Islamic Finance as a Mechanism for Bolstering Food Security in the Middle East: Food Security Waqf         

Summary

This article proposes the establishment of a multilateral food security waqf, a type of Islamic trust or endowment, as a vehicle of investment in the future food security of the Middle East.  Sections II through IV briefly discuss global food insecurity, Middle East food insecurity, and the need for a regional food security strategy for the Middle East.  Sections V through VIII discuss contemporary Islamic Finance generally, the essential objectives of Shari’ah, historical waqf practice, Islamic perspectives on agriculture, and the proposed food security waqf.  This article focuses on the rationale and objectives of  waqf-based and other agricultural investment frameworks that are currently under development by the author, for application by governments, institutions, and private entities.  The structures under development combine the waqf (as a foundational framework to allocate funding and other assets) with Islamic financing structures, Islamic and conventional asset management approaches, Shari’ah– and civil law-based legal frameworks, and effective governance and operational models to achieve measureable impact, in a manner that  equitably and rationally distributes rights and responsibilities among parties across the food supply chain, from government consumers to small farmers.

I. Global Food Insecurity: A Snapshot

Food insecurity is a global threat.^[1]  The nature of food and the means of its production make food insecurity a uniquely complex problem, with social, political, economic, and ethical dimensions.  Serious efforts to promote food security and sustainability must respond to the complexities of the challenge.

According to the Food and Agricultural Organization of the United Nations (“FAO”), “in order to feed a population of more than 9 billion [the projected world population in 2050] and free the world from hunger, global food production must nearly double by 2050.”^[2]  Competition for food and for the means of food production is increasing, without commensurate rises in supply.^[3]  Owing to population growth, increased food purchasing power and demand in emerging economies, climate change, land degradation, price volatility, and other factors, the global food supply-demand imbalance is expected to widen.^[4]  The world’s governments have taken note.  Acting independently and multilaterally, they have devoted resources to assess the food insecurity threat, and have taken steps to mitigate the risk.^[5]  As yet, however, no comprehensive solutions are on the horizon.

II. Food Insecurity in the Middle East

The Middle East is particularly susceptible to food insecurity.^[6]  While the region does not face any foreseeable near-term threat of famine or widespread malnutrition,^[7] the Middle East presently lacks the means to produce adequate food supplies due to water scarcity, insufficient arable land, and man-made hurdles.^[8]  These hurdles include land and crop misallocations, under-utilization of food production means, inadequate investment in agriculture, poor stock management, sub-optimal distribution networks, and other factors.^[9]

According to the World Bank, as of 2008, the Middle East imported fifty percent of its food.^[10]  “High food prices and international market volatility mean domestic agriculture has taken on strategic importance in all the food producing countries in the region.^[11]  Non-food producing countries, such as member states of the Gulf Cooperation Council (“GCC”), are looking at ways of securing land in third party countries to produce part of their food needs.”^[12]

By 2030, the combined Muslim population in the Middle East is expected to grow to 439,453,000.^[13]  Today, the Muslim population is estimated at 321,869,000.^[14]  This projection, a 36.5% net increase in population in less than twenty years, is staggering.  The consequences of such population growth for food security in the Middle East will be profound.

At the country level, Middle Eastern countries have attempted to address food insecurity risks through food subsidies, export bans, price ceilings, and other policy measures, as well as by acquiring rights to farmland overseas.^[15]  For instance, food exporting countries like Egypt, Yemen, and Djibouti impose ad hoc export restrictions in response to global price rises.^[16]  The governments of the Middle East, as in the cases of Egypt, Morocco, Tunisia, Djibouti, and Yemen, employ government subsidies as a primary means of facilitating domestic food affordability.^[17]

Arab countries, and particularly GCC states, which lack the arable land and water resources necessary to produce food sustainably, also pursued other avenues such as acquisition of long-term agricultural land rights overseas.^[18]  Between 2006 and 2009, Arab governments, government-owned companies, and private entities (primarily in the GCC states) were particularly active in acquiring agricultural land overseas.^[19]  According to one compilation, forty-nine agricultural land deals and land-related investments were initiated or concluded between 2006 and 2009.^[20]  Of those, twenty-one (45%) involved Arab countries (most by governments with limited private companies) as investors.^[21]  The countries involved in these transactions were Saudi Arabia (five), the United Arab Emirates (four), Qatar (three), Bahrain (three), Kuwait (two), Libya (two), Jordan (one), and Egypt (one).^[22]  The majority of these investments were made in Africa and Asia, and eleven of the twenty-one were made in majority Muslim countries.^[23]  This data is illustrative, and reflects only a fraction of overseas agricultural land investments that are understood to have been made by Arab and non-Arab countries and private parties in recent years.^[24]

