How To Lead The Global Halal Industry: Indonesia Future Perspectives

Author: Patria Yunita, M.Si, CPIF, ACSI . Lecturer of International Program Tazkia Islamic University College, Ordinary Member of Chartered International Islamic Finance (CIIF) Malaysia, Associate Member of Chartered Institute for Securities and Investment (CISI), London, United Kingdom.

The Muslim population is expected to increase by 73 percent from 1.6 billion in 2010 to 2.1 billion in 2027, representing 25.2 percent of the global population. In 2018, it has increased the demand for halal products from consumers around the world, primarily from the Muslim population. The state of Islamic Economic reported, in the year of 2017, Muslim populations globally spent almost $ 2.1 trillion in halal food, beverages and lifestyle segments.

Muslim consumers in Islamic countries believe that the products they consume are halal by default and Islamic law. This is in line with The Quran Surah Al-Baqarah verses 172 that commands Muslims to consume Halal Food, to prohibit that which is not permissible and to avoid doubtful things.

The Halal Industry has become one of the important business segments due to the growth of Muslim populations, high demand for halal products and technologies digitalization. Segmentation of Halal Industry consists of Halal Food, Islamic Banking & Finance, Halal Travel & Tourism, Modest Fashion, Halal Media & Recreation, and Halal Pharmaceuticals/Cosmetics.

The necessity of certified Halal ingredients has also increased because of the high demand for halal products. Many countries, such as Malaysia, UEA, Saudi Arabia, Turkey, Thailand, Philipines, and Brunei have taken serious steps to use the halal industry as a national vision. Producers from Muslim and non-Muslim countries are tapping potential in this industry.

Unfortunately, The Organization of Islamic Countries (OIC) relatively poorer public awareness toward halal products and services. The lack of a recognized global halal compliance standard and certification processes has caused a lack of confidence for consumers to consume international halal products. The global halal certification is needed to assure all products and value chain processes have achieved international halal standards.

Indonesia Halal Industry: An Overview of Current Development

Indonesia, one of the largest Muslim population has made halal standards since Oktober 2019. The Government of Indonesia established the Halal Certification Agency that will take over the role of Halal certification from the existing Indonesian Ulama Council.

According to The World Bank Report of Global Economic Risks, Indonesia economic was slightly slowing down as an impact of the global economic recession. It is predicted that Indonesia will suffer because of the portfolio capital finance of the Current Account Deficit (CAD). Lower Current Account Deficit equals to lower GDP growth. Indonesia needs at least $ 16 billion per year in external financing inflows to close the Current Account Deficit gap under normal circumstances and much more if there are capital outflows that occurred.

Indonesia needs stable capital from export-oriented Foreign Direct Investment (FDI) which creates good jobs and cannot easily take the investment out of the country. In this case, the Halal industry becoming one of a potential solution to create export and FDI. The State of Islamic Economy Reported, Indonesia’s ranking for the global Islamic economy increased from 11th to 10th place in 2019, with a substantial Halal Fashion drives the achievement.

Top 15 countries GIE Indicator Score

No. Country GIE Indicator Score Halal Food Islamic Finance Halal Travel Modest Fashion Halal Media and Recreation Halal Pharmaceuticals and Cosmetics
1. Malaysia 127 81 173 92 33 51 96
2. UAE 89 91 83 97 106 109 104
3. Saudi Arabia 65 45 86 20 19 44 45
4. Bahrain 54 48 64 34 16 33 47
5. Oman 51 62 52 28 25 28 43
6. Jordan 49 60 49 35 23 25 58
7. Qatar 49 49 55 27 12 63 35
8. Pakistan 49 58 53 15 22 9 58
9. Kuwait 46 42 57 12 12 30 34
10. Indonesia 45 48 46 65 34 16 44
11. Brunei 45 58 43 26 12 37 57
12. Sudan 37 55 34 29 8 11 21
13. Iran 34 36 37 19 11 22 37
14. Bangladesh 32 35 33 19 28 7 34
15. Turkey 31 44 21 71 32 25 41

Source: State of The Global Islamic Economy Report 2017/2018 retrieved from 4th Annual Symposium on Islamic Finance. IRTI-INCEIF. 2018

The Current development of The Indonesia Halal Industry shows significant growth, with support of government regulation and standards. Halal Travel and Fashion segments lead the industry. While, Halal Food, Islamic Finance, Halal Media and Recreation, and Halal Pharmaceuticals/cosmetics segments need to be improved to lead the industry.

 

Indonesia Halal Industry: Future Perspectives 

According to the Global Economic Report 2019, the size of Halal Food, Beverages and Lifestyle spending will cross $3 trillion by the end of 2023. There is a greater need to supply and produce halal products to meet the demands. Below is the Halal Economy Sector Projection in 2022 :

Tabel 1. Halal Economy Sector Projection in 2022

Halal Economy Sector Achieved in 2016 Projected in 2022
Halal Food USD $ 1.3 Trillion USD $ 1.93 Trillion
Islamic Banking & Finance Over USD $ 2.0 Trillion USD $ 3.8 Trillion
Halal Travel & Tourism USD $ 169 billion USD $ 163 billion
Modest Fashion USD $ 254 billion USD $ 373 billion
Halal Media & Recreation USD $ 198 billion USD $ 281 billion
Halal Pharmaceuticals and Cosmetics USD $ 83 billion (pharma)

USD $ 57.4 billion (cosmetics)

USD $ 132 billion (pharma)

USD $ 82 billion (cosmetics)

Source: State of The Global Islamic Economy Report 2017/2018 retrived from 4th Annual Symposium on Islamic Finance. IRTI-INCEIF. 2018

 

Indonesia represents the largest Halal consumer market in the world

Tabel 2. Indonesia consumer spend in 2017

$ in Billion 2017 2017-2025 % CAGR Industry
$ 170.2 4.8% Food
$ 20 6.7% Clothing
$ 10 7.7% Tourism
$ 5.2 5.8% Pharma
$ 3.9 6.6% Cosmetics
$ 9.6 7.1% Media

Source: Indonesia Halal Economy & Strategy Roadmap 2018-2019

Indonesia, as The OIC member countries, has greater potential to participate in all sectors of the Global Halal Industry. Indonesia needs to take proactive initiatives to broaden its product offerings and include ethical products. It is expected that manufacturers and retailers  will focus on the halal supply chain by using the latest technologies.

Value Chain Process

The Development of Indonesia Halal Brands needs synergies among Government, Investors, Consumers, and The Industry. The role of the Government is to create a conducive and enabling environment for standard-setting and regulators and facilitate ethical related standards, regulations, and incentives.                                                                                                                                                                                                                                                                                                

Action Plan For Relevant Stakeholders                                                                                                                                                                                                                                                      Islamic financial institutions must facilitate social and economic development. The producers, manufacturers, and marketers provides transparent product information to customers. Meanwhile, The Industry must expand ethical products and services and make sure the value chain process established to comply with international halal standards.

Conclusion

Based on the overview of the Indonesia Halal Industry’s current development and its future perspectives, it can be concluded that Indonesia has a potential opportunity to become the leader of the World Halal Industry. The Government of Indonesia should lead to creating global halal certification to assure all products and value chains have achieved international halal standards by Implementing of value chain process and technologies.  (END)

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