Investments and trade can further catalyse the existing economic growth in OIC countries. As we know, the OIC consists of a combination of poor, middle income and rich oil exporting countries, sprawling from Sub-Saharan Africa to Asia, GCC, Middle East and AMU areas. Their socio-economic indicators differ from country to country as well from region to region. While countries like Malaysia and Turkey have fairly advanced industries, some West African countries, although abundant in natural resources, are less economically developed.

MA (Econ.), DAIBP, AIB, Ph.D.
May 26 - Jun 01, 2003 





Prof. Dr. Ahsan H. Khan is a Senior Banker & Economist. His past assignments include Economic Research at the Harvard University Development Advisory Group Pakistan. He has also been Economic consultant to the Islamic Chamber of Commerce. After heading branches of HBL & UBL for over 12 years, he served BCCI for 13 years in important positions. On return to Pakistan he worked as Group Leader Islamic Investment Bank, Management Advisor to The Bank of Khyber and Chief NWFP Investment Committee.
He also served as Chairman, Department of Banking/Professor and Executive Director, Center of Excellence for Training and Development at the Hamdard Institute of Management Sciences. He is a Research (Ph.D) Guide appointed by Karachi University, Hamdard University & SZABIST University. On several occasions he has been invited as a Guest/Keynote Speaker by the Institute of Bankers Pakistan, Oman and the UAE, Ph.D Programs of IBA, NIPA Pakistan at its advanced courses and the National Institute of Banking and Finance, Islamabad at their International Banking Programs.
His many publications include his own Book on International Banking " Organization & Management of Banks In some Developed & Development Countries" launched in London, Muscat, Los Angles & Karachi. Currently, he is the Divisional Head, United Bank Limited, Head Office. He is also Director United Bank Financial Services (Pvt) Ltd. & Director United Asset Management Co. (The views expressed herein do not necessarily represent the official views of his employers).


The corporate sector in some of these economies is assuming a greater role with a gradual reduction in public sector domination. However, in some oil exporting countries like Kuwait, U.A.E., Oman, Bahrain, Qatar, and Saudi Arabia, the public sector is also playing a major role in providing financial support not only to the respective economies but also to private sector groups to enable them face new challenges. It is heartening to note that there has been a resolute transition in the trade patterns of some countries from being sources of primary goods to providing technology-based value-added products.

Linkages vary from strategic alliances and joint ventures to full-scale integration in the shape of mergers and acquisitions. In the backdrop of this abrupt cultural change, there are certain obstacles and delays in replacing older technologies and ways of doing things with newer ones. Fluctuations in stock markets have become a common phenomenon sometimes resulting in huge losses to individuals and institutional investors.


While the Muslim population constitutes about 35% of world population, it is reported to be sharing hardly 4.5% of the world GDP. In contrast, 25% of the world debts are said to be payable by OIC region. The share of Islamic economies in the world trade is around 11%. It is estimated that despite the availability of human as well as other natural resources, Islamic countries have shown a declining balance of trade deficit of 155 billion dollars between 1993 and 1997, from which the benefit has been availed in turn by some other countries. Among the 500 large international multinational corporations (MNCs), there is hardly any mention of any corporation originating in the OIC region. A large chunk of capital is invested by Muslim investors in the world's top MNCs but they do not possess major equity shares. Currencies of most of these countries are unstable plagued with high inflation, unemployment, frequent devaluations, fiscal deficits and adverse balance of trade positions. The formation of large-size corporations (MNCs) with Muslim Capital is required to improve the share and participation of OIC resources (human, financial etc.) in the global economy.

In addition, declining and/or stagnant growth, deteriorating physical infrastructure and inherent institutional weaknesses are resulting in poor governance. The excessively high rates of population growth and unemployment in the OIC region has further led to an increase in poverty levels.

The need of the hour is at first to promote the transfer and exchange of financial, physical, and human resources within the OIC region. There is a need for greater interaction, co-ordination and cooperation with other multinational, multilateral and regional organisations as well. The following measures, among others, will boost investments and promote trade in the OIC region.




A greater emphasis has to be laid not only on industrial and commercial growth in rural and urban areas but also on agriculture and agro-based industries. Green Revolution technologies can be quite effective in this respect. Out-dated methods of cultivation need to be replaced by the most modern, efficient technologies. Further, in countries having predominantly agrarian economies, land reforms should ensure effective utilization of land and consolidation of land holdings.


A country is poor, not due to the lack of human or natural resources but due to mismanagement of its economy. A well managed and effective state provides not only significant support to domestic and foreign investments but also ensures goods and services for accelerating trade and commerce. Muslim states should learn from the global events how poor economies have improved through better management. Consistency and coherence in policies and better management across the OIC region can be helpful in boosting trade and investment.

