DOHA — Qatar is planning an ambitious new initiative with Malaysia and Turkey to serve the $2 trillion global Islamic finance market from hubs in the three countries using common platforms and technology, as part of efforts by the Gulf emirate to overcome a blockade imposed by its neighbors and diversify its economy away from oil and gas.
“We have a vision to cover the entire globe’s Islamic financial transactions between three financial centers: Doha, Istanbul and Malaysia,” said Yousef Mohamed Al Jaida, CEO of the Qatar Financial Centre in a group interview on the sidelines of the annual Doha Forum. “This requires international platforms and technology which we believe Qatar Financial Centre has.”
Under the plan, Turkey would cover Islamic finance needs in Europe, Qatar would serve the greater Middle East and Malaysia would sell to Asia, he added.
“That’s a big vision, we’re working on it and this is a new project,” Al Jaida said in the interview with the Nikkei Asian Review and a small group of other publications. Relations between Qatar, Turkey and Malaysia had “intensified recently and become a lot closer,” he added. “We share similar visions, we share similar progressive outlooks… so there’s a lot to be achieved between these three countries.” He did not give time scales for the project.
The London Stock Exchange is currently a global venue for the issuance of sukuk, while Hong Kong and Luxembourg have also made inroads but Qatar believes the market should be led by Muslim countries, Al Jaida said.
Malaysia is already one of the world’s biggest issuers of sukuk, or sharia-compliant bonds, with 34% of the global market last year. The Malaysian central bank signed a memorandum of understanding with the regulatory authorities of Qatar and Dubai in 2007 to promote mutual cooperation but efforts to consolidate the fragmented global Islamic finance industry have foundered in the past on regional rivalries and a lack of agreement on common standards.
The new Islamic finance initiative forms part of plans by Qatar, a Gulf emirate which is the world’s largest exporter of liquefied natural gas, to diversify its economy and grow away from its neighbors, four of which imposed a blockade on its borders and airspace last year.
The United Arab Emirates, Saudi Arabia, Bahrain and Egypt accused Qatar of sponsoring terrorism and cut off land, sea and air access demanding that Doha change its policies. Qatar rejects the accusations and says it is the victim of a hostile act which is illegal under international law.
Like other Qatari officials at the Doha Forum, Al Jaida described the blockade as a “blessing in disguise,” insisting that despite the considerable extra costs imposed, it had forced his country to become more self-sufficient in areas such as food production and to develop its port and air cargo infrastructure more quickly.
Before the blockade, Qatar imported almost all its food via its neighbors but government-funded emergency schemes to develop local agriculture have helped to fill the gap and increased trade with Iran, Turkey and Oman did the rest. State-owned Qatar Airways organized a massive air cargo operation to fly in imported essentials via a disused airport and the country rapidly expanded its own port facilities to replace the lost facilities of Jebel Ali in the UAE.
Qatar, which enjoys the world’s highest per capita GDP at purchasing power parity according to the World Bank, lost some growth momentum during the blockade and had to redirect $50 billion from its sovereign wealth fund and reserves to prop up the banking system and protect the exchange rate.
But now a more confident Qatar is pushing its financial center aggressively as an alternative to the longer-established and larger Dubai International Financial Centre, despite the irony of an isolated Gulf peninsula offering itself as a regional hub.
Al Jaida said the UAE had undermined the business model of Dubai as a regional hub during the blockade by forcing international companies operating in the region to set up an alternative base to serve Qatar. As a result, the number of foreign companies operating in the Qatar Financial Centre had grown by 100% since the blockade and Qatar now had the opportunity to challenge Dubai as a hub in the Gulf region.
Qatar has attracted foreign businesses by offering guarantees that Doha will be a cheaper base to operate from than Dubai, in return for a commitment to a minimum 10-year presence.
The Qatar Financial Centre offers 100% foreign ownership, a legal and judicial framework based on English law, 100% repatriation of profits and other regulatory advantages to attract businesses. It compares itself to Hong Kong in offering companies an access point to a wider market under internationally friendly terms.
MILAN – About a decade ago, the Commission on Growth and Development (which I chaired) published a report that attempted to distill 20 years of research and experience in a wide range of countries into lessons for developing economies. Perhaps the most important lesson was that growth patterns that lack inclusiveness and fuel inequality generally fail.
