The Review of Religions conducted an interview with Ahmad Salam, a career investment banker with 25 years of experience in debt capital markets and investment banking and founding director of the Islamic Bank of Britain, on the subject of the Coronavirus pandemic’s impact on the global economy. He developed an expertise in Islamic finance and was the founder of the first Western approved Sharia bank, the Islamic Bank of Britain. Ahmad Salam was also head of the Islamic finance at Credit Suisse. Currently he is working in private equity and is advising companies on their financial dealings. In this interview he spoke about the potential outlook of the economy, whether Covid-19 is the catalyst for an impending financial crisis and the moral obligations of governments and their leaders in order to rectify the global economy and establish a new economic order, among many other things . Below is a lightly edited transcript of the interview between Ahmad Salam and Review of Religions’ Senior Editorial Board Member Sarah Waseem.
SW: Assalaamo Alaikum (peace be upon you) and welcome Ahmad Sahib.
AS: Wa Alaikum Assalam.(and peace be upon you)
SW: Thank you very much for joining us on this programme.
AS: Delighted to be with you.
SW: Thank you. So, if I can start off by asking you, the state of the economy is gradually deteriorating in all countries of the world and the UK is no exception to this. Can we attribute this abrupt economic halt to the pandemic? Were there any mechanisms that would have helped to forecast it?
AS: That is a very broad question. Let me just start off by perhaps by putting two points together. One is, I hope I don’t end up depressing people significantly by the end of this podcast because inevitably the potential outlook for the global economy is not very promising at all and I think we’re due a major, major significant correction in financial markets in the face of the global economy. And the other wonderful quote I love from Mark Twain which is ‘ all are exceedingly good at answering all the questions of the world but the wise admit they just do not know.’ So I’m going to claim the second category in some of your questions and say I do not know the answers to all the questions you may have, but in terms of the state of the global economy, no, the pandemic maybe has been a catalyst for what was going to happen but this correction and this financial crisis has been in the making for a considerable number of years and one of the leading global fund managers, a guy called Jim Rogers predicted the recession in 2020, Nouriel Roubini professor of Economics, he also predicted it, Martin Feldstein of the Federal Reserve, Ben Bernanke, Jeffrey Sachs, …I could produce a list of some of the most renowned global economists who have been calling and expecting some sort of significant economic downturn to occur in 2020. So, people on the inside, such as myself are not surprised by it. We were expecting some kind of economic event to happen; what we weren’t expecting is the speed with which it happened and the reason why it happened, ie. the pandemic.
SW: Can I ask, would we have had any mechanisms to forecast that? It sounds like you that saying that ‘yes, everything was there.’ I’m kind of wondering if you could give us an indication of some of those indicators that we were heading for crisis.
AS: I think perhaps the simplest one that people can understand is the performance of stock markets and the whole valuation used for companies were getting so far out of any kind of sync, any kind of rational thinking and they were just going up to astronomical levels of valuation. Companies that didn’t generate a single cent in revenues were being valued at hundreds of millions of dollars. It just didn’t make sense, and it was all the signs of something coming down the track to restore normality because that’s what markets do, they restore normality and that’s where the free market, if it is left to its own free devices actually acts as a bit of a checks and balances. It would have brought reality back into the system at some stage and that’s is really what we’re seeing.
SW: So, in some ways this was inevitable, it was going to happen.
AS: It was inevitable and it was also partly a hangover from the financial crisis of 2008 when the world had the opportunity to step up and essentially restructure the global economy, but instead of which the politicians who were so short sighted in their thinking, decided to load the global system with debt with all the printing of money, all the quantitative easing that took place globally in the US, in Europe etc, etc, they just printed money and kicked the can down the road and said we’re not going to deal with the problem now, we’ll leave some other generation to deal with it and that is exactly what has happened now. But now, I think we’re at that point of absolute finality where governments are trying to scramble together and put up all these debt packages to support people, support companies etc, but its not going to be enough because the scale of the problem we are facing right now is so significant.
SW: That’s really interesting to hear and it kind of leads nicely to my next question, which is, thinking about the UK but also the world in general, what are the hardest hit sectors and will this have an impact now on employment and our individual standards of living?
