KARL Kraus said: “Corruption is worse than prostitution. The latter might endanger the morals of an individual, the former invariably endangers the morals of the entire country.”
I was recently asked to give a speech on political freedom and corruption in Muslim countries. Both areas have a direct impact on capital flight and market formation, brain drain and economic development, portfolio investors and direct investments, including Islamic finance. I wanted to use the example of a secular and tolerant Muslim country, like Malaysia, that allows for a robust dialogue relative to many of its sister countries. Additionally, secondary market data already exist from established sources outside of Malaysia.
In any undertaking that attempts to link different pieces of data, a number of issues arise, including: methodology; accessing credible data; time series of the data and preliminary conclusions, with the caveat in understanding the culture of these emerging markets and their colonial history influence.
A 2008 World Bank survey stated: Estimates show that the cost of corruption equals more than 5 per cent of global gross domestic product (US$2.6 trillion, or RM8.03 trillion), with over US$1 trillion (RM3.9 trillion) paid in bribes each year.
Putting the US$1 trillion in perspective, not one Muslim country has a GDP that is close to that number.
There are two recognised organisations that monitor corruption and political freedom, but one must take their data with a “pinch of salt”. A starting point nonetheless, as it’s important to get people on the same page for meaningful dialogue.
The two organisations, as described in Wikipedia:
“Transparency International (TI) is a non-governmental organisation that monitors and publishes corporate and political corruption in international development. It publishes an annual Corruption Perceptions Index … prevalence of corruption within each country, based upon surveys of business people.”
“Freedom House (FH) is an international non-governmental organisation (NGO) based in Washington, DC that conducts research and advocacy on democracy, political freedom and human rights. It publishes an annual report assessing the degree of perceived democratic freedoms in each country … describes itself as a clear voice for democracy and freedom around the world.”
The space/word constraints prevent a scholarly piece (although I am far from being a scholar), hence, focus will include:
(1) The corruption ranking and scores of Islamic finance hub countries.
(2) Focus on Malaysia and where it stands among regional blocs.
(3) Common denominator for people power uprisings.
Transparency International examined and ranked 178 countries in 2010, scored countries from 0 (highly corrupt) to 10 (very clean), and some of the Muslim majority country (Organisation of Islamic Conference) conclusions include:
(1) Only one OIC country in top 20, Qatar (ranked 19th with score of 7.7), 38 of the 51 OIC countries (75 per cent) “…fall under severe corruption band”. Source: Dinarstandards.
(2) Malaysia (ranked 56th with score of 4.4) tied with Turkey, a G-20 country, higher than Indonesia, another G-20 country, and only eight OIC countries with higher scores.
(3) The most corrupt countries have bias towards Muslim countries like Sudan, Turkmenistan, Uzbekistan, Iraq, Afghanistan and Somalia.
Obviously, it is not surprising as direct investors, ex-oil, minerals and mining, have bypassed many of the Muslim countries, hence, reliance on aid rather than trade and investments. However, corruption also “steals” from aid that is intended for victims of famine, draught, development, etc.
IF & Halal
There are a number of Muslim majority and non-Muslim countries that have declared themselves to be Islamic finance hubs and halal food hubs. Malaysia is ranked 56th out of 178 countries (with a score of 4.4), Turkey also 56th (4.4), UAE 28th (6.3), Bahrain 48th (4.9), Brunei 38th (5.5), the UK 20th (7.6), France 25th (6.8), Luxembourg 11th (8.5), Singapore 1st (9.3), Hong Kong 13th (8.4), and Indonesia 110th (2.8).
Freedom House categorises the United Arab Emirates (and rest of Gulf Cooperation Council countries and North Africa, ex Morocco) and Brunei as “Not Free”, Malaysia, Turkey, Singapore, Hong Kong, and Bahrain (revisit?) as “Partly Free”, and the UK, France, Luxembourg, and Indonesia as “Free”.
For halal food hubs, Malaysia is 56th out of 178 countries (with score of 4.4), Brunei 38th (5.5), Thailand 78th (3.5), Indonesia 110th (2.8), the US 22nd (7.1), Canada 6th (8.9), New Zealand first (9.3), Brazil 69th (3.7), the UK 20th (7.6) and Australia 8th (8.7).
