Muslims don’t trade enough

I used to enjoy participating in the Economic and Commercial Committee meetings of the Organization of Islamic Cooperation (OIC). Not anymore. I get the feeling that the business people there are constrained.

Most of the OIC countries have closed and heavily controlled economies and they don’t trade enough among themselves. Why? Because their governments don’t allow them. Try, for example, as a Turkish businessman, to penetrate the Iranian market. You will get shot down in a flood of permits and taxes. Despite the “I” in OIC, it would be a mistake to assume that this has anything to do with Islam directly. 

The OIC has 57 member states, all with a Muslim majority. The total population of these countries reaches 1.6 billion, which amounts to around 30 percent of the world population. Yet intra-OIC trade is only around 17 percent of the total trade of OIC countries. That indicates divergence among the OIC membership. Indeed, it contains Turkey, Indonesia, Malaysia, Saudi Arabia and Egypt together with Yemen, Mauritania, Pakistan, Gabon and Benin. Industrial and agricultural, small and large, rich and poor all lumped together. That is surely one aspect to bear in mind. 

Secondly, there is the issue of the geographical distance between the members. It isn’t surprising that Turkey does not trade much with Indonesia or Malaysia. We are, in fact, not well connected to any part of the world aside from Europe. Hence, it isn’t only a problem of Muslims not trading enough, but also one of low South-to-South connectivity. 

Thirdly, the issue is related to the less sophisticated demand of most Middle East and North Africa in comparison to other countries. Take the Iraqi market. There is intense competition between Iran and Turkey, but the goods in question are low end. In the food industry for example, they buy flour. And Iran has a clear advantage in terms of relative prices as they are subsidizing oil in Iran. This is directly related to the income level of OIC member countries, and will be a challenge for all of us in the coming years. 

You might say that these are reasons enough. Let me point out however, that Muslims today are in fact trading more than they were before. Around 14 percent of total OIC trade was intra-OIC at the beginning of 2000, and it has increased to around 17 percent in 2009. Though this is meager as a share of global trade, it’s still welcome progress. The 2015 target of the Makkah Declaration is total OIC trade of 20 percent. According to studies, dismantling trade barriers has been the major determinant of trade facilitation so far. That’s good for everybody around the globe.

In the post-Arab Spring world, I see this as a good starting point for a discussion of the future economic policies of the Middle East and North Africa. It is time to focus on the closed and controlled economies of our region first. We cannot make good investment decisions when prices are distorted. And they are distorted in the MENA region because of heavy state subsidies that create a burden on government finances. We fixed that in Turkey in the 1980s. Price liberalization was the essence of the Özal revolution. Then we signed the Customs Union Agreement with the EU in 1996. Both had a positive impact on the structural transformation of the Turkish economy. 

My post-Arab Spring advice to the OIC is this: Open up the heavy curtains of government intervention and let sunshine flood into Egypt, Tunisia and the others. As Timur Kuran of Duke University has already noted, “a predominantly Muslim society is not incompatible with an economy based on free competition, openness to borrowing, innovation and a government eager to support free enterprise.”