While the logic of these land acquisitions is clear, their sustainability is not.  Acquisitions of overseas land and land-use rights by Arab countries and other parties have not been without controversy.^[25]  These transactions are very likely to pose significant legal and political risks, an expectation that is borne out by the inhospitable reception they have received both inside and outside their host countries.^[26]  They have been characterized as “land grabs”—modern scrambles for resources reminiscent of nineteenth-century colonization.^[27]  The terms of these land acquisitions and their details are often, if not always, undisclosed.^[28]  This opacity has fueled suspicion that the deals are opportunistic usurpations of scarce resources by relatively wealthy countries at the expense of relatively poor countries and their small farmers.^[29]  The lack of transparency and controversy surrounding agricultural land acquisitions raises questions not only about their nature, but about their long-term viability as a means of securing food supplies.

As a practical matter, the acquisition of agricultural land to produce food exclusively for the benefit of acquirer countries is legally and politically risky.  It is not difficult to envision scenarios in which yields generated on overseas land would be wholly or partially expropriated, subjected to export bans, or otherwise intercepted, particularly in events of local or global food shortage and political or social unrest.  Think tanks and other organizations have called for the regulation of overseas investments in agricultural lands.^[30]  For example, the International Food Policy Research Institute has suggested that investors should refrain from exporting crop yields in the case of food shortage in a host country.^[31]  Such concerns, and the political and legal risks associated with overseas land acquisitions, will likely increase over time, as global competition for food increases, exacerbated by demographic and environmental strains.^[32]

The governments and companies that invest in agricultural lands overseas can, and likely have, put into place agreements to achieve optimal commercial and legal conditions.  But under extraordinary circumstances, these agreements will be insufficient to overcome the very real risks stemming from political and social tensions that surround food, agricultural land, and the reality or perception of exploitation associated with overseas agricultural land investments.  In worst-case scenarios, Arab governments and other investors in overseas agricultural land might find themselves with recourse only to international tribunals and money damages, and without access to the very crop yields for which they bargained.^[33]  Money damages would hardly be compensatory in such cases, as these investments are not made for profit, but for specific performance—i.e., the enforcement by host governments of investors’ rights to produce on agricultural lands and repatriate agricultural yields.

As an important matter of national policy (if not national security), Arab governments must pursue food security solutions that are economically, politically, socially, and ethically sustainable.  Measures taken by Arab countries thus far fail to address food insecurity comprehensively or at its root.  At the regional level, Arab governments have yet to take coordinated steps to combat food insecurity.  This likely is a symptom of a more general reality, which is that Arab countries, for a variety of reasons, trade more with countries outside, rather than within, their region.

III. The Case for a Regional Food Security Strategy

“There is no way around the reality that MENA [Middle East and North Africa] countries will need to buy a significant- and increasing- share of their food on international markets… the key is to manage this exposure in new and innovative ways to reduce the potential for food prices shocks without going bankrupt in the process.”

-World Bank, April 2009^[1]

The quoted statement describes key challenges of food insecurity in the Middle East.  However, the gravity of the long-term food insecurity threat to the region requires much more than management of exposure to international markets.  As the global food supply-demand imbalance widens over time, the difficulties and risks associated with food security will intensify in the Middle East unless effective coordinated action is taken now.

As recent political uprisings have shown, major events in even one Arab country have the potential, if not the likelihood, to produce similar or follow-on events in others.  The consequences of food insecurity, if it intensifies in the region or any of its major countries, will have regional impact: whether in the form of economic migration, spillover social and political unrest, or the need for food and other aid from neighboring states.

The political, social, cultural, and historical ties that bind Middle Eastern countries favor the pursuit of a regional food security strategy, as do the geographic, demographic, and economic differences between them.  As recent political uprisings have shown, major events in even one Arab country have the potential, if not the likelihood, to produce similar or follow-on events in others.^[2]  The consequences of food insecurity, if it intensifies in the region or any of its major countries, will have regional impact: whether in the form of economic migration, spillover social and political unrest, or the need for food and other aid from neighboring states

Bolstering regional food production and supply in a coordinated fashion also would serve as a defensive measure, to the extent that Middle Eastern countries limit the need to compete for food in the global marketplace.  Beyond politics and market exposure, the Middle East, for the sake of its development, has a fundamental interest in creating conditions in which its inhabitants live in an environment conducive to progress in all spheres.^[4]  Other than the related issue of access to water, no single issue is more essential to the creation and long-term maintenance of such conditions than is food security.