Policies which fail to ensure law and order, protect property and apply rules do not create a congenial atmosphere for investment. The scourge of corruption needs to be eradicated and bureaucratic red-tapism needs to be eliminated. Institutional reform in OIC countries is a must.

In every step of poverty reduction, the role of governments, through good governance and better management of economies with the active participation of NGOs and similar other voluntary organizations would help realize the goals of sustainable development.


The strength of any country is recognized by the professionalism and capabilities of its citizens. People are the key to success and their quality level can make or break any nation. Human resources development should receive due attention in civil society today. Our efforts in this direction have not been commensurate with the enormity of the task. Investment in Human Capital is therefore a sine qua non. Special efforts are needed to curb the 'brain drain' to the western countries.


Small and SMEs can play a vital role in enhancing production and promoting trade in OIC member countries. It will also contribute in generating income and employment. SMEs can serve as effective engines of growth for the rapidly evolving economies. SMEs can help a lot not only in the promotion of manufacturing trade and commerce but can also help in creating substantial job opportunities. A vibrant SME sector coupled with the use of I.T. and software industry can also expand the export-base, for which the Islamic countries have a great potential. SMEs can adopt faster to change, introduce new products in markets and can feed larger companies with low cost and high value, services. These can be helpful in:

Developing new, innovative products
Exploiting existing know-how
Having access to technology or skills
Improving company image
Increasing the company's international exposure
Better knowledge of end-user needs
Network to open new markets
Obtaining subsidies
Developing an improved production process
Having better knowledge of competitor's strategies
Having better knowledge of supplier's strategies
Having access to processes and products that satisfy ISO and EU (CEN/CENELEC) standards


As a poverty alleviation measure, some Islamic countries have launched Small Loans/Micro-Credit schemes to spur economic activity and increase employment levels. Currently assistance to Small and Medium Enterprises (SMEs) is gaining popularity. The Grameen Bank in Bangladesh has proved that the poor are also bankable. The model has been replicated in India, Brazil and some other countries.

The following safeguards may be ensured in granting credit to small borrowers:

Loans should be granted on softer terms and conditions
Disbursement of credit should be made to right people
Use of credit for private purposes other than investments needs to be controlled
Lending should be within the framework of international code of conduct in banking law and practice
Accountability and monitoring to be a regular process
Zero-defect documentation to be introduced by banks and financial institutions
Collaterals should be adequate and their over-valuation should be controlled
Recovery laws and complicated procedures to be simplified
There should be parities in credit allocation (Highest amounts to be allocated in regions/areas where the incidence of poverty is higher)
Lending should be restricted only on merits and strictly in accordance with the established professional norms as practiced by the Banks/DFIs since a long time. In the past, there has been an increasing quantum of stuck up loans. There should a complete thrust on accelerating the recovery process by the Bank/DFIs.
The determination of sectoral distribution of credit and its costs should be left to the market forces.
There should be flow of adequate credit to the manufacturing sector to facilitate growth. Like the agriculture sector, manufacturing sector credit targets should also be fixed.
By improving the no-bank borrowing, the OIC Governments will ensure the private sector of its due share of credit.
Monetary expansion through printing of excessive currency notes and expansion of credit needs to be curtailed.


The following are suggestions for coming up with innovative budgets and strengthening the tax base in the OIC region:

Streamline and integrate the tax system (leading to coherent policies and a strong tax base) used throughout the OIC region and recover due taxes from all segments of society
Public Sector spending needs a thorough review and strong austerity measures need to be introduced to achieve good governance and transparency. The governments currently support budgetary gaps through unusually huge borrowings which should be minimized
Clear Mission and Vision Statements for overall economic, business and budgetary policies at the Country Level within the OIC region
OIC Country Budgets should be balanced with tax and other OIC-wide trade incentives for those who comply within the suggested range
Emphasis should be made on social sector development (quality of health and education)
Developing an integrated Legal Framework
The laws and statutory conditions within the OIC should be generally uniform in nature and should be progressive enough to meet the needs of current times (since most OIC, countries have laws dating back to the colonial era)
Each OIC country should have the right to have different laws pertaining to different situations due to differences in culture, nature of societal problems etc. (based on the US model where different states have different laws, while following the overall federal law structure which overrides state authority in a lot of cases)




Privatization can reduce government borrowings of a majority of OIC countries. This important process of reducing the involvement of governments in commercial matters needs to be speeded up. The issue is not whether to privatize but rather how to do it efficiently and; effectively and how to utilize its receipts in the national (OIC-wide) interest. A rational privatization must encompass, inter alia, the following principles:

Continuity of transparency to be maintained
Efforts should be made to sell public sector units, at the highest possible price, to the best possible buyers on market prices
The synergy of greater private sector role has to be adopted
Decision-making has to be de-politicized


To promote investments in their respective countries OIC states are trying to attract foreign investment to boost industrial, agricultural mineral production within the member countries. Some suggested measures include providing the following incentives:

Providing regulatory frame-works that support and facilitate competitive markets
Liberalizing policies to encourage prospective investment by non-residents and institutional investors. UAE, especially Dubai is a case in point whose liberal policies to encourage foreign investment may further help to boost foreign investment in ICCI member countries
Establishment of off-shore product units and Export Processing Zones
Procedures for investments should be simplified and streamlined by eliminating the bureaucratic and political hurdles through the establishment of one-window operation
Entrusting the job of attracting and establishment of new ventures only to one ministry like MITJ in Japan
Investment and Tax incentives should be provided to foreign as well as domestic investors

The inflow of private capital from industrial and oil producing countries to developing countries would not only bring money but would also help open access to markets, make new technologies available and provide workers with training.

To promote inter-OIC and intra-OIC investments, inter alia, the following measures can be adopted by the member countries:

1. The primary and secondary markets in the Islamic countries should be steadily developed in a phased manner;
2. OIC countries should strengthen banking and other corporate regulations, build complimentary and well-regulated stock exchanges in order to reap the benefits of financial stabilization;
3. While strengthening Prudential Regulations for banks and financial institutions, policies should be chalked out to reduce the demand for and validity of short-term foreign borrowings;
4. Long term foreign investments should be attracted by cultivating a healthy economic environment including investments in human capital, allowing domestic markets to work without unnecessary distortions and committing a strong regime of investors' rights and obligations and not merely offering subsidies or other inducements;
5. OIC countries should implement international standards to make their banking and financial systems more transparent and conducive to innovations. The banks and financial institutions should launch profitable and innovative products and services to attract investments;
6. Open trade policies through promoting joint ventures, adopting complimentary human resource development policies, liberalizing the trade policy regime and creating a stable set of rights and responsibilities for foreign investors should be pursued; and
7. OIC countries, especially the rich oil-producing countries, should explore the possibilities of providing financial and other assistance during a financial crisis to member countries. Such assistance can serve as a frame-work to co-ordinate fiscal and monetary policy that provides a safety net for those most effected by shocks and thus stimulate regional economy.

Further, the following issues need to be coordinated on an OIC-wide basis:


High rates of inflation (double digits) in some Islamic countries have adversely affected economic growth. This has created uncertainty on the return on savings and investments thus creating a disincentive for capital accumulation and as a deterrent to investment. Inflation has also made it difficult to maintain a stable but competitive exchange rate impeding such countries' ability to exploit the benefits, openness and wage volatility. A careful watch would therefore be required by the OIC region both on the supply as well as demand sides.




Have the Islamic countries been devaluing their currencies at the right time, and if so, have supportive measures been: adopted? International experience suggests that depreciation of currency in isolation has proved an inadequate instrument to boost exports. Devaluation has generally led to an increase in the world prices of exports, due to escalation in cost of production, including higher interest rates and rise in wages. This widens the trade gap further and creates a substantial strain on the foreign exchange reserves of OIC countries. Economic planners have to be cautious in selecting the timing to devalue the currencies. Currencies will have to be stabilized in order to accelerate the OIC rate of economic growth.


Export financing schemes in OIC countries need rationalization. Export promotion should be strongly encouraged by

Reducing interest rates on export financing
Improving the quality of products (sound quality management mechanisms to comply with international standards)
Providing incentives to exporters and effective promotional measures to meet competition in the highly competitive international markets.


All the Chambers of Commerce (CoCs) in the member countries under the banner of ICCI should establish special Investment Research and Trade Promotion cells with the following functions:

Establishment of Special Industrial Zones (SlZs) and, Free Trade Zones (FTZs) should be encouraged on the basis of facilities and incentives provided internationally. However, there is always room for innovation and creativity to change and adjust to local conditions
To organize competitions by introducing regular awards to investors, with outstanding achievements
To help create employment opportunities especially in the rural areas, and encourage professionals to establish relevant projects and achieve excellence by organizing seminars/workshops on trade facilitation and, change towards the desired state
To ensure participation of and assist the host country in strengthening of capital markets and stock exchanges. Further, to establish Stock Exchanges (where non-existent} linked by state-of-the-art, coherent technology infrastructure. This needs to be encouraged, in particular, using the tools of E- commerce (online trading)
To encourage Research & Development in processing credit proposals, syndications, joint ventures, training methods, economic & financial studies and feasibilities relating to private sector and foreign investment
To engage local and international consultants (from different areas of expertise) to undertake necessary studies, as and when needed