The reason for this failure is not strictly economic. Those who are adversely affected by the means of development, together with those who lack sufficient opportunities to reap its benefits, become increasingly frustrated. This fuels social polarization, which can lead to political instability, gridlock, or short-sighted decision-making, with serious long-term consequences for economic performance.
There is no reason to believe that inclusiveness affects the sustainability of growth patterns only in developing countries, though the specific dynamics depend on a number of factors. For example, rising inequality is less likely to be politically and socially disruptive in a high-growth environment (think a 5-7% annual rate) than in a low- or no-growth environment, where the incomes and opportunities of a subset of the population are either stagnant or declining.
The latter dynamic is now playing out in France, with the “Yellow Vest” protests of the last month. The immediate cause of the protests was a new fuel tax. The added cost was not all that large (about $0.30 per gallon), but fuel prices in France were already among the highest in Europe (roughly $7 per gallon, including existing taxes).
Although such a tax might advance environmental objectives by bringing about a reduction in emissions, it raises international competitiveness issues. Moreover, as proposed, the tax (which has now been rescinded) was neither revenue-neutral nor intended to fund expenditures aimed at helping France’s struggling households, especially in rural areas and smaller cities.
In reality, the eruption of the Yellow Vest protests was less about the fuel tax than what its introduction represented: the government’s indifference to the plight of the middle class outside France’s largest urban centers. With job and income polarization having increased across all developed economies in recent decades, the unrest in France should serve as a wake-up call to others.
y most accounts, the adverse distributional features of growth patterns in developed economies began about 40 years ago, when labor’s share of national income began to decline. Later, developed economies’ labor-intensive manufacturing sectors began to face increased pressure from an increasingly competitive China and, more recently, automation.
For a time, growth and employment held up, obscuring the underlying job and income polarization. But when the 2008 global financial crisis erupted, growth collapsed, unemployment spiked, and banks that had been allowed to become too large to fail had to be bailed out to prevent a broader economic meltdown. This exposed far-reaching economic insecurity, while undermining trust and confidence in establishment leaders and institutions.
To be sure, France, like a number of other European countries, has its share of impediments to growth and employment, such as those rooted in the structure and regulation of labor markets. But any effort to address these issues must be coupled with measures that mitigate and eventually reverse the job and income polarization that has been fueling popular discontent and political instability.
So far, however, Europe has failed abysmally on this front – and paid a high price. In many countries, nationalist and anti-establishment political forces have gained ground. In the United Kingdom, widespread frustration with the status quo fueled the vote in 2016 to leave the EU, and similar sentiment is now undermining the French and German governments. In Italy, it contributed to the victory of a populist coalition government. At this point, it is difficult to discern viable solutions for deepening European integration, let alone the political leadership needed to implement them.
The situation is not much better in the United States. As in Europe, the gap between those in the middle and at the top of the income and wealth distribution – and between those in major cities and the rest – is growing rapidly. This contributed to voters’ rejection of establishment politicians, enabling the victory in 2016 of US President Donald Trump, who has since placed voter frustration in the service of enacting policies that may only exacerbate inequality.
In the longer term, persistent non-inclusive growth patterns can produce policy paralysis or swings from one relatively extreme policy agenda to another. Latin America, for example, has considerable experience with populist governments that pursue fiscally unsustainable agendas that favor distributional components over growth-enhancing investments. It also has considerable experience with subsequent abrupt shifts to extreme market-driven models that ignore the complementary roles that government and the private sector must play to sustain strong growth.
Greater political polarization has also resulted in an increasingly confrontational approach in international relations. This will hurt global growth by undermining the world’s ability to modify the rules governing trade, investment, and the movement of people and information. It will also hamper the world’s ability to address longer-term challenges like climate change and labor-market reform.
But to go back to the beginning, the main lessons from experience in developing and now developed economies are that sustainability in the broad sense and inclusiveness are inextricably linked. Moreover, large-scale failures of inclusion derail reforms and investments that sustain longer-term growth. And economic and social progress should be pursued effectively – not with a simple list of policies and reforms, but with a strategy and an agenda that involves careful sequencing and pacing of reforms and devotes more than passing attention to the distributional consequences.
The hard part of constructing inclusive growth strategies is not knowing where you want to end up so much as figuring out how to get there. And it ishard, which is why leadership and policymaking skill play a crucial role.