LONDON, 1 December 2003 — If trade is indeed the engine of economic growth, then oil indeed must be the curse of the 55 member countries of the Organization of Islamic Conference (OIC) and its organ, the Islamic Development Bank (IDB).
The export base of most of the IDB member countries is already low, given that they are predominantly developing economies. In 2001 for instance, IDB member countries accounted for a mere 6.2 percent of total world exports.
Intra-trade between IDB member countries in 2001 accounted for $53.93 billion out of a total IDB member exports of $491.43 billion — just under 11 percent. Similarly, intra-IDB imports totaled $57.61 billion out of a total IDB member imports of $407.45 billion — about 14.1 percent of total intra-IDB imports in 2001, the last year complete statistics are available for.
The cause for concern is not only because of the paltry figures and their consistently negative growth, but also that they are dominated and skewed by oil-related flows. In fact, according to several Muslim businessmen, “the predominance of oil-related trade flows as a component of intra-OIC trade is a reflection of the need to extend trade relationships to include manufactured goods, service, and joint venture collaborations.”
If you study the export and import finance tranches approved by the board of executive directors of the IDB over a given financial year, they are dominated by financing approvals of oil and oil products imports and exports of member countries such as Pakistan, Turkey, Bangladesh, Iran, Saudi Arabia, Kuwait, Morocco, and Algeria
Equally disturbing is the fact that six member countries (Saudi Arabia, Indonesia, Malaysia, Iran, UAE, Turkey) accounted for almost $360 billion of the total $491.43 billion of OIC exports in 2001; and another six countries for almost $84 billion. This means that a staggering $444 billion (out of $491.43 billion) was accounted for by a mere six (out of 54) member countries. This reflects the serious structural state of trade of most IDB member countries.
According to the IDB, “the basic inadequacy of the member countries in the vital area of foreign trade overall and amongst themselves (intra-trade) is best reflected in the per capita figures. With a combined population close to 1.2 billion, the IDB member countries realized export revenues from the world of only $425 per capita during 200, of which less than $47 per head came from intra-exports.
On the import side, the respective figures were less than $352 per capita for total imports and less than $50 per head for intra-imports. Given the fact that foreign trade is widely accepted as a major engine of growth and development, and that it can serve as an effective instrument of cooperation among trading partners, the above figures are indeed very low.”
Yes, we are familiar with the perennial mantras of the need for greater cooperation; for economic diversification; for eradicating barriers to entry; for greater intra-investment, and so on. But such mantras are now becoming part of the problem.
The stark fact remains that neither the OIC nor the IDB, given their current structures and resources, are capable of making that much difference to the structure of trade flows of their member countries. After all, the fact that they are inadequately resourced is not their fault, but that of their constituent subscribers — their member countries.
It is naive to think that the OIC and the IDB can change the dire economic state of member countries top down. Member states are sovereign states; they differ markedly in their levels of development, national income, and socio-economic priorities. That is why neither Saudi Arabia, nor Malaysia, nor Burkino Faso for that matter, will allow the OIC or IDB to dictate their economic and trade policies.
The drivers for change must come from the member countries themselves. And here the challenge is enormous. Take the big hitters of OIC trade flows — Malaysia, Saudi Arabia, and Indonesia, for example. Malaysia was the largest OIC export country in 2001 with $88.19 billion. But out of this only $4.95 billion or 5.6 percent were to fellow OIC member countries. For Saudi Arabia, it was a bit better — out of a total exports of $70.5 billion, some $10.32 billion or 14.7 percent was to OIC member countries. The same applied to Indonesia — out of a total exports of $64.82 billion, only $4.8 billion or 7.4 percent was to OIC member countries.
Change should come essentially from national policy and infrastructure reform. This can then be consolidated with bilateral and multilateral cooperation, primarily amongst OIC member countries through the constituent organizations and mechanisms. However, it can also be consolidated further through cooperation with international and regional agencies such as the World Bank, IFC, the various funds and UN agencies.
What are the core areas for change? Governance is the major challenge, for there is a direct correlation between the quality of governance and the per capita income of a country. Governance here includes political representation, economic management, accountability, corruption, transparency, etc.
