Three years ago plans were launched for the emirate of Dubai to become the global capital of the Islamic economy. This month Dubai hosted the Global Islamic Economy Summit. This is a good point at which to review how Dubai, which has usually been successful in managing its economic projects, has progressed.
When such a challenging vision is set the technocrats must first interpret this vision into a set of key performance indicators (KPIs) that everyone agrees upon. I have searched for such KPIs and have only been able to find newspaper reports from this month that give the growth of the sukuk market in Dubai: from Dh26 billion to Dh496bn in the past three years.
Normally the activity of a financial market is measured by two main statistics: the size of the market as a percentage of the global market and the value traded as a percentage of the size of the market.
The newspaper reports gave the size of the market but without referencing the total global market.
For value traded I went to the website of the relevant exchange, Nasdaq Dubai.
The total value traded for Thursday, October 20, 2016, the last trading day of last week, was given on the website as zero. This is because almost all global trade in sukuk is over the counter rather than via an open market platform.
The exchange is developing a sukuk trading platform and this month it launched a global sukuk index in an effort to bring more clarity to the market. This should in time develop the necessary liquidity, which is the most important KPI.
I decided to try a different method to understand how the Islamic economy is developing. Two ideas that seemed worthy of investigation were: 1. Sukuk are just a way of borrowing, so why not look at the main lending channel in the country – banks; and, 2. One would think that Saudi Arabia might be the primary candidate for the global capital of the Islamic economy. It is hard to argue with the location of The Holy Kaaba, Islam’s most sacred site, which sits in the centre of Al Masjid Al Haram, Islam’s most sacred mosque.
Clearly the relevant statistic was to compare the size of Sharia-compliant bank lending in Dubai with that of Saudi Arabia.
The Central Bank of the UAE does not differentiate between banks in different emirates but does separate the reporting of conventional banks from that of Islamic banks. According to its August monthly statistical bulletin, which it says are preliminary numbers, the total assets of Islamic banks was Dh493bn.
The Saudi Arabian Monetary Authority does not segregate banks the same way, so I started adding up the assets of the banks that are Islamic according to their second-quarter financial reports for this year.
Three banks combined – Al Rajhi, with the equivalent of Dh331bn; Al Inma, Dh98bn; and Al Jazira, Dh68bn – are equal in size to the whole Islamic banking sector of the UAE. Saudi Arabia has nine other banks, some of which are pure Islamic, some of which have Islamic operations. It seems clear that Sharia-compliant lending in Saudi dwarfs the UAE, let alone Dubai.
Saudi Arabia’s Islamic financial activity does not end with its domestic banks.
The Islamic Development Bank (IDB) represents everything that one would want in an Islamic economy centre, and it is based in Saudi.
The IDB has an asset base of about Dh76bn. It has two subsidiaries focused on Sharia-compliant trade. It has regional offices in Morocco, Malaysia, Kazakhstan and Senegal. It has a membership of 56 countries from four continents. It has a Waqf (Islamic Trust) foundation. It has an education programme that has been in operation for 40 years.
Not only is the IDB based in Jeddah, but Saudi Arabia is the most important of its 56 members. The bank’s website shows that Saudi Arabia holds 23.5 per cent of shares in the bank, while the UAE holds 7.5 per cent.
It took me less than half an hour to find all of these facts, and they do not provide much hope. They are also solely focused on the financial sector of an Islamic economy. The approach by the Dubai execution team reminds me of the execution of the DIFC. Some beautiful buildings. Some overpriced cafes. But an anaemic market compared with Saudi Arabia’s.
Nothing can be global or international if it is not connected to its neighbours. We still haven’t connected our equity markets inside the UAE. How are we going to connect to the rest of the world?
We can overreact and treat an honest analysis with hostility or we can break out of our denial, accept reality and remember that we are one nation.
Sabah Al Binali is an active investor and entrepreneurial leader with a track record of growing companies in the Mena region. You can read more of his thoughts at al-binali.com.
This column is also appearing in our sister paper, Aletihad.
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