* Parties espouse free markets, private investment, deregulation
* Turkey, not Iran, to be model for North Africa
* Islamic finance to coexist with conventional banking
* But political agendas could affect free trade commitment
* Biggest policy risk may be budget deficits
By Andrew Torchia
Nov 23 (Reuters) - Hassan Malek, one of the top financiers and business advisors of Egypt's Muslim Brotherhood, describes his movement's economic policy agenda: free trade, more manufacturing investment, and a crackdown on the corruption that has plagued business.
Islamic banking would be offered alongside conventional banking, as it is in Malaysia. The movement would advise citizens on lifestyle issues such as alcohol consumption and Islamic attire, but not impose rules.
"We want to attract as much foreign investment as possible...and this needs a big role for the private sector," Malek, a businessman with interests in textiles and furniture, told Reuters. He was jailed by Hosni Mubarak's government in 2006 and released after the former president resigned.
In most of North Africa, political change triggered by the Arab Spring uprisings is set to give Islamist parties major influence on economic policy for the first time, after decades in which dictatorial governments kept economics and religion apart.
The Islamist Ennahda party will dominate Tunisia's coalition government after last month's elections. Islamist groups are expected to do well in Morocco's parliamentary polls this Friday, and in a series of Egyptian elections starting late this month. Libyan elections are due next June and the country's interim leader, Mustafa Abdel Jalil, has already urged the country to "purify" its financial laws along Islamic lines.
Even in the Gulf, where the Arab Spring has not ousted governments, there are some signs of greater Islamic influence on policy. Oman announced in May that it would introduce Islamic banking after resisting this for years; in February, Qatar asked conventional banks to close down their Islamic operations to prevent any overlap of business with full-fledged Islamic banks.
Some local and foreign businessmen around the Middle East are concerned, even alarmed. They fear Islamist parties could disrupt financial markets and trade with religiously inspired regulations, scare away foreign investors, or damage economies with their inexperience in governing.
Amine Tourki, who owns a travel agency Tunisia, thinks Ennahda may be secretly planning a radical Islamisation of society that could cripple the tourism sector.
"The tourists still have doubts, especially the French. They are afraid that the hotels are going to be controlled by Islamists," he said, adding that hotels in the south were empty even though it was the tourism season in the Sahara.
A foreign businessman operating in Libya said the country's new leaders would face a tricky task satisfying popular desire for economic change while accommodating the business community.
But so far, the signs are that the region's Islamist parties are aware of the dangers and determined to avoid them. Knowing they need economic growth to cut unemployment and pay for social spending, they are working to reassure the private sector -- and in many cases espousing policies that are as pro-market as those of their secular rivals.
Ennahda, for example, says it wants to improve Tunisia's infrastructure to attract foreign investment, and work towards a regional common market. Morocco's Justice and Development Party (PJD), which looks likely to win the most seats in Friday's polls and may govern in a coalition, aims to streamline rules and involve the private sector more in development projects.
"If you look at the parties in North Africa, none of them are against the free market, private property or private business," said Florence Eid, chief executive of research and advisory firm Arabia Monitor. "These are not parties which are going to devastate the economy."
Concern over Islamists masks big differences
Egypt Brotherhood: manufacturing is key
Ghannouchi too liberal for some Islamists
Libya opens door to Islamic finance
Morocco to grapple with economic reform
The experience of Iran, where the Islamic revolution of 1979 led to the nationalisation of industries and an inefficient, heavily regulated economy, is one reason for businessmen's misgivings in the wake of the Arab Spring.
But for North African parties and governments, a more relevant model is Turkey, which has enjoyed spectacular economic growth since the religiously conservative AK Party took power a decade ago, and is expanding its economic and diplomatic influence in the region through trade and investment. Officials of both Tunisia's Ennahda and Morocco's PJD say they have been influenced by the AK Party.
"You have an Islamist government in Turkey but no one talks about the Islamisation of economic policies there," said a senior World Bank official in the region, declining to be named because of the sensitivity of the issue.
