*’Only in Morocco, where Islamist-led gov’t rules with King Mohammed, has economy been on a steadier path. Although growth slowed last year, government won praise for pushing ahead with economic reforms.’*
Financial Times, by Roula Khalaf (London, England, Feb. 10, 2013) — Hassan Malek maps out the Islamists’ vision for economic prosperity in Egypt, all underpinned by responsible, ethical investment.
Speaking to investors in London, recently, the head of a new Islamist-backed Egyptian business association and a prominent figure in the Muslim Brotherhood, tells of an economic development model in which personal interest is balanced against the national interest, social development is a priority and businessmen are committed to a code of ethics. “Capitalism with attention to the poor,” he calls it.
It is a recurring promise from Islamists in the Middle East whose parties have been the main beneficiaries of the collapse of dictatorships over the past two years of turmoil.
For all the pledges of change, however, the Islamists in the two countries where they are now in power – Egypt and Tunisia – have yet to prove they can deliver. They are discovering that governing is much trickier than fighting authoritarianism, not least when it comes to the economy. Theories of what Islam can offer in the economic field are also transpiring to be rather limited in practice.
Fghting to consolidate political gains and enmeshed in power struggles, the Islamists have allowed confidence to wane. Many grievances that kindled popular fury have persisted, if not worsened. The poor are getting poorer, the business community is disenchanted and desperately needed foreign investment is staying away.
In some cases, the Islamists have sparked concerns of a brain drain among professionals who fear their ideology. Moreover, by making references to restrictions on things such as alcohol consumption, they have injected uncertainty into a tourism sector badly damaged during the revolutionary turmoil.
Two years after the Egyptian revolution, the democratically elected president, Mohamed Morsi, is struggling to defend the currency, which has lost more than 8 per cent of its value against the dollar since December. Foreign reserves have slipped below the critical threshold of three months of imports and a combination of poor security and recurrent violence are deterring new investment.
In Tunisia, where the political transition has been relatively better managed but not without recurring political crisis (the latest came last week with the assassination of a prominent politician), the jobless youth who were the driving force behind the revolution are still enraged and now turning their anger towards the government.
That failure to combat youth unemployment – a virulent source of discontent in both countries – is highly significant. According to some estimates, nearly a quarter of Egyptians aged between 18 and 29 are unemployed. Tunisia’s unemployment is higher than before its 2011 revolution, with officials saying that – in poorer regions that were the first to rise against the regime – nearly 50 per cent of young graduates are jobless.
The AK party: Turkey’s alluring but misleading model
Arab Islamists often point to Turkey’s economic achievements under the Islamist-rooted Justice and Development party (AK party) as a model, saying they could create socially conservative but dynamic and prosperous societies.
But comparing Turkey to Arab countries in transition could be misleading, as is attributing all the factors that drove Turkey’s success to the AK party or its Islamist roots.
Only in Morocco, where an Islamist-led government rules along with King Mohammed following constitutional changes that stopped protests from building into a full-blown revolt, has the economy been on a steadier path. Although economic growth slowed last year as agricultural output was depressed by a drought and exports to Europe declined, the government has won praise for pushing ahead with economic reforms.
“The sophisticated segments of political Islam have developed their thinking over the past decade, not just in political issues but also in political-economy matters,” says Tarek Osman, an Egyptian political economist. “This means they have been exploring different views and case studies to problems such as chronic budget deficits, national competitiveness, macro development plans. But the problems exist and the thinking remains just that – not a single Arab political Islamic player has real experience in designing, leading or implementing macro political economy transition or structural reforms.”
Believing that Islam is a way of life and therefore an answer to economic as well as social and political dilemmas, Muslim scholars have studied the Koran and the sayings of the Prophet Mohammed to construct a system offering a middle ground between capitalism and socialism.
While Islamic jurisprudence supports private enterprise, Islamist economic ideas also include a religious tax as a way to redistribute income, bans on investments in companies involved in gambling and alcohol, and, most significantly perhaps, the advancement of profit sharing financial schemes for trade, insurance and banking, rather than interest-based instruments that are considered speculation. Islam prohibits riba – which means usury but has become a synonym for interest.
Islamic banking has already made significant inroads in the Middle East and beyond, with experts saying that assets compliant with Islamic law have surged beyond $1tn. But the sector has also come under criticism for often doing little more than mirroring conventional products and calling interest by another name.
