Economics in the Middle East

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Economics in the Middle East ECONOMICS IN THE MIDDLE EAST a graduate class project of Fairleigh Dickinson University by Abdullah Al-Araimi Majid Al-Harbi Ahmed Al-Muharraqi Waleed Al-Shahari Mohammed Al-Shatri Baya Bensmail Eve Burnett Arnaud Huannou Haig Kupelian Jose Mendoza Shihana Mohamed Seddiq Rasuli Fabrizio Trezza Editor Ahmad Kamal Published by: Fairleigh Dickinson University 1000 River Road Teaneck, NJ 07666 USA June 2010 ISBN: 978-1-4507-2072-4 The opinions expressed in this book are those of the authors alone, and should not be taken as reflecting the views of Fairleigh Dickinson University, or of any other institution or entity. © All rights reserved by the authors No part of the material in this book may be reproduced without due attribution to its specific author. LIST OF AUTHORS Abdullah Al-Araimi is a Diplomat from Oman Majid Al-Harbi is a Diplomat from Saudi Arabia Ahmed Al-Moharraqi is a Diplomat from Bahrain Waleed Al-Shahari is a Graduate Student from Yemen Mohammed Al-Shatri is a Diplomat from Saudi Arabia Baya Bensmail is a Graduate Student from Algeria Eve Burnett is an International Civil Servant from the USA Arnaud Huannou is an International Civil Servant from Benin Ahmad Kamal is a Senior Fellow at the United Nations Haig Kupelian is a Graduate Student from the USA Jose Mendoza is a Graduate Student from Honduras Shihana Mohamed is an International Civil Servant from SriLanka Seddiq Rasuli is a Graduate Student from Afghanistan Fabrizio Trezza is a Graduate Student from Italy INDEX OF CONTENTS Foreword by Ahmad Kamal 01 Islamic Banking by Waleed Al-Shahari 03 Zakat and Waqf by Baya Bensmail 21 Wars in the Middle East by Shihana Mohamed 29 Water Wars by Fabrizio Trezza 49 The Impact of Migration by Haig Kupelian 61 The Oil Economy by Ahmed Al-Muharraqi 73 The Arab-Israel Conflict by Jose Mendoza 83 Saudi Arabian Development Assistance by Majid Al-Harbi 97 The Economy of Iran by Seddiq Rasuli 107 The Economy of Yemen by Mohamed Al-Shatri 117 Oil in Sudan by Arnaud Huannou 129 The Maghreb by Abdullah Al-Araimi 147 Violent Non-State Actors by Eve Burnett 157 Foreword Ahmad Kamal FOREWORD This is the third and last book of the trilogy of research papers attempting to analyze the complexity of different aspects of the Middle East, this time concentrating on the economic aspects of the region, and the impact of these economic factors internally and externally. While the general impression is that the entire economy of the region is dominated by oil alone, what emerges from these papers is its interplay with other determinants, like cultural constraints, war economics, water resources, migration flows, and a host of other financial factors. Be as it may, the fact remains that the resultant outputs from the Middle East, whether in terms of oil exports or financial resources, as well as the dangers of frustrations and terrorist acts, have deeply impacted the politics and economics of the world as a whole. Much of the volatility that we see in all regions may in a way be traced back to the situation in the Middle East. It is therefore essential to understand this region better, in all its political and economic and cultural aspects. A deliberate effort has thus been made here to identify and explain some cultural factors like the principles of Islamic Banking, and Zakat, and Waqf, which are particularly important in the Middle East. The depth and relevance of these is not normally known outside the region, and yet they are part of the very ethos of the people, and the inter-relationships between them. Among the problems that we have continually had to face during the preparation of this set of books has been the geographical parameters of what is known as the Middle East. Does the geographic term coincide with Arab linguistic ethnicity? Does it then include the Arab states of North Africa all the way to Mauretania? Does it include the Arab states of the Horn of Africa and beyond all the way into Central Africa? Does it include the non-Arab states of Turkey and Iran? We could find no definitive answers to these questions, and as a result, we have just assumed that all views are to be incorporated liberally and expansively. Part of that difficulty in defining the Middle East also results from the arbitrary manner in which we have divided the world into separate continents. While that may be useful in the study of geography, in actual fact, the human species is far more united in its origins, in its linguistic inter-linkages, in its religious commonalities, and in the global problems that it faces as a single entity. It is unity even in its diversity, and it behooves upon us all to exercise tolerance towards other regions and cultures in the interests of a peaceful and inter-dependent world. Hopefully, this third and final set of papers will thus help readers in a better understanding of what makes this Middle East tick in our global world. 