Development of Primary & Secondary Financial Markets

This will facilitate the following:

Development of an integrated, OIC-wide financial market
Encouragement of OIC residents to invest in their own fellow Muslim countries.
Enhanced ability of OIC to tap the vast financial resources of investors for the development of OIC economies (recycling and growth of funds and assets within OIC) using Islamic modes of financing (Shariah-based to be regulated and advised by a Shariah Board comprising eminent Islamic Scholars and international financial experts)
Less reliance on conventional western financial markets (interest-based)
Attracting of rich Muslim countries' funds to promote economic growth
Development of innovative Islamic Financial Instruments
Development of a quick and efficient legal infrastructure to support such a massive regional financial market

Effective Use of Information Technology

This will lead to:

Increase in the amount of information transfer
Efficient and effective use of information technology to enhance product in both the public and private sectors
Lead to job creation for IT professionals
Catching up with the developing countries in this area
More variety of services in different sectors
More advanced, new ways of doing things


On the pattern of the phased evolution of the European Economic Community (ECC) that led to the formation of the European Union (EU) with its own currency (the Euro) and central bank (European Central Bank), OIC should strive to take serious policy measures and actions in this direction. This could be done through adopting a phased, which would ultimately lead OIC countries toward their own uniform common economic and financial market. This is the only possible way to optimally utilize OIC's natural, financial and human resources.



In a world where markets have become extremely shark-infested, it is essential for OIC to aim towards forming an OIC Trade Bloc with its own set of rules, regulations, and terms of trade with other regions and large trade blocs (EU, NAFTA, ASEAN etc.).

The most important prerequisite for all this to happen is the political will of the majority (if not all) of OIC member countries. As most of us may recall, the concept of EEC started with only a handful of countries within Europe in agreement. The terms of trade, among other aspects, would be negotiated more favorably due to the critical mass (in terms of natural resources, large market potential for other blocs to consider while negotiating) at the OIC's disposal.


As perhaps the most powerful global organization, the WTO, established in 1995 on the legacy of the GATT with 135 member 'states will deal with matters like free trade, tariffs, subsidies, anti-dumping measures and multilateral investment agreements etc. Its scope is no longer confined to goods but also includes intellectual properties and services. WTO policies will affect every country. There is a big question mark if WTO will really ensure free global trade. Will it really operate as a non-discriminatory trading system ensuring robust trade growth internationally at the same time safeguarding interests of the developing countries? Will it be successful in achieving its mission of administering trade agreements, serve as a useful platform for trade negotiations, arrange amicable settlement of trade disputes, monitor trade policies, provide the badly needed technical assistance, training for developing countries and ensure cooperation with other international organizations? These are important questions. Mahatir Mohammad, the Malaysian Prime Minister, terms it as 'the instrument of neo-colonization'. Thus, through loss of jobs of domestic workers, closure of units as a result of fierce competition from developed countries' imports, and through inflow of foreign capital, the economics of some Islamic countries could face recession as is evident in some Asian countries.

The challenges arising out of the negative impact of globalization and localization should be converted into better opportunities. Policies that compliment localization and globalization and sustain each other, on a country-to-country and region-to-region basis, should be adopted.


The world is becoming a global village and no one can ignore, the changing trend of activities involving only 'Quality Oriented' products and services. Various quality standards have been developed for commercial and industrial use to cater to quality problems.

Industries in most of the OIC countries are facing enormous impediments regarding low literacy rates, inefficient and inadequately documented systems, financial stringencies, lack of technical knowledge and non-adoption of workers to the latest in technology, which leads to the production and delivery of low quality products and services. There is a lot of work that needs to be done to produce quality products and services to at last match those of the developed countries.



It is obvious that products and services in the developed countries are of better quality. This is due to a better-educated workforce, better regulatory and institutional measures to support industry and businesses, and the massive investments in Research and Development.

It is the dire need of the hour to step forward to comply with the requirements of ISO and other quality tools (Total Quality Management, Business Process Reengineering etc.) in order to compete in the international markets. The reason being that certification under International Organization for Standardization i.e. ISO-9000 and other standards is becoming a mandatory requirement for international and domestic trade.

A great emphasis on boosting investments and promoting inter-regional and intra-regional OIC Trade within the OIC countries specially in the wake of the recent developments at the international horizon (i.e. 9/11 incident and the Iraq war) is a sine quo non. This will not only further accelerate growth within these OIC countries but will also boost investments, trade and commerce internationally thereby significantly contributing to alleviate global poverty for the common good of humanity.