The Islamic economy is crossing religious and cultural boundaries to become a global way of doing business for people of all nations. In the introduction to this issue’s Special Report Vision considers how the ethical basis of sharia-compliant commerce offers social value for all
Islamic economies are already a significant part of the global economy and are set to become even more important over the next decade. Contrary to popular belief, the Islamic economy is more than just Islamic finance and halal food. Early emphasis on halal finance and food is progressively transforming into broader commercial activities as users seek sharia-compliant alternatives across the full range of goods and services.
The Islamic economy has the potential to cross religious boundaries and attract participants with diverse backgrounds looking for ethical practices and values
This is poised to widen the net and scope of Islamic economic activities as more participants, from users to providers, look to halal products and services. Aside from finance and food, the key products and services where notable progress is being made in the Islamic economy include medicine, clothing, cosmetics, travel, media, recreation and hospitality. To get an idea of the current size and growth potential of the Islamic economy, consider the following facts.
Islamic finance sector assets are estimated to be around US$1.4tn and are expected to grow at 15 to 20 per cent a year. Islamic finance is becoming an important part of emerging economies in the Middle East and Asia as well as in the OECD countries. Expenditure in the halal food and lifestyle sector was estimated to be US$1.6tn in 2012 and is expected to grow by 50 per cent by 2018.
Similarly, in the travel and tourism sector, Muslims spent about US$137bn in 2012, or, put differently, one out of every eight dollars spent on tourism globally. This is again set to grow by 30 per cent in the next five years. Meanwhile, four of the five fastest growing airports in the world happen to be Dubai, Istanbul, Jakarta and Kuala Lumpur – all Muslim majority countries.
So, what is driving this growth? There are three powerful forces at work: demographics, devotion and disposable income, or what I like to call the three Ds. Firstly, the Muslim population globally is 1.6 billion, or about 23 per cent of the global population. More importantly, it is the youth segment within this population that is growing twice as fast as the rest of the world.
Secondly, this diverse and dispersed group of people, who span several continents, are drawn together by the devotion to their religion. According to a recent report by Thomson-Reuters, seven out of eight Muslims consider religion a very important element of their lives. Thirdly, with the inexorable shift in growth and wealth creation from the West to the East, and the rise in oil prices, the disposable income of this group is increasing.
Roughly half of the major sovereign wealth funds globally are based in Muslim countries. This is complemented by the ever-growing emphasis on foreign trade by the OIC (Organisation of Islamic Cooperation) countries, which between the 57 member states increased from US$3.9tn in 2011 to US$4.1tn in 2012, accounting for 11.3 per cent of world trade.
Global companies from the West, as well as governments in countries with Muslim minorities, are recognising this trend. For instance, General Electric, International Finance Corporation and Tesco have all issued sharia-compliant bonds. Hong Kong, Singapore and South Africa have all considered or issued sukuks (Islamic bonds). Many African governments, including Nigeria and Kenya, are considering legislation to promote the development of a local Islamic finance industry.
More recently, the UK government has also announced plans to tap the sukuk bond market. The beauty of a sharia-compliant instrument is that it appeals to both Islamic and conventional buyers, thereby increasing the universe of potential investors. Banks, such as Standard Chartered, have developed specialised units that focus on Islamic finance across a range of wholesale and retail banking products. Nestlé has factories that produce halal versions of Kit Kats and Nescafé. Halal food is served in many McDonald’s outlets and Walmart offers halal foods in a number of its stores.
Post the past decade’s financial crisis, many parts of the world are facing the twin challenges of rising unemployment and growing inequality in the distribution of wealth and incomes. Businesses, and the capitalist system itself in many ways, are fighting to restore their credibility. The focus of companies is changing from the singular pursuit of maximising share holder value to a more nuanced theme of wider stakeholder value creation and engagement. In this context, the value system of Islam, with an emphasis on ethics and social responsibility, has much to offer.
Islam prescribes that business dealings be guided by ethical, moral and social considerations, with money creating social value, rather than just wealth. The Islamic economic system encourages equal opportunity for all and equitable distribution of wealth and resources. It discourages speculation and hoarding.
The Islamic economy, on the back of its value system, has the potential to cross religious boundaries and to attract participants with diverse backgrounds who are seeking ethical practices and values in all aspects of commerce-related activities.