The growth of Islamic finance, which prohibits the use of interest and pure monetary speculation, is likely to be the most visible result of Islamist parties' influence in North Africa. Previous governments limited or discouraged it; now Islamic banks from the Gulf are keen to move in.
But in all the countries, Islamic finance is expected to coexist with conventional banking, as it does in the Gulf, rather than replace it. In Libya, Jalil's call to "purify" finance was seen by most analysts as a remark made for effect at an emotional moment, not a policy declaration that the country's next government will follow. Libya wants to develop ties with the Western nations which aided the rebels in the civil war, and has pledged to respect their business interests.
In fact, Islamic banking may benefit North African countries by giving them access to the Gulf's big pool of Islamic investment funds, at a time when the European debt crisis is ravaging the conventional financial system in the West and causing European banks to cut back their overseas lending.
Days after Tunisia's elections, Ennahda leader Rachid Ghannouchi went out of his way to reassure the financial industry that it would not be disrupted, meeting executives of the national stock market to tell them he wanted more company listings to help diversify the economy.
Ghannouchi has also said he wants to follow through on the previous government's intention to make the dinar currency convertible -- a reform which, if it went ahead, would be a dramatic gesture of liberal economic policy.
For some businessmen, such reassurances only go so far -- they worry Islamist parties could gradually become more radical, and ultimately ditch moderate figures such as Ghannouchi.
What is clear is that Islamist parties' commitment to free markets will on occasion clash with their political agendas. In Egypt, the Muslim Brotherhood's Malek criticised the Qualifying Industrial Zones (QIZ) agreement under which hundreds of Egyptian companies export products with Israeli components duty-free to the United States. Export volumes have been running at around $800 million annually.
"Any dealing with the QIZ, any dealing with Israel, I have reservations about, even in business," Malek said.
But for now at least, Islamist parties may not gain enough power to act on such beliefs. All of them are likely to have to form coalitions with secular parties to govern; in Egypt, analysts estimate the polls may give them up to 40 percent of elected seats in the lower house of parliament. In Morocco, King Mohammed will keep a decisive say in strategic policy decisions.
A big area of concern for many businessmen is the tourism industry, a key source of foreign exchange for Egypt, Tunisia and Morocco. Businessmen fear Islamist influence could gradually make countries less welcoming to Western tourists who want to drink alcohol and wear revealing swimsuits at resorts.
To varying degrees, the main Islamist parties are signalling they will live and let live on this issue, allowing tourists to frolic in resort areas while strongly discouraging such behaviour elsewhere -- an arrangement not too different from the current situation.
"Private beaches annexed to hotels that tourism can come to...offer a kind of freedom for tourism, but within the society itself...(there must be) protection of traditions, customs and mores," said Saad El Katany, Secretary General of the Egyptian Muslim Brotherhood's Freedom and Justice Party.
The largest worry for businessmen may be Islamist parties' management of public finances. The parties' platforms emphasise improving the unequal distribution of wealth and raising living standards of the poor, from whom the parties draw much of their support. Those goals clash with efforts to rein in state spending and control budget deficits.
The danger is most acute in the case of Egypt, where the government estimates a budget deficit of 8.6 percent of economic output this fiscal year, close to Greece's level. Downgrading Egypt's credit rating deeper into junk territory last month, Standard & Poor's said the deficit menaced economic stability.
Many parties in Egypt, not just the Islamist ones, want to spread wealth more evenly and would struggle to cut the deficit in the face of public demands for subsidies and welfare spending. But the main liberal and left-wing parties have been relatively clear about their economic plans, giving details of their spending and taxation proposals.
The Muslim Brotherhood says it too aims to cut the deficit, but senior officials have avoided clear statements about their intentions toward taxation and subsidies -- a sign they may see some contradiction between pushing their social agenda and satisfying the business community. (With reporting by Tarek Amara in Tunis, Shaimaa Fayed, Tom Pfeiffer and Patrick Werr in Cairo, Marie-Louise Gumuchian in Tripoli, Souhail Karam in Rabat and Martina Fuchs in Dubai; Editing by Patrick Graham)