At a press conference yesterday, Egypt’s bewildered minister of finance, El Morsi El Sayed Hegazy, struggled to compose himself in front of reporters.
The newcomer forgot his predecessor’s name and called the former finance minister Mumtaz Al Sagh instead of Mumtaz Al Saeed.
He also looked worriedly at his Freedom and Justice Party colleagues for reassurance and had to be handed documents detailing the few basic figures on Qatar’s loans to Egypt before he spoke.
The outcome of Hegazy’s confused and anaemic performance was a claim that the new law for Islamic bonds, or Sukuk, is expected to generate $10 billion for the Egyptian government.
A significant sum considering the law for regulating sukuk issuance in Egypt has been talked about for at least two years.
The move to implement one now has gathered momentum after the strong emergence of the Muslim Brotherhood following Egypt’s uprising in 2011, but progress has been slow.
Just last week, Egypt’s cabinet finally approved a draft law to allow sovereign Islamic bonds as the government searches for new ways to finance an unsustainable budget deficit.
However, for the Muslim Brothers to push for debt, Islamic or not, is a concern for the country’s main religious authority, Al-Azhar.
As Maggie Hyde, at Egypt Independent wrote:
Adopting the Islamic banking law in Egypt has drawn significant scrutiny from civil society and religious figures — an indication of the struggle over Sharia-based laws in the future. One of the main concerns is that putting the Islamic label on this sort of financing is merely cosmetic, a way to lure investors into a less than attractive market.
Members of Al-Azhar’s Islamic Research Academy rejected the Finance Ministry-backed bill, saying it “violates Islamic Sharia and endangers the state’s sovereignty”:
The bill would allow foreigners to own sukuk, as well as shares in local factories and businesses, Al Azhar academy member and former Grand Mufti Nasr Farid Wasel told Al-Masry Al-Youm.“It is like we are selling our properties to foreigners,” he said.
It is a further test of how Egypt’s Islamist government will reconcile religious beliefs with a modern economic framework. The Morsi administration has already faced this dilemma with the IMF loan, as they sought to convince conservatives that the contentious loan was Sharia-compliant. The IMF distanced itself from this notion, saying instead that the interest rate on the loan is very favourable compared to other forms of financing.
But amid all the confusion during this messy political transition, a push toward tapping Islamic bonds for financing signals that the Brotherhood are promoting the very element of finance that Islamists usually reject – debt.
For the Islamists, this is the right kind of debt. However, they are mistaken on how much it will cost them.
In fact, in Egypt’s case, it will be cheaper to opt for conventional financing rather than sukuk. To give one example, Egypt will borrow from the International Monetary Fund at about half the rate Qatar paid for sukuk in July.
Perhaps the nervous new finance minister should concentrate on practicing his public speaking before proposing Islamic finance as a credible way out of Egypt’s economic crisis.
Is a public finance professor who specialises in Islamic finance really the CV that jumps out at you for Egypt’s critical post of finance minister?
But to President Mohammed Morsi, the unknown Cairo University professor El Morsi El Sayed Hegazy was the right choice to replace Mumtaz El Saeed, an advocate of the $4.8 billion International Monetary Fund loan. El Saeed had been one of a few ministers to retain his position since his appointment to Kamal Ganzouri’s interim government in December 2011.
Hegazy, whose political experience appears to have only just started, may find it difficult to reconcile his Islamic finance specialism with the modern economic framework needed to push Egypt out of its economic lull.
In the book The Long Divergence: How Islamic Law Held Back the Middle East, author Timur Kuran argues that the real cause of underdevelopment and economic stagnation in the Middle East is the Sharia, or Islamic law. The author argues that while other countries adapted their philosophies and approach to economy according to modern times, the Middle East was very late in adopting key institutions of modern economy.
The law has not evolved and adjusted to the new world of business and finance. It’s not an impassioned critique of Islamic law but more of a reflection of how Sharia essentially lacks innovation and does not fit in to the 21st Century.
However, there is a catch to the idea as Ziauddun Sardar, who reviewed the book, writes in The Independent:
It is based on the assumption that Western financial institutions, and self-serving corporations, are the best possible model for development. Given the havoc that these institutions have caused in recent times, and the fact that injustice and obscene wealth is integral to their make-up, I think it is an assumption too far.
He adds, though “Kuran’s thesis is contentious; it does provide us with an incentive to reformulate Islamic law. It is an excellent starting-point for a debate long overdue.”
The question(s) I have is: Will Mr Hegazy be open to debate or will his thought process be driven by his boss (Morsi and the Muslim Brotherhood)?
The Morsi administration’s biggest failing has been to lead the Islamists rather than the country. There is no space for such polarization in a modern economic framework. Islamic finance is not going to save Egypt’s economy but can play a part in redefining the country’s aims – a focus on the middle and lower class rather than the rich, and a method of relieving the millions who are suspicious of conventional banks and their high interest rates.
If Egypt’s new finance minister lasts long enough to make any critical decisions, let’s hope he can think past religion to the nation.