It’s interesting to note that major halal food hubs are either categorised as “Free” (Australia, Brazil, New Zealand, the UK, Canada, the US and Indonesia) or “Partly Free” (Malaysia, Brunei and Thailand).
Thus, it would seem Malaysia, combining the “cleaner” score on corruption and categorised as “Partly Free”, leads the OIC world in Islamic finance and halal food initiatives on paper. Obviously, more can be done, but a respectable beginning for international investors interested in these two inter-related areas.
Malaysia and regional blocs
Next, I wanted to see how Malaysia compares to other countries in regional blocs concerning corruption.
As part of the OIC bloc of 57 countries, only Qatar (7.7), UAE (6.3), Brunei (5.5), Oman (5.3), Bahrain (4.9), Saudi Arabia (4.7), Jordan (4.7) and Kuwait (4.5) scored higher than Malaysia (4.4). As part of the Asean bloc of 10 countries, only two, Singapore (9.3) and Brunei (5.5) scored better than Malaysia (4.4).
As part of the Sami bloc of four countries, only Saudi Arabia did better (4.7) and Malaysia tied with Turkey (4.4) while ahead of Indonesia (2.8).
Finally, Malaysia actually scored higher than all BRIC countries, except the recent addition of ‘S,’ for South Africa; Brazil at number 69 out of 178 countries, with score of 3.7; Russia at 154 (2.1); India at 87 (3.3) and China at 78 (3.5); but South Africa at 54 (4.5).
Now, combine the better score with its “Partly Free” categorisation, by Freedom House, compared to “Not Free” status for most of the Middle East/Africa (MEA) countries and CIS countries, and Malaysia becomes a story for investors concerned about “cost of doing business risk” at regional bloc level. This becomes more important as (1) “enforced” anti-corruption laws in US and Europe and (2) the “eastward” orientation at present, as deemed growth market with growth stories.
People power uprising
In examining the recent social media led up-rising-cum-revolution in the Muslim world, some preliminary observations on the link between corruption, repression and eventual ‘electronic’ overthrow.
According to TI survey, Tunisia was ranked 59th out of 178 countries (score of 4.3); Egypt 98th (3.1); Libya 146th (2.2); Syria 127th (2.5); Yemen 146th (2.2) and Iran also 146th (2.2). All these countries categorised as “Not Free” by FH, thus a possible “predictor” of overthrow in today’s real-time socially-connected media environment.
The fluid situation in Bahrain, at number 48 and score of 4.9, and Oman, at 41 and 5.3, requires continued vigilance as has consequences in other regimes in 2011 and beyond.
There are a number of Muslim majority countries, with low (bad) scores on the corruption index, but, because leaders are “elected democratically”, deemed “Partly Free”, there does not seem to be the imminent threat of “digital overthrow”.
Thus, sub-Islamic finance hubs like Pakistan, with a ranking of 143rd out of 178 countries (score of 2.3), Bangladesh 134th (2.4), Nigeria also 134th (2.4), and Indonesia at 110th (2.8) have low scores, but the safety relief valve, a free media/press, opposition party and “independent judiciary”, act as part of checks and balances against autocratic repression.
What are some of the lessons for the Muslim world from the “very clean” countries, like Denmark, Norway, Switzerland, Canada and so on? More importantly, how much of it is applicable?
Is there less funding for defence and more funding (absolute and percentage of GDP) for education and literacy, healthcare, safety nets for the unemployed, SME financing, savings schemes/pension, manufacturing and service oriented/knowledge-based economies.
Is it because the media is free, hence, business transparency is high and elections are fair? Is it because there is an independent judiciary and respect for the rule of law? Is it because minorities are treated equitably?
Malaysia, though not yet a G-20 country like Turkey, should brag about itself outside of Malaysia. Its better performance on both “corruption and political freedom indicies”, relative to other OIC countries, has made it the 21st most competitive economy/country according to the World Economic Forum’s Global Competitive Index in 2011-12!
Rushdi Siddiqui, Global head of Islamic finance for ThomsonReuters based in New York