AS: If I go through a list of sectors which are the worst hit in descending order, so the greatest damage will be tourism and leisure, then aviation and maritime, the automobile industry, construction and real estate, manufacturing, financial services, education, oil and gas, and then in terms of sectors that are least affected it’s probably going to be agriculture, e-commerce, computing and digital technologies, personal healthcare, food processing, and probably least affected sector is going to be medical supply and medical service. And in terms of the, the second question you asked was with regard to -? ..
SW: Individual standards of living and thinking about the impact that that’s going to have on you and I.
AS: Yeah, I think we have to be ready for a significant standard of living cut and this is something that’s going to be the most difficult and could potentially lead to significant social unrest because we’re all effectively living beyond our means, whether it’s at the individual level or the national level. The governments have borrowed, so far when you look at the total global debt, over 250 trillion dollars. I mean, you can’t even imagine what that is, but to put it perhaps into context its over three times the size of the US economy, that’s three times larger than the US economy, is the global debt position. In the UK we have 66 billion pounds of debt. It’s an incredible number when you think about it, so at some point the day of reckoning has to happen, you have to pay that money back or you have to say we have to take a standard living cut.
SW: Wow, that does sound quite depressing, and I think you’ll be giving me even more depressing facts in a minute when I ask you my next question really, which is that what we are seeing is of course, governments bailing out companies and bailing them and supporting most of the nation in this country and in other countries in the world through furloughing schemes. How long can this last? So, for example if, as we seem to be hearing or thinking, the lockdown has to be extended to the end of 2020 and governments can’t sustain these measures to cover employee wages, what’s likely to happen? Are we actually going to reach that stage where we’re going to need to consider nationwide rationing?
AS: Nationwide rationing is not being discussed at the moment but it’s inevitable. It is an inevitable possibility that it may have to happen if there is no other way of sorting the issues out. Governments are constrained as to how much debt they can borrow. So, typically, which country has been the biggest supporter of government debt borrowing programs has been China. China has been producing massive trade services, budget services, they have a propensity to save in China, and so they put their money into overseas bonds, very safe places – debts issued by the US government, the UK government, the EU government, etc, etc. It looks as if the Chinese economy for the first time in over a decade is going to show very significantly slower growth, if not actually negative growth when we see the actual numbers for the statistics. So how are the governments going to be able to borrow that money? Who are they going to borrow it from, and if they can’t borrow the money, then there will come a point where they say we can’t keep these schemes going, the furlough schemes, the self-employed, you know, again providing 80 percent of their income, up to two and a half thousand pounds, etc, etc, the government will not be able to afford this, because on the other side, because of the lockdown, the economy is not working so businesses aren’t trading, therefore people aren’t going to shops, therefore the tax take for governments is going to be significantly reduced and that’s going to increase the debt burden very significantly on the government. So, its becoming this circular argument and its very hard to break that, until someone steps in and has a hard stop and says ok we’ve got to take the pain guys, we’ve got to recognize that this is not, this is not sustainable any longer.
SW: Can you describe for someone like me who’s not an economist what taking the pain means?
AS: It means a standard of living cut effectively, for the man on the street. So, we’ve all got used to .. the most scary statistic is , generation of millennials in the UK typically eat out four times a week. Those luxuries, springing out for the coffee shop, the sandwich chains charging five pounds for a sandwich, those businesses are not going to survive because people won’t have the disposable income. So there’ll be salary cuts, there’ll be significant unemployment, I mean already you’ve seen in the US that the unemployment claims have gone up to over 20 million in a week and the people claiming unemployment benefit, went up to 20,000,000, and the previous greatest single increase was in 1982 when the unemployment claims went up 850,000. That gives you a scale of the unemployment that’s already hit the US. What’s the impact of that going to be? People won’t be able to afford their mortgages, car loans, they won’t be able to even go and shop in their normal way, they’ll have to think about cutting back on their expenditures.
SW: Yes, quite a scary prospect for all of us, I think. I had another question again. You mentioned about China showing slower growth and I guess I was thinking, you talk about growth, and I wondered were there, you think some economies are going to recover faster than others?
