The Islamic economy is increasingly perceived as a valuable addition to local economies and a worthy alternative to the conventional economy. Economists and industry stakeholders worldwide are hoping that this system, with its ethical and cultural base, will save the global economy from stagnation.
As pioneers and architects of a global Islamic economy ecosystem, we need to showcase the capabilities of this promising economic system and identify how to leverage it effectively to meet the challenges of the upcoming period. We need to focus specifically on the role of Islamic economy and halal products in stimulating markets around the world.
Discussions about the economy today focus on many factors. There is the important local factor. We are increasingly witnessing a trend towards shaping a new post-oil economy that relies primarily on non-oil sectors and offers the resilience to innovate new sectors. The new economy should be sustainable and demonstrate the ability to grow organically through harnessing talent, creativity and thought.
There is also the global factor that focuses on shaping a post-crisis economy in the aftermath of the global financial crisis that crippled the world's economies in 2008. According to majority public opinion, the new economy should be capable of reviving the global markets that are still in a state of stagnation and have slowed down production of many large economic powerhouses.
The need of the hour - with both approaches - is to stimulate the production process. However, it remains to be seen whether this stimulation will actually relaunch the economy as a whole, or trigger production growth in one particular sector that can in turn revive the whole economic system.
To better understand the issue we need to closely examine the most important component of the economic process - commodities trading, production and services. Trading, represented by all selling and buying transactions no matter how small or big, makes up the heart of an economy and is a true indicator of its health.
When trading activities thrive, production capacities grow and with these so will capital. However, the reverse is true as well. Reduced trading levels will lead to weaker production, a fall in funding, and an eventual slowdown of the economy.
Some critical factors that impact trading activities include weaker buying power triggered by inflation and price hikes, as well as a market saturated with certain products. This can lead to a freeze in capital, and failure to quickly liquidate that capital or use it for other products needed by the markets.
If we examine the period preceding the 2008 crisis, we notice that production was abundant. Likewise, when we consider global development reports published by the International Monetary Fund in 2007, we notice that growth levels in global economies reached about 4% in 2006, while developing countries achieved a 7.3% growth in that same period. The reports indicated a remarkable leap for the global economy, with a decrease in poverty and unemployment and a resulting increase in GDP per capita. Investments in capital stocks amounted to US$400 billion in 2006, representing about three quarters of total capital flows compared to a mere two thirds in 2004. Strong portfolio growth and a surge in foreign direct investments in emerging and developing nations were also recorded in that period.
Which brings us to the crucial question - Why did the entire global economy enter a state of depression within only a few months? How could this happen in a period that witnessed a historic leap in production and investment?
Economic analysts agree that the tipping point here was not the quantity of production, but rather the production culture. Surplus production focused on certain commodities that enjoyed high prices, including properties and stock trading in financial markets. People were increasingly trading in these products and spending huge amounts on non-essential commodities. This led to a destabilization in income distribution with families and individuals freezing their savings in order to buy into these products. Eventually, this triggered a complete collapse of the markets. The breakdown caused a decline in purchasing power for essential products, thereby shrinking the total production capacities and causing massive lay-offs by global companies to meet their reduced production targets.
Therefore, production alone cannot save the global economy unless it is closely linked to a responsible funding and investment process that aligns production priorities with human demands. With the Islamic economy and halal industries, we aim to implement this theory that strikes a balance between a stable economy and a stable society.
When we consider the production of halal commodities within an Islamic economy, we realise that it effectively blends market needs, legislations and ethical values. It is a concept that goes beyond the traditional understanding of halal industries and encompasses all production sectors (of commodities and services) that represent trading.
Let us examine this concept further.
Basic human needs do not reduce, but rather increase with the surge in population and dynamic lifestyle requirements. Finding a balance between priorities of production and human needs is a precondition for sustained active trading.
Halal production recommends distributing the investments among all production sectors according to a well-conceived plan that seeks comprehensive growth in the economic system without focusing on certain sectors alone.
As per halal production values, the funding process should be based on a partnership model with the investor absorbing some element of the risk while seeking profits. By doing so, halal production ensures that only tangible and sustainable projects secure the funding they deserve leading to a stronger financial sector.
Furthermore, halal production also seeks to benefit the productive workforce as it also forms a critical consumer base for halal products. This workforce cannot keep consuming unless its buying power remains at a level that protects the economy from inflation. Therefore, production in Islamic economy is a social act in which people produce the things that are essential for their sustenance and help preserve their social fabric.
The production process in Islamic economy stipulates rigorous quality standards. It is mandatory that all halal commodities and products are healthy and sustainable and meet the demands of the billions of people that have begun questioning the suitability of what they eat and drink to ensure these products conform to a healthy lifestyle.
The establishment of the Emirates Global Accreditation Centre boosts the halal sector through providing international recognition from concerned organisations regionally and globally. This helps facilitate trade and strengthen the role of Dubai and the wider UAE in global commerce and industry.
As with all sectors of the Islamic economy, halal production complements other sectors and any growth in this sector triggers a resulting growth in Islamic economy as a whole. This is a process in which the human capital is not merely a source of profit but is its essential tool and primary purpose. Islamic economy has increasingly led to the realization that human capital is the key to stabilising and sustaining trading operations that can truly revive the economy.