RIYADH: The culture of Islamic finance contributed mainly to maintain Saudi resilience in the face of global economic downturn, Prince Turki Al-Faisal, chairman of King Faisal Center for Research and Islamic Studies, said.
The prince was delivering the keynote address at the Sixth Global Competitiveness Forum — “The Entrepreneurship Imperative”.
“Saudi Arabia’s success and resilience in the current global economic downturn was due in large part to the Kingdom’s culture of Islamic finance — most notably Islam’s insistence on debt being tied to real equity and real assets,” said Prince Turki,recalling that there was a genuine connection between risk and reward that forced participants to maintain reasonable levels of leverage.
“The same technocrats and wizards who absorbed Smith and Keynes and even Marx, were also driven by their innate Islamic background to be wary of greed and gambling. Some did manage to play the system, of course, and they ended up suffering the same fate as Wall Street.
But not dissimilar to political strains elsewhere, the Arab region faces its own backlash — one likely to change the status quo of yesteryear’s policy structures across the region, especially our mechanisms of intra-regional political, security and financial coordination.”
Prince Turki said the GCC remains largely an oil-driven economy.He added: “2012 breakeven oil prices are just 20 percent away from current crude prices. As such, our focus will be on developing our domestic economies, increasing intra-regional trade alongside domestic demand in neighboring economies, and improving primary and secondary education with a focus toward math and sciences so our youth can better meet the challenges of more competitive labor markets.”
Prince Turki said: “The manner in which the GCC manages all of the above will evolve, and people must not be surprised if they see us do things differently. We are redoubling efforts to evolve the GCC by taking it from a body for cooperation, to a body for unity and coherence in policy at all levels.
As we witness a re-organization of this scale, and given a number of regional and global factors working to our advantage, Gulf countries will be called upon to take a greater role in global financial organizations, through greater representation and involvement in world financial affairs.”
He said: “Better surveillance of the financial system, regulatory reform and the restoration of market discipline will prove elusive if emerging economies, the GCC included, are not adequately represented within these important yet developing institutions. This is inevitable and only fair when considering the role of financiers of last resort that our countries have played in the past few years and will continue to play in the coming years.”
The prince said his reference to Islamic finance might be “toxic” to some in the audience.“I tell them, open your minds to thinking out of the box.”The prince said the world continued to be “a fragile place” and the global downturn had not yet run its full course.
He added: “There is slow fragile growth. The financial crisis was born and developed in the West and yet hit hard throughout the world. The solution lies in going back to the basics, in adopting an approach to keep borrowers and lenders to be in true touch with the economy, but this new economic order is yet to be reflected.”
The prince said the International Monetary Fund (IMF) would look to play a larger role in the economic system, which will require a major increase in its lending resources with the assistance of large emerging economies including China, India or Saudi Arabia.
“What we can be certain of, is that large developing nations will not provide greater funds without more say in the IMF’s affairs.”“From our part of the world it is incumbent what we can secure our future and stability with further tectonic shifts in the global order,” he added.
The Prince recalled the history of Saudi Arabia’s establishment and growth, and said there was a need to reinvent an entrepreneurial spirit that is essential to build a solid base.Speaking about the greatest challenge for Saudi Arabia now, he said: “Our society is one of the youngest in the world with 75 percent of the population under 30 and 60 percent under 21, therefore the challenge is how to succeed in absorbing them into our economy.
We need to train them to be competitive. Competitiveness depends on the creativity of people and this depends on education and entrepreneurship. Only through education can they take their true place in the world.”
It is for this reason, the prince said, 25 percent of this year’s national budget is being spent on education.“The spirit of enterprise has touched a whole new sector of education. Reviewing economic and education policies is not an option, it is an imperative,” he said.