To date, Tunisia and Egypt have both run conventional banking systems but government officials are now discussing a greater role for Islamic finance as a way of diversifying banking instruments, not unlike what happened in Gulf states. No one is envisaging an overhaul of banking that could massively disrupt the economy. “The idea is to create new instruments, not replace existing ones. Any official has to deal with what’s going on. We’re not going to try things out,” says Mr Malek.
For the past two years the Brotherhood has touted an economic plan called the Renaissance project. But it has become the source of recurring jokes in Cairo and most of it is no different from what previous regimes sought to do, including supporting small and medium-sized enterprises and restructuring subsidies.
Tunisian officials say there is nothing particularly Islamic about the economic policies of a government led by the Nahda party. “They are liberal, with a bit more of an accent on Islamic finance,” says Elyes Fakhfakh, Tunisia’s outgoing finance minister who comes from a secular party that has been allied with Nahda. “It’s good to offer a new product but I don’t think it will radically change the Tunisian economy.”
Experts say that if they consolidate power, Islamists will be more concerned with social safety nets and could prove more efficient on that front, given their long experience in grassroots provision of social services. But that will have to be tested.
For now, Islamists are using budgets that are already under enormous strain to deliver increases in public salaries and redirect spending to more deprived areas.
Ibrahim Saif, a scholar at the Carnegie Middle East Centre, has been studying Islamist parties’ performance. “Islamist parties’ platforms were promoting that they would provide more transparency, less corruption and a set of values and morals, not real Islamist policies that would alter the structure of the economies. When they took office in Egypt and Tunisia, they didn’t come up with new economic strategies, in terms of taxation, privatisation, they are just using the same tools.” Both countries, he notes, are seeking support from the International Monetary Fund.
If Islamists are providing little new thinking, their performance has also disappointed because of a lack of experience. Questions persist about whether Islamist groups, whose leaders spent many years in jail, possess the cadres to run government institutions. This contributes to the uncertainty that scares investors.
Mr Morsi’s policies have been erratic. The president spooked currency markets in December when, within less than 24 hours, he issued then reversed a decision on new taxes. Faced with a political crisis over the constitution that same month, he also delayed the finalisation of an IMF deal on a $4.8bn loan.
“In Egypt they seem to think that you can do politics first and then the economy,” quips a western economist.
In January, Mr Morsi sacked the finance minister and, to the surprise of the markets, brought in a professor of Islamic finance with no government experience.
“It’s the quality of individuals involved and their decision-making which could be better, it’s the actions and lack of creativity [that are to blame],” says Angus Blair, head of Signet Institute, a Cairo-based think tank. “They [the government] have been adding to the problem because they haven’t found a way to induce confidence.”
While Mr Morsi has not packed the government with Brotherhood appointees, Tunisia’s Nahda had several ministers in a government that it shared along with two smaller liberal parties. Some ministers were included in the cabinet because of their contribution to the Nahda cause more than their expertise. Only last week, when faced with the turbulent aftermath of a political assassination, did the prime minister promise to bring in a new technocratic government.
“This government might be honest but it is not efficient,” says Ouided Bouchamaoui, head of the Tunisian Union of industry and commerce. “The economy is not their priority. Democracy is fine. But what do we need it for if people can’t eat?”
The limited experience of high officials is compounded by the weak control of the new governments over the bureaucracy. Islamists suspect that former regime loyalists in the administration are attempting to sabotage their efforts to restore economic stability. But an attempted purge in Tunisia has provoked a wave of criticism from liberal critics of the government, who say the Islamists are bent on controlling all levers of the state.
Many cases of alleged corruption involving businessmen tied to the former regimes also remain unresolved in Tunisia and in Egypt, affecting sentiment among investors who see lawlessness as a big risk.
Even the most efficient government in Egypt and Tunisia would have been hard pressed to meet popular demands, particularly at a time when people are expressing their new-found empowerment through street protests and strikes. Mr Fakhfakh insists his government is being unfairly treated and many jobs have been created. “But people see that in two years nothing has changed, we were not able to gain their confidence and convince them that it will come,” he says.
As society has split on ideological lines and Islamists and liberals compete for power, governments have faced almost constant political crises. The lack of political consensus, and its impact on the economy, will cost the Islamists when people go back to vote in elections. A Gallup poll published in the summer found that Egyptians said jobs were the main issue their government should address.
“What people wanted in the revolution is to fight corruption, promote equal opportunity and create jobs but the transitions have been dominated by politics and polarisation instead of the creation of a broad consensus on how to move the economy forward,” says Mr Saif.
“And now the economic problems have got bigger.”