and inter-temporal
equity.
o= The benefits of development must be shared
by all.
o=Development should not be at the cost of
other human beings or the needs of posterity.

As such without justice there can be no real

development, well being or peace in society.

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Other Quranic concepts that impinge on the concept of
development are:

• Rububiyyah (Universal Sustenance)

• Tazkiyyah (Purification plus growth)
• Falah (Well Being)
• Quwwah (Competitive Strength)

Economic implications of these imperatives would

include:
I. Need fulfillment for all members of human society
– irrespective of faith, colour and gender.
II. Opportunities for seeking respectable living for
all.

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III. Just incomes policy ensuring adequate reward
for effort as fard.
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 collective
responsibility (fard kifayah)
VIII. Market mechanism with moral filters and
regulatory and affirmative r ole of the
Government

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 PART VI

MAJOR CHARACTERISTICS OF ISLAM-BASED

DEVELOPMENT 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 production

through innovative and judicious effort — with a view
to ensure need fulfillment and well being for all and
to establish a strong, viable and growth-oriented
economy.

3. Hayat-e-Taiyyeba (good life) in this world as a

stepping stone to successful life in Aakhira (Life
after death).

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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 Din
•Protection of Intellect
•Protection of Body
•Protection of Family/Progeny
•Protection of wealth (material resources)

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9. Property as a trust — right to private ownership and
profit motive with moral and social responsibility.

10. Financial restructuring ensuring riba elimination,

avoidance of gharar (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.

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 VII
ISLAMIC ECONOMICS ; UNIQUE ROLE

1. Failure of dominant economic paradigm — search for

alternatives. Current Crisis a moral as well as an economic crisis
— Lessons for the Muslim World. It has five major dimensions:
I. Moral
II. Motivational
III. Conceptual,
IV. Institutional and
V. Operational.
Islamic Economics has a direct bearing in respect of each of
them.

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2. More realistic, balanced, integrated and harmoneous development.
3. Sustainable Development:
a. Physical Economy and Money Economy
b. Asset based — value added Approach
c. 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.

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 SUGGESTED READINGS
M. 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 Economic Challenge, 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 of Global Capitalism: 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.

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 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

 Khurshid Ahmad, “Some Thoughts on a Strategy for Development under an Islamic

Eagis” in Islam and the new International Economic Order; The Social Dimension,
International Institute of Labour Studies, Geneva, 1980, pp. 127-143

 Syed Nawab Haider Naqvi, Perspectives on Morality and Well Being, The Islamic
Fundation, Leicester, U.K. 2003.

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

Publishing Co., Kingdom of Saudi Arabia

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