JEDDAH, 26 September — The Islamic Development Bank hosted the fourth Oxford Banking Forum here on Saturday. The forum of senior OIC and Western academics, policymakers and business executives focused on “development and foreign investment in the OIC member states.”
“At present the flow of investment in OIC countries is very low compared to some other developing countries. To increase flow of foreign direct investment (FDI) in these countries it is necessary to adopt policy relaxation and mark those impediments which are hampering FDI,” Dr. E. K. Dosmukhamedov, president of the Oxford Banking Forum, said earlier this week.
“Of the total global investment, nearly two-third goes to industrialized countries and one-third enters into developing countries, which are in more need of FDI than the developed countries. To attract more FDI we have to give a fresh look to human capital, and to extract value from the human capital it is necessary to improve education and give more access to information. It is also equally important to improve the structure of societies of the OIC member states,” he said.
Forum participants, who were received by Crown Prince Abdullah, the regent, in Riyadh on Sunday, underlined their commitment to the recommendation that a special advisory council be established with its core members — participants in the 2002 event. Such a group could help to direct and commission economic and multidisciplinary studies relevant to the OIC member states. “In particular our discussions on foreign investment could be followed up by work to identify how the good practices in drafting investment laws and policies in some OIC countries can be disseminated to all members of the organization,” he said. He added that during the meeting with Prince Abdullah the issue of water utilization could be the type of area in which assistance could be provided, as ensuring adequate and safe supplies of water was crucial for all OIC countries. The special advisory council had the expertise to draw up guidelines for work in this area, he said, adding that Prince Abdullah had recommended that the forum further discuss the issues raised with Minister of Economy Dr. Ibrahim Al-Assaf who attended the meeting and Minister of Water Dr. Ghazi Al-Gosaibi. “During the meeting with Prince Abdullah, we were all delighted with his sincere interest in our work and his very positive and encouraging observations,” he said.
Dr. Dosmukhamedov said globalization was no longer a domain of economists. A globalization of cultural values is no longer an insignificant externality in the profit maximization equations. We live in a global village. It is diverse but our mutual understanding is poor. We are aware of this diversity, however, we are not prepared to make an effort to understand it.
“The need to foster greater mutual trust and understanding among people of various cultural backgrounds, be they academics, politicians or business executives, is therefore greater than at any time in the past. The resources required are human imagination, intelligence, empathy and patience. The academic community has now moral duty to be in the forefront of international affair,” he added.
Rodney Wilson, professor of economics in the Center for Middle Eastern and Islamic Studies, University of Durham, England, said that OIC countries had to concentrate on portfolio investment.
“To get more FDI, OIC states have to create conducive atmosphere — economic and political — to provide comfort to investors, and there is need for much more open orientation, more equity investment and development of indigenous multinational companies because MLNs attract more investment, and technology and management skill transfers to have more competitive advantage and economic integration among OIC countries.”
He added: “The exchange rate factor also creates uncertain atmosphere among investors. So it is important to have stability in exchange rate to make investment more attractive.”
Due to changes in Saudi Arabia’s new investment laws made by the Saudi Arabian Investment Authority (GIA), more and more foreign capital is pouring into the Kingdom,” Wilson added.
In reply to Prince Dr. Bander ibn Salman ibn Mohamed Al-Saud’s question of how Islamic investment is different from other forms of investment, IDB President Dr. Ahmed Mohamed Ali said: “Bankers are mediators and Islamic modes of financing are more suitable in many cases. There is equity-based financing which is very important for transfer and profit-sharing.” Dr. Ahmed also emphasized: “Islamic banking is not only for Muslims. It is a different way of doing banking system.”
Dr. M. Umer Chapra, research adviser at Islamic Research and Training Institute, IDB, who won IDB award for Islamic Studies and King Faisal International Award for Islamic Studies, both in 1989, said: “It is vital to reduce debt burden of developing countries. Most of the budget of developing countries goes to debt servicing which ultimately reduces scope for future development.”
According to Mohamed Ariff, executive director of Malaysian Institute of Economic Research, five important factors that help attract investment are political stability, very good infrastructure, legal system, economic stability and flexibility. “It is necessary to shift from P-economy (production economy) to K-economy (knowledge-based economy),” he added.
Ariff said China attracted about 75 percent of investment annually and 25 percent investment went to the rest of Southeast Asia. “Why? So the Islamic states have to look at such statistics to create pleasant atmosphere to woo more and more investment,” he said.
Professor Robert A. Mundell, who was awarded the Noble Prize in Economics in 1999 for his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency area, said that to attract FDI it is necessary to have free trade, adapt to new technology (New economy), as with new technology production becomes much cheaper, level of education increases and currency stability is maintained.
Mundell, who has been an adviser to a number of international agencies and organizations, including the UN, the International Monetary Fund, the World Bank, the European Commission and several governments in Latin America and Europe, the Federal Reserve Board, the US Treasury and the government of Canada, expects a major change in the global monetary system in future. He said: “The US dollar is a dominant currency at present but euro is changing rapidly and will become a rival to the US dollar in next decade.”
Mundell prepared one of the first plans for a common currency in Europe and is known as the father of optimum currency areas and a pioneer of the theory of the monetary and fiscal policy mix, the theory of inflation and interest and growth, the monetary approach to the balance of payments and the co-founder of supply-side economics.
Dr. Mabid Ali Al-Jarhi, director of IRTI, IDB also presented a paper on “Finance for development: Islamic finance as an efficient & equitable option.”
He said: “Islamic finance should give equal chance to compete as well as work hand in hand with conventional finance. The market itself will finally decide the proper mix of both conventional and Islamic finance that suits the world economy. This will ultimately benefit economic development.”
Others who participated in the forum were Dr. Abdul Rahman Al-Sahibani, deputy secretary general of Arab League on economic affairs, Abdul Malik ibn Abdullah Al-Khalili, chairman of BankMuscat, Oman, Dr. Mohammad Shahadat Hussain, associate professor, Chitagong University, Bangladesh, Dr. Zaman M. Raquibuz, Ithaca College, New York, Ilyas Zhangaskin, graduate student in Oxford University, Dr. Bashir Fad’lalla, adviser (policy), office of the vice president (operation), IDB, Dr. Mohamed Ahmed Zubair, representing EO&SP department, IDB and P.K. Rajgopalan, general manger finance and investment, Yusuf Bin Ahmed Kanoo.
The Oxford Banking Forum meets on an annual basis. Its previous annual meetings took place in Oxford, Kuala Lumpur and London with the agendas: “The global banking industry: Challenges of the third millennium”; “The future of global financial regulations in the digital era” and “Reforming national financial systems in a globalizing economy: Great Britain and Japan.”