The controversy over Muslim investments in the West

International Journal of Islamic and Middle Eastern Finance and Management

ISSN: 1753-8394

Article publication date: 31 August 2010

Citation

Shubber, K. (2010), "The controversy over Muslim investments in the West", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 3 No. 3. https://doi.org/10.1108/imefm.2010.35203caa.001

Publisher

:

Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited


The controversy over Muslim investments in the West

Article Type: Editorial From: International Journal of Islamic and Middle Eastern Finance and Management, Volume 3, Issue 3

The sale of Britain’s iconic department store, Harrods, to the Qatari royal family aroused once more the old issue of Arab and Muslim investments in Western countries. Aspects of this persistent problem touch upon ethics, socio-economic development, international relations, and even religious correctness.

It is well known that Arab sovereign wealth funds have huge investments in Europe and the USA. For the Qataris, Harrods was not the first venture, as they possess substantial slices of several other major British corporations, including the retailing giant Sainsbury’s and Barclays Bank. As for the Saudis, the value of their investments in the USA alone is estimated at over one trillion dollars.

First question

Perhaps, the first question that can be raised is whether investing Muslim funds in the West can be viewed as legitimate, advisable, or ethical, considering the glaring needs for developing all sorts of technologies and upgrading virtually all types of sectors within the economies of most Arab and Muslim nations, beginning from agriculture and food items, passing through construction, pharmaceuticals, mining, petrochemicals, and ending with heavy industries such as aerospace, vehicle making, shipbuilding, and armaments.

Three major – though intertwining – matters can be looked at in this connection. The first is investors’ utility; the second is the urgent need for socio-economic development; while the third relates to transparency and the availability of information.

Investor’s utility

Long ago, finance and investment theorists evolved the concept of the “investor’s utility” which considers jointly both the expected return and the level of risk associated with any given investment. The concept recognises that the attitude towards risk varies among investors, and that lower returns tend to go hand-in-hand with lower risks, and vice versa.

Thus, some investors place the bulk of their hard-earned savings in government bonds which yield low returns, but the reward they get is sound sleep at night. Others view such a yield (currently around 4-4.5 percent pa in the UK) to be miserly, and hence would put their money into other asset classes, such as domestic or international equities.

Hence, a highly risk-averse investor views UK Government gilts as having a high utility, due to the emphasis of these investors on safety. By contrast, low risk-averse investors would go for equities, and perhaps even invest in newly established firms espousing leading-edge technologies at home and abroad.

On this basis, the Qataris might argue that the relatively high price paid for Harrods (£1.5bn) is a sound investment, reflecting the relative security of the business and fairly assured returns that are anticipated in future.

Let us now consider the second issue: socio-economic development. If the Muslim wealthy (including oil-rich States and their sovereign funds) put their money in relatively secure and transparent investment opportunities within non-Muslim regions, who will invest in upgrading, enhancing and developing farms, factors, mines, ports and other infrastructure facilities within Muslim world? Also, the levels of expected returns on business investments in Egypt, Tunisia, Iraq, Pakistan, and Saudi Arabia are probably higher than corresponding ones in the UK or USA, so why shun the former types of business avenues?

What hope do we honestly have of eradicating poverty, disease, and backwardness in Muslim societies if we do not invest heavily in education, training, infrastructure facilities, and productive units? Can we realistically aim to steadily raise our per capita incomes and living standard if we do not build solidly based private businesses and official agencies, utilising modern management methods and appropriate productive technologies? All economists and development experts agree that total reliance on income from raw resources (such as crude oil or natural gas) is unwise and unacceptable on a long-term horizon.

Problem of risk

The caveat here, however, relates to the problem of “risk”. The Qataris, Kuwaitis, Saudis and other Muslims who keep large investment portfolio in Britain, the USA and other Western countries can contend that they cannot take too much risk with their funds, whether these are owned by the state, institutions or individuals. In general, Arab and Muslim nations have not advanced sufficiently on the path of transparency, information-availability, and security of investment funds, and hence lose out on this aspect when compared with the West.

Clearly, therefore, much work still has to be done on all levels within Muslim countries, both to render timely, frequent, and accurate information, and to provide security and facilities to incoming investors.

This call relates to the provision of necessary statistics (on demography, employment, incomes, investments, etc.), as well as relevant information published by local business units relating to their activities, revenues, profits, future prospects, etc. Then, there is political stability and the security of the general environment for business, as illustrated by the quality of the infrastructure, training facilities, fairness of the legal system, functioning official bureaucracy, and much else.

All this requires a firm commitment from the top echelons of the state, moving downwards. Governments of Muslim nations are under a heavy duty to furnish a secure and welcoming environment for both local investors and those coming from other Muslim countries. Also, researchers are yet to indulge seriously into the relative merits and demerits (and hence overall utility) of investing in the West, as compared with investments in fellow Muslim nations.

All this indicates how lengthy the journey remains, as a great deal of work is required from many, including politicians, business people, economists, religious leaders, and even ordinary citizens. It is an arduous process, but surely and categorically the aims are achievable once the will is present.

Kadom Shubber