Indonesia Halal Industry & National Economy

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by Hendra manurung

It is worth around USD2.3 trillion excluding Islamic finance as the global halal industry improvement. Therefore, growing at an estimated annual rate of 20%, the industry is valued at about USD560 billion a year. It makes one of the fastest growing consumer segments in the world. The global halal market of 2.2 billion Muslims no longer confined to food and food-related products.

In 2019, Muslims are the fastest-growing religious group. Muslims are not well known in some places, and most Americans who live in a country with a relatively small Muslim population, have said they know little or nothing about Islam. If current demographic trends continue, the number of Muslims is expected to exceed the number of Christians by the end of 21st century.

Most countries in the Middle East and North Africa region, where the religion originated in the 7th century, are heavily Muslim, is home to only about 20% of the world’s Muslims. A majority of the Muslims globally, about 62% live in the Asia Pacific region, including in Indonesia, India, Pakistan, Bangladesh, Iran and Turkey.

Indonesia is currently the country with the world’s largest Muslim population. India 1.35 billion populations will have that distinction by the year 2050 in remaining a majority-Hindu country with more than 300 million Muslims. The Muslim population in Europe also is growing as projected 10% of all Europeans will be Muslims by 2050.

The halal industry has expanded beyond the food sector to include pharmaceuticals,  cosmetics, health products, toiletries, and medical devices as well as service sector components such as logistics, marketing, print and electronic media, packaging, branding, and financing. With the increase in the number of affluent Muslims, the halal industry has expanded further into lifestyle offerings including halal travel and hospitality services as well as fashion. This development has triggered by a revolutionary change in Muslim consumers mindset as well as ethical consumer trends worldwide. There are three fundamental reasons.

First, the halal industry has now expanded beyond the traditionally-known scope of the food sector. Halal products today include cosmetics, pharmaceuticals, toiletries, and penetrate the service industry, such as Islamic financing, logistics, tourism, marketing, travel agents, and mass media.

Second, the Muslim market share is enormous, with total followers of around 2.2 billion people. However, the halal market is non-exclusive to Muslims. Halal product requires a set of rules that must fulfill because they must uphold ethical values, social responsibility, economic and social justice, animal welfare, etcetera. It needs promotion of ethical consumerism; the demand for halal-certified products from non-Muslim consumers continues to increase.

Third, the competitiveness of halal industry products and services accessing international market.

There are still many questions about the development of the halal industry in Indonesia. It is interesting to elaborate further how Indonesia takes momentum advantage and make this market a dark horse supporting the resilience of national economy.

The halal industry has received attention from both the government and domestic industry players. In October 2018, Bank Indonesia held international Halal Lifestyle Conference to help unlock Indonesia’s potential in the global halal industry chain. Indonesia is still consumer and needs to be a leading producer of halal products. Even though, Indonesia doesn’t have a regulation to establish a halal ecosystem.

Despite being the largest Muslim population with a robust economic outlook, Indonesia is only ranked 11th in the Islamic finance indicator based on the latest data from the Global Islamic Economic Report 2017/2018. It lags behind its neighboring country, Malaysia, which came in the first. Through the support of many parties, Indonesia can catch up. It is considering that 13% of the world’s Muslim population estimated to be around 240 million individuals in the Archipelago where Indonesia could emerge as a significant producer of halal products in addition to supplying its vast domestic market.

The strategy to gradually transform Indonesia towards the position of halal-product producer indeed requires careful planning. With limited resources and funding, the government needs to look at which sectors have the most significant economic benefits. Seeing the advantages and competitive advantages that Indonesia has, substantial develop rapidly, namely the food industry and tourism.

In contrast to the popularity of the Islamic finance industry which is relatively new to the people of Indonesia, demand for halal product certification, especially for food, already exists. The Assessment Institute for Foods, Drugs, and Cosmetics Indonesian Council of Scholars, LPPOM MUI, which provides halal certification, was established in January 1988. Operations in the form of inspection/audit, determination of Fatwa, and issuance of halal certificates issued by MUI and some have even been adopted by overseas halal certification institutions, which have now reached 42 institutions from 25 countries.

The system of certification and standardization has been well-regulated the food industry can become the frontline for Indonesia to fly its wings and become a global producer of halal food products. However, the existence of halal-certified products is substantial; MUI regulations have not yet fully implemented. There are still many products, both local and foreign, that are not halal certified and are circulating freely on the market. The rules that require halal certification regulated in Law No. 33 of 2014 concerning Guaranteed Halal Products. The complexity of the permit scheme, time, and the high cost of obtaining halal certification made the majority of products, especially from the Micro Small Medium Enterprise industry, many had not obtained halal certification on their products.

Government lack of firmness in requiring halal certification and industry players lack of awareness to register their products contribute exports of Indonesian halal products is still relatively small, namely 21% of total exports overall, despite growing demands. Indonesia has many programs to maximize the potential of halal food industries which creating a supportive industrial halal ecosystem by strengthening regulation, monitoring its practices, promotion, and bridging close coordination between related sectors.

* Hendra Manurung is currently Full Time Lecturer of International Relations at President University, City of Jababeka, Cikarang, West Java.