AS: It’s hard to know, because what’s interesting is that the impact at the moment seems to be more in the developed world than the developing world. The number of cases in Africa is still relatively small. It’s hit the US, the UK, Italy, Spain, the industrialized economies harder –
SW: You mean the impact of the virus here do you?
AS: Yes and therefore the impact of the lockdown and therefore the economic impact, so it’s all kind of consequential step by step by step, and so, its definitely, I think, at the moment it looks like it’s going to hit the developed nations and therefore, by definition, is going to hit the developing nations because if you look at the aid, the US givers 35 billion dollars a year roughly in aid, Germany gives 25, UK 18, EU about 16, one of the first things that may well be cut in this need to try and balance the books, is going to be foreign aid to the developing countries, and that is part of the reason why the UN came out with this terrifying report yesterday where they’re expecting that famine, global famine impact, could rise from 135 million people around the world’s 250 million people and there won’t be the resources to be able to help those people. So, we’re looking at a real global impact, developing and developed countries are all going to be hit.
SW: Yes, and I guess again, a question for me again, not being an economist, is will it matter where a country has borrowed from? So, for example in this country we’re borrowing from the Bank of England, that’s not the same for other countries, will that make a difference where they borrowed money from?
AS: Remember the bank doesn’t actually have any money. The Bank of England then issues UK government debt bonds called gilts which it sells to the Chinese, the Americans the French, the Japanese etc, and they actually own the debt. So, the Bank of England is just the conduit through which the debt is issued to people who want to buy the debt.
SW: Ok, let’s move on a bit and think a little bit more broadly. Now, there’s been a lot of discussion and countries have imposed lockdown measures you know, social distancing, in order to try and recover from the impact of COVID-19, and there’s been discussion about, the impact, , the economic impact versus the health impact, how we move forward. How do you think we should strike the right balance between them both? Where should we be focusing our efforts?
AS: I think there is definitely a need for a new economic model. The old model of capitalism is clearly not working at the moment and that’s not to say that the opposite side of capitalism, i.e. communism, is going to be a solution either. So, there needs to be a new world order effectively put together and, we don’t yet know who’s going to lead that new world order. If you remember, at the end of the Second World War; we had men of leadership then. It’s very hard to look around the world at the moment, especially in all the major countries and see men or women of leadership who are going to lead us, in this new economic order that’s desperately required.
SW: Thank you for that. The recession has brought to light a number of glaring internal flaws of the entire economic system. Will our economic philosophies need to change, do you think? Everything is based on GDP. Do you think we’re going to need to have a rethink about our relationships with natural resources or our approach regarding health issues?
AS: I think the health issue is a clear one. We have the benefit of an amazing national health service in the UK which is absolutely fantastic and a tribute to all the amazing people who work so hard for the benefit of so many others in the health service. So of course that doesn’t exist in the US for example. Every person has to fund their own healthcare. Now, President Obama had tried to put Medic-aid I think it was called, which is a national health equivalent. The first thing President Trump did when he came on board was to repeal it and stop the system. So I think again the world has to look at the whole global health model, that could be free at the point of use the or paid for by taxation, or does there need to be some other potential model? And then in terms of the other side of that – natural resources – of course all the discussions around global warming have been very interesting but they kind of depended on a very benign, very steady economic background that people could then afford to say, ‘right we can now make the change from the reliance on fossil fuels into alternative renewable energy’ which would require significant investment because they’re all new and they need infrastructure. So, whether you have electric cars and you need charge points to plug your car in when you go shopping etc., no country has that infrastructure in place now, so somebody has to pay for it. So if the question is, do we have the money to pay for it – no – so what do we do? Well we’re just going to have to keep using fossil fuels because we have petrol stations, which we can go and fill our cars and drive around in. So there is a danger that all the wonderful highlighting of the issues around environmental problems and the environmental problems across the world which were being discussed very openly up until what, three months ago, have now gone very quiet because we may not have the luxury of being able to offer alternatives to people even though the reality is we do desperately need to stop abusing and polluting mother earth in the way we are at the moment.
SW: Do you think that it’s possible that, that may mean that we actually look at our resources differently, so when we’re farming we’re farming for what we need to eat as opposed to farming for say, coffee or you know, other products that aren’t necessities. Do you think it’s going to change?