The GCC states, while comparatively cash rich, desperately lack the arable land, water resources, human resources, and depth of agricultural experience necessary to produce food sustainably and at appreciable levels.^[5]  By comparison, the relatively cash poor countries of the region, including Egypt, the Sudan, Algeria, Morocco, and the countries of the Levant, individually and together possess the agricultural land, climate conditions, human resources, and agricultural experience to produce food in appreciable quantities, and in any case at higher than present output levels.^[6]  But this latter group of countries has yet to realize its agricultural production potential for a number of reasons.^[7]

As a region, the Middle East has not explored its potential to sustainably bolster food security by marshaling its combined monetary, natural, and human resources for the long-term benefit of its inhabitants.  It is in the region’s best interest to identify and pursue strategies to bolster food security, through increased regional production and other means, in ways that are not only economically, legally, and environmentally sustainable, but also are politically, socially, and ethically sound.  The food security waqf proposed in this article would serve as a vehicle through which the region’s collective resources can be allocated and deployed to advance sustainable regional food security.

IV. Promoting Ethically Sustainable Food Security Investment: Maqāṣid al-Shari’ah

The need for enhanced ethics in the pursuit of food security investment is clear.  Ethics, as much as monetary, land, and human resources, will be essential to the long-term success of food security strategies, particularly those that span multiple countries.^[1]   A brief look at the core objectives of Shari’ah demonstrates this .

Leading classical scholars of Fiqh (fuqaha) and uṣūl al-Fiqh (uṣūlliyyīn) delineated five “essential” objectives advanced by Islamic Law that are accorded the highest weight among the objectives of Islamic Law (maqāṣid al-Shari’ah).^[3]  In order of importance, the five essentials are the preservation of: (1) the religion of Islam; (2) human life; (3) progeny; (4) the faculty of reason; and, (5) material wealth.^[4]  According to modern scholars, these five “essential” objectives of Islamic law were established by Imam al Ghazali of the Shafi‘te School, and later adopted by classical scholars of the Malki and Hanafi Schools of Islamic law.^[5]

In contextualizing the five “essentials” of maqāṣid al-Shari’ah, classical scholar Izz al-Din ibn Abd al-Salam’s commentary is helpful.  He is reported to have written that “all legal rulings in the areas of jurisprudence are contained within” the following Qur’anic verse: “Behold, God enjoins justice and the doing of good, and generosity towards [one’s] fellow-men, and He forbids all that is shameful and that runs counter to reason, as well as envy; [and] He exhorts you [repeatedly] so that you might bear [all this] in mind.”  (Qur’an 16:90).^[6]  The point, essentially, is that in Islam, as enjoined by the Qur’an and illustrated by the Hadith and Shari’ah interpretations, service of humankind, consistently with Islamic law, is an act of worship.^[7]  In other words, it is fundamentally Islamic—an act of “preserving the religion”—to utilize and protect worldly resources, including human life, progeny, the faculty of reason, and wealth.^[8]

In other words, the promotion of human well-being is not only encouraged, but required.  This includes the creation, protection, and deployment of wealth in the service of individuals, families, and society at large.  Intrinsically, the objectives of Shari’ah, and therefore Shari’ah-compliant finance, are compatible with the objectives of development finance and social investment, which, in principle, advance the well-being of mankind.  “In the Islamic system there is no such thing as a [charitable] dedication ‘solely to the worship of God.”^[9]  It is appropriate then that Islamic Finance, which is Shari’ah-based, be employed to advance the public interest.^[10]

V. Food Security Waqf

This article proposes the establishment of a multilateral food security waqf as a mechanism for investment in the future food security of the Middle East.[1]  As envisioned, the food security waqf would serve as a vehicle for allocating and organizing capital and other resources for investment in agriculture and the financing of essential activities such as research, technological innovation and transfer, agricultural production capacity building, and income-generation.  Importantly, the food security waqf envisioned would directly or indirectly facilitate much needed access to finance, including by small farmers, small and medium enterprises, and other parties across the food supply chain.

The waqf structure (rather than a conventional conduit, such as a fund or corporation) is proposed primarily to mitigate the political and legal risks (real and perceived) that tend to deter investment in the region, particularly on a multilateral basis and for regional benefit.[2]  Waqf assets, relative to assets associated with conventional investment vehicles, have enjoyed relative freedom from governmental interference, due both to the general respect accorded to  awqaf and the relative vigilance of the public and waqf custodians against undue interference.[3]

Therefore, for the purposes of diminishing legal and political risk in the context of multilateral Middle East investment, the waqf structure (properly crafted and with strong legal frameworks to diminish the likelihood of government interference) provides an attractive alternative to conventional investment modalities.  Further, the waqf structure is proven as an effective and administratively convenient mode of investment and finance, particularly for large-scale  projects.  As discussed below, awqaf have been used successfully (by Muslims and non-Muslims) to promote the public interest and facilitate investment throughout culturally and geographically diverse countries.  The potential of the waqf as a modern development and investment tool is borne out by history and should neither be overlooked nor underestimated.

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