But it is not just financial investment that is being traded. Malaysian Prime Minister Abdullah Badawi has vowed to export its knowledge in Islamic banking. With its liberal interpretation of sharia-compliant banking, this could create problems. While Kuala Lumpur finds a natural economic affinity with Abu Dhabi and Dubai, there have already been tensions with some of the larger Gulf states.
Malaysia has many of the hallmarks of a thriving developing world economy, familiar to many in the Gulf: rapid urbanisation, flagship skyscrapers, an economy that draws in construction workers from around the region and a new, grandiose city close to the capital serving as an administrative centre.
There are other parallels with the Middle East. It has neighbours that are virtual failed states, such as Burma, and others that suffer frequent coups, such as Thailand. Malaysia itself has a mixed claim to being a functioning democracy, with the same political party ruling throughout its history, a track record of discrimination against its ethnic minorities and persistent complaints of corruption.
But it is its thriving economy that is drawing in Gulf investors and tourists. Poverty has decreased dramatically in the 50 years since it gained independence, and GDP growth has averaged more than 6 per cent a year since 1980, despite the Asian crisis in 1997. Malaysia is also arguably one of the most open economies among the 57 members of the Organisation of the Islamic Conference (IOC). It imports more than any other except Turkey, but has a positive balance of trade and the value of its exports is only outshone by Saudi Arabia. Although its GDP is slightly smaller than Egypt’s, its exports are worth 10 times as much.
Two years ago, those same 57 countries vowed to increase levels of trade between them to 20 per cent of their overall trade, as part of the Mecca Declaration. Levels are currently closer to 15 per cent, although they are rising. While Badawi politely denies wanting to be a model for other Islamic economies, Malaysia could play a key role in boosting trade.
Malaysia is one of the countries that managed globalisation well and has in the past benefited enormously from it,’ says Joe Stiglitz, a former chief economist of the World Bank. ‘This example is of critical importance for developing countries, if there are to be more success stories and fewer failures.’
Stiglitz is calling for more ‘south-south co-operation’, as opposed to north-south trade, which has often left the rich world richer and the rest of the world poorer. ‘Malaysia, with its expertise, could play an important role in this form of south-south co-operation,’ he says.
The most recent example of what such co-operation could mean was the $1,200 million poured into Iskandar. It was a welcome contrast to the pull-out from the Port Klang trade zone in July by Jebel Ali Free Zone Authority (Jafza). The Dubai-based firm said the deal no longer fitted its business strategy amid massive debts being built up by the state-run Port Klang Authority.
The flow of money is predicted to expand into more multi-billion-dollar investments in the coming years. Kuala Lumpur is expecting up to $20,000 million to be invested in its special economic zones by Gulf states, at least $3,000 million in the next five years. Infrastructure projects, medical services, tourism and education appear to be the most likely industries to benefit. It also wants to position itself as the bridgehead to wider Asian investments by Gulf economies.
‘We will provide the macro-economic environment to ensure the investment comes,’ says Nor Mohamed bin Yakcop, the deputy finance minister.
Among the deals that have already taken place, Saudi Telecom has taken a 25 per cent stake in Maxis Communications, a Malay mobile operator, and Kuwait’s ruling Al-Sabah family has bought into construction firm Putrajaya Perdana.
Money is also flowing in the other direction. The Malaysian state investment authority, Khazanah Nasional, has about $25,000 million in its asset portfolio. Two years after making its first overseas investment, about 15.5 per cent of that is now invested outside the country – in other parts of Asia and in the Middle East. Among the few deals it has done in the Gulf so far is an investment in the Shuaibah independent water and power project in Saudi Arabia.
It is also interested in investing in areas of Gulf expertise such as district cooling technology. One senior adviser close to the prime minister predicts Khazanah could invest more than $6,000 million in the Gulf in the future. ‘Certainly there is the ability and the capacity to do that,’ he says.
While the financial links are deepening, there are some diplomatic difficulties. Malaysia can see some kinship with the ambitious plans being pursued by the UAE, but relations with other parts of the Middle East are less comfortable. Recent speculation that Kuala Lumpur would launch an initiative to boost economic development in the Muslim world has faded amid rumours of opposition from some Gulf capitals.
The problem was made abundantly clear at a conference in Kuala Lumpur in early September when member states of the OIC met to discuss what progress has been made on the economic agenda laid out in the Mecca Declaration in 2005 (see box).
The short answer is almost nothing and there seems little sign that it will change soon. A seemingly innocuous proposal to set up a committee to come up with specific ideas ahead of the next OIC conference in Senegal in six months’ time was angrily dismissed by a Saudi delegate.
Badawi is keenly aware of the nervousness some of his policies provoke among more conservative Muslim countries. Despite the diplomatic difficulties, one area he is keen to promote is Islamic banking. He says it will make all the decisions by the sharia council on Islamic banking available to other countries.
‘We have been in Islamic finance for a long time and we have been successful,’ says Badawi. ‘We have been promoting Islamic banking and finance in many places. If any Muslim country wants to set up Islamic banking and wants us to help train them, we are ready to do so.’
It is an area where Malaysian firms certainly have an advantage in terms of experience and knowledge. The first Islamic finance institution in the country dates back to 1963. But it also highlights the liberal approach favoured by the country.
One senior government official admits that what is considered sharia-compliant in Malaysia is not always supported in the Middle East. ‘Maybe 10 per cent of the products are a problem, but that is ok,’ he says. ‘We can still sell the rest.’
Such self-confidence does not always sit well elsewhere. According to one Kuwaiti development economist: ‘The challenge facing all Islamic countries is in re-orientating their respective societies in such a way as to become more tolerant towards critical and original thought.’
Malaysia runs a more open economy than many other OIC member states and despite the position of Khazanah, it places less emphasis on state-owned businesses than many others. It has set itself a target of moving further away from where many OIC economies are today, by becoming a fully developed economy by 2020.
‘We are very confident of achieving it, but we believe it is the private sector that should be doing it,’ says one senior figure in the Finance Ministry.
To do so, it is likely to develop even greater links with the wider world, and Badawi is keen to promote more trade between the OIC and Western economies. ‘Poverty is the worst threat for a Muslim country,’ he says. ‘We have to do something more than just being on our own, trading with ourselves.’
‘There is no shortage of money in the world,’ says Mike Moore, a former director-general of the World Trade Organisation. ‘There is a shortage of confidence and the money will go where people feel confident. It won’t go to Gaza or Burma.’
While Badawi is being careful to avoid upsetting potential allies or rivals, he has made it clear that his government will continue with its more liberal approach. ‘We will go ahead. We cannot wait,’ he says.