AS: I think there is the possibility that where China of course, is moving towards being an industrialized economy, and moving towards being an open based economy rather than an agricultural economy, people are pushing for a higher standard of living, and therefore the notable thing is that they want to eat more meat and of course meat is mostly cattle and other livestock, are the most inefficient uses of land possible. So if a recession comes will people go back to eating simple vegetables and plant based diets again? Very real possibility.
SW: Yeah. Right. So, thinking about new models, new ways of doing things, in his lecture The Economic System of Islam, Hazrat Musleh Mau’ud (ra) the second Khalifa of the Ahmadiyya Muslim Movement explains that the first pillar of an Islamic economic model is based of morals or morality. So, if we take this idea of morality towards business and finance being the foundation of a financial model, what lessons can we take today with how we could deal with the current economic downturn, and perhaps for the future as well; how we should be dealing with our resources?
AS: I think that you can’t argue the logic of that, because if we had had more moral standpoint globally, where we were more afraid of our consequences of what we were doing and the pain we were causing other people by having things in our own selfish way, then perhaps we wouldn’t have reached the position we are, where – this is an amazing bit of news today that two senior executives at a leading supermarket who didn’t make the grade, they weren’t good enough to go into a new environment, but they got a million pound payout each, just last week, right? Because of the pandemic. And this is the same supermarket which is having to furlough its staff. So where is the morals in that, that we will pay these two individuals two million pounds but those two millions pounds could probably have paid for maybe a hundred staff, to keep them employed – so that’s just a small example. We’ve had the issue more recently that the Bank of England saying to the banks you will not pay your dividends – dividends are a percentage of profit the bank generates payed out to shareholders. Now, the question is, should the banks be paying dividends to shareholders or should they suspend them and say we actually need that money to help poor people, to help the poor companies who we lend money to, to try and spare lives, to get them through this crisis? Wouldn’t we be better off doing that, rather than spending the money, giving it out to share- holders. And it requires the Bank of England to tell these banks not to pay out those profits to share-holders. That again, is a moral vacuum. The banks themselves should have said, ‘should we be doing this? Should we be giving out this money when we actually know we’re going to need it to support poor individuals who is going to be in very hard circumstances, or companies which are about to go bankrupt because they don’t have sufficient working capital to keep their business going? ‘ Why does it need, you know, the central bank to say you’re not doing that. Where is the integrity, morals, within the chairman, the chief executive, the board, and all the senior staff? Where have their morals gone? And that’s sort of the big end of it. The micro end of it, again the morals of people living beyond their means. One of the most awful things that I find is the fast fashion and the disposable nature that we’ve come to – that everything is a throw away society, We don’t recycle things, we don’t try and rebuild things, we don’t try and reuse things. Our view is we’ll throw it away. So we buy some electronic gadget, if it stops working, we don’t have repair shops anymore where we can go and get it repaired. Now you just go down to the tip, you throw it away, it goes into landfill somewhere and you go and buy a new one. That again is driven by a commercial greed which is a lack of morals.
SW: Would it be fair to say that capitalism, our current system, is immoral?
AS: As it stands now, yes, without a shadow of doubt. Capitalism in its pure sense means that the weakest fail and the strongest survive, and it kind of sifts through. Let’s be clear, Islam also is a socialist capitalist model. It allows you to make profit, but it doesn’t allow you to exploit people to make those profits. You have to be very fair in your dealings and it requires you as somebody who’s blessed with excess wealth or excess capabilities or good fortune, to use that to the benefit of other people and not to hoard it. And that may be the basis of a new world economic order that we need.
SW: Really interesting points that you’re making there. I wanted to come back and ask you a question. Some economists are saying that governments should be giving money to individuals rather than companies when they are giving out money; that instead of bailing out companies, that money should go to individuals and I just wondered what you thought of that? That’s an argument being made by some economists in America for example.
AS: It comes back again, that where’s that money coming from? They’re borrowing the money They haven’t got the money to sit and give. The US announced a two-trillion dollar stimulus package. The President has been sending cheques for over a thousand dollars to people etc. But it’s not as if he actually has that money in the bank. He’s got to go and borrow it from somebody. He’s got to go to the markets again and he’s got to try and borrow two-trillion dollars which somewhere, somebody, a future generation. has to repay that money.