1 2 Islamic Banking Waleed Al-Shahari ISLAMIC BANKING INTRODUCTION Due to the borderless nature of the global economy, the economic downturn in the United States has created a systemic shock that has been transmitted to the economies around the world. So, the crisis has inflicted heavy damage on markets and institutions at the core of the global financial system. While many believe that the "worst is not over", continuous deliberations are ongoing to diagnose the root of the crisis and find solutions to the current problems that the global economy is facing. Just like the cases of previous crises, once the crisis sets in, continuous efforts are undertaken to improve and strengthen the current financial infrastructure so as to avoid such crisis from happening again in the future. This crisis of 2008 is unprecedented in its nature. Even the well- established and what are considered "too big to fail" financial institutions are being badly affected by the. As against that, the Islamic banking and financial institutions throughout the world are somewhat "sheltered" from the global financial shocks. Despite the slow down, the top ten Islamic banks continued to show encouraging performance by recording an average annual growth of around 30 percent for 2008. Islamic finance started as a small cottage industry in some Arab countries in the late 1970s. It distinguishes itself from conventional finance in its ostensible compliance with principles of Islamic law, or Sharia.1 Its growth has been accelerating ever since, in terms of the number of countries in which it operates, as well as the areas of finance in which it has ventured. However, reliable data is not available on Islamic finance at the country, regional or global levels. In recent years, the industry has attracted a number of western multinational financial institutions, such as Citigroup and HSBC, which started offering Islamic financial products in some Arab countries (notably Bahrain and the United Arab Emirates), and to a lesser extent in the Western world (including the U.S., where HSBC offers various Islamic financial products in New York, including home financing, checking accounts, etc.). A number of Islamic financial products also involve the acquisition of assets (e.g., real estate, small corporations, etc.) in the West (including the U.S.) in “Islamically structured” financing deals. Islamic finance relies crucially on three sets of individuals with complementary skills: (i) financial professionals who are familiar with conventional financial products, as well as the demand for “Islamic” analogies of those products within various Muslim communities around the world, (ii) Islamic jurists (fuqha, or experts on classical jurisprudence developed mainly between the 8th and 14th Centuries), who help Islamic financial providers to find precedent financial procedures in classical writings, upon which contemporary analogues of conventional financial products can be built, and (iii) lawyers who assist both 1 Sharia literally means “the way” and is the Arabic term for Islamic Law as a way of life, comparable to the Hebrew Halachah).Fiqh, commonly translated as jurisprudence, is the interpretation of Sharia for specific circumstances by specialized fuqha, or jurists. 3 Islamic Banking Waleed Al-Shahari groups in structuring Islamic analogue financial products, while ensuring their compliance with all applicable and relevant legal and regulatory constraints. Due to the industry’s small size, a limited number of key players in each of those three categories have emerged as clear leaders. Currently, Islamic finance represents a small but growing segment of the global finance industry. Estimates vary on the total size of assets held internationally under Islamic finance, ranging upwards from $800 billion and with growth rates of 10% to 15% annually over the past ten years.2 The global market for Islamic bonds, known as “sukuk”,3 is estimated to be $70 billion currently and is projected to reach $100 billion by 2010.4 Global issuance of sukuk has increased more than five-fold from 2004 to 2007.5 In some countries, such as Iran and Pakistan, Islamic banks are the only mainstream financial institutions. In others, Sharia-compliant financing (SCF) exists alongside conventional banking.6 The Persian Gulf region and Southeast Asia, led by Malaysia, historically have been the major centers for SCF. For oil producers in the Gulf region, Islamic finance may offer investment opportunities for their growing revenues from oil exports. There also has been a growing awareness of and demand for Islamic finance options by Muslim consumers. In recent years, SCF has expanded into Africa, particularly Sudan.7 In some countries, such as Libya and Morocco, Islamic banks are considered by some to be tied to Islamic political parties and consequently have been refused licenses.
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