SW: Agreed. But if you were going to give money to a company, you know, a big company, or that same money give to individuals. I’m just wondering which would be the better investment in the long run?
AS: It’s a multiplier effect. But where will that single dollar for example, have the most impact. If it goes into a company which produces something, which employs people and it keeps families fed, housed and able to lead their lives, then is it better to give that one dollar to that company rather than an individual who will only spend it in his own little world in his own universe, or worse, may just go put it in the bank and not spend it at all. That’s again, the Islamic model of not hoarding money and that’s what Zakat in Islam is all about. To stop you, to discourage you from hoarding money, but to use your money to recirculate it in the economy – to reinvest it so that you’re constantly creating opportunities for other people.
SW: That leads me really nicely to my last point really, which is that as you may have heard in his speech in Singapore in 2013, the current head of the Ahmadiyya Muslim Movement, Hazrat Khalifatul Masih V (aba) has spoken about the economic system in Islam in terms of – in light of God’s attribute of being Lord of all the Worlds, as we say in our prayers, meaning that economically, there are no boundaries in the sharing of resources. And His Holiness (aba) said that we should cater for our own people, but also help other countries, and what we are seeing now is some countries are helping others, however, some are also withholding resources and blocking them. What lessons do you think we can learn from that approach?
AS: That approach of – the positive side i.e. that, we’re all in this together, John Dunn, ‘no man is an island’ – we are all interconnected – and the more we can do for each other, the more we will win. When people start being greedy and they start hoarding and blocking distribution, ultimately, they will lose, and all of humanity will lose . The point I made earlier about the famine the UN were worried about, at the end of the day, we have sufficient food in the world to be able to feed every single person, but certain countries are hoarding food supplies, wheat, butter etc etc. They have the famous mountains of food in storage, for their own population’s benefit, and not give it to genuinely starving people in the most poorest parts of the world. So its definitely a phenomenon which has to be looked at very, very carefully and the world needs to move away from just being utterly selfish in its outlook and has to have a much more enlightened approach in looking at, whatever helps my fellow man, ultimately will help me as well.
SW: Thank you. That’s a really interesting observation of the whole problem.
AS: People at the moment are trying to ask the question what is going to happen? And the truth of the matter is that the best economists are all saying the same thing – that all the forecasting at the moment is pointless. We will bounce back at some stage but we don’t know when that will be and what the bounce back in the global economy will look like. For a number of people – for a large number of people – they only know the last ten years, between 2010 at the end of the financial crisis, and 2020 and they believe the last ten years to be the norm. Those last ten years were debt fuelled economic expansion. That expansion was driven by consumers borrowing money and spending that money in shops to buy more material goods. It wasn’t real economic growth. And therefore, the damage that the short term debt fuelled boom has done, is what we’re now going to have to undo and I think the reality is we’re going to have the next two to three years of significant struggling, huge damages being done to global economy. There will be some bounce back, but there will be a colossal debt burden and a lot of unemployment and a lot of businesses are going to collapse. There’s no good news on the horizon sadly.
SW So can we expect that there will be any debt cancellation in order to reduce the burden of those countries which are so much poorer than some of the Western nations which are obviously in great trouble?
AS: I think the only answer to that, is the answer I gave already that, that would only happen if we had a new world economic order, led by men of integrity. If we had men in charge of the developing countries and the G20, whether its Donald Trump, whether its Boris Johnson, whether its Oman and Saudi Arabia; any of these people – if we had a single global leader of any integrity, the first thing they would do when they saw us beginning to come out of crisis, would say we need a new economic order, and we need to look at what we’re doing to the developing countries, and we need to do debt cancellation for them and write off the debts and accept and give them a chance to recover from this pandemic and the economic crisis it brings. The reality is that’s never going to happen we don’t have men of that caliber anymore
SW: Thank you. Well we can only hope things will change JazakAllah! Thank you so much for listening to us
AS: You’re very welcome take care.
SW: Thank you, thank you for listening to us, if you would like more info please go to our website the reviewofreligions.org, or follow us on twitter @ReviewReligions and also on our Instagram page #ReviewReligions.