BY FLY: MALAYSIA • 9 MONTHS AGO
The world has seen the rapid growth of the halal industry in recent years. The halal product market is expected to grow by 28% from 2016 to 2022. The market segmentation of the halal industry has extended to non-muslim as well. It turned the halal industry to be inclusive for both Muslim and non-muslim. As a result, it is now very common to see the development of the halal industry in non-Muslim countries. The obvious example is the HFCE (Halal Food Council of Europe) has certified over 400 European food companies. This is expected to bring halal into the global mainstream (Mordor Intelligence, 2020a).
As for the halal scene in Malaysia, Malaysia’s halal industry contributed about 7.5% of Malaysia’s GDP in 2017. This big amount of percentage that the halal industry has contributed to Malaysia’s GDP shows that Malaysia is successful in utilizing the potentials it has as a Muslim majority country. In addition, these facts will be very interesting to observe as the halal industry is now regarded as the engine of economic growth. Hence this paper will generally examine the development of the halal industry in Malaysia. It will start by defining the halal industry. The next part will discuss briefly regarding the halal industry worldwide and will be continued by the overview of the halal industry in Malaysia and how it affects the economy.
The existence of the halal industry has become a debate among some groups of people. Some people argue that the halal industry emerged just for economic purpose. Others argue that its existence is demand for halal products has forced the halal industry to expand its scope into a variety of products and services, such as medicines, cosmetics, tourism, finance, and even fashion. This phenomenon is caused by raising awareness among Muslim about what can be consumed and not. Indeed, this expansion is very helpful to the Muslims. The other factor that makes the halal industry a big business is the estimated increase in the Muslim population. According to the Pew Research Centre, the number of Muslims worldwide is expected to increase by 75% from 1.6 billion in 2010 to 2.8 billion in 2050. According to the Oxford dictionary, the word halal can be defined as meat from an animal that has been killed according to Muslim law. It also refers to something acceptable according to Muslim religious law. Based on these two definitions, it is clear that halal refers to a set regulation based on Islamic law that helps Muslim to distinguish what to eat, use or consume and also the substance and the process of making products or delivering services are the determinant factors that determine whether the products or services are halal or not. Based on the explanation above, the halal industry can be defined as an industry that conducts its business in accordance with Islamic regulation.
To produce a halal product, there are two things to be considered, which are the substance and the process. Based on Islamic law, some substances are substance is prohibited in nature, such as dog and pork. While other non-prohibited substance must go through several processes to be halal. For example, a cow must be slaughtered in accordance with Islamic procedures before being consumed by Muslim, otherwise, it will be prohibited to be eaten. This concept applies to all food products in any form, consumer goods including cosmetics, personal care products and pharmaceuticals. It also applies to the process of trade or commerce and to activities in the services sector (SMEinfo, 2018).
The growing. This shows that the demand for the halal industry will likely increase in the future. In addition, the demand for the halal industry will likely increase in the future due to the estimated increase of the Muslim population. According to the Pew Research Centre, the number of Muslims worldwide is expected to increase by 75% from 1.6 billion in 2010 to 2.8 billion in 2050. The growing demand for halal products has forced the halal industry to expand its scope into a variety of products and services, such as medicines, cosmetics, tourism, finance, and even fashion
B. An overview of the Halal industry worldwide
The spending on halal products can be used as one of the indicators to measure the development of the halal industry in the world. According to the State of the Global Islamic Report 2019/2020 by DinarStandard, the world spending on halal products will likely increase with a projected CAGR growth of 6.2% from 2018 to 2024. The table below shows the expected growth of world spending or assets in six different economic sectors from 2018 to 2024.
From the table above, it can be seen that all the economic sectors of the halal industry will have a positive trend in the near future and none of them will grow with a rate below 5.5%. Although the main consumer of the halal products is the Muslim population in Muslim majority countries, some sectors in the table above are dominated by Muslim minority countries. For example, in terms of halal food, Brazil and Australia are the leading countries in meat and live animal exports to Organization of Islamic Cooperation (OIC) countries with $5.5 billion and $2.4 billion respectively. Despite standing above the rest, Brazil has faced a lack of compliance with Halal standards (Ashfaq, 2018b). In March 2017, Brazilian federal police announced that health officials had allegedly been paid off by influential meat companies to ignore various abuses that may have compromised the safety and certification of food products being sent to virtually every corner of the world. In the immediate aftermath of the scandal, Saudi Arabia temporarily suspended Brazilian beef and poultry imports (Newsweek). To tackle this issue, the commonly accepted standards among certification bodies globally must be made in order to avoid duplicate certification costs and reduce complexity (State of the Global Islamic Economy Report 2018/19).
Furthermore, for halal clothing, the “made in china” product topped the list of halal clothing exporter to OIC countries worth $10.6 billion. This amount left a wide gap with the second position, led by India with $3.1 billion and followed by Turkey with $2.3 billion. China also played an important role in halal media and recreation export. This sector is mainly divided into three parts, which are: a). toys, games and sport, b). printed books, newspaper and picture, and c). photographic or cinematic goods. China led the race with $3.6 billion and followed by the USA with $556 million and the UK in third place with $450 million. The same goes with the next two sectors, halal pharmaceutical and halal cosmetics where the domination of exporting countries to OIC still belonged to the western countries. Germany, French, and the USA are the key players in halal pharmaceutical exporter to OIC with $5.1 billion, $4.4 billion and $3.5 billion consecutively. And the top 5 countries in exporting halal cosmetic products to OIC countries are French ($2.6 billion), UAE ($1.2 billion), Germany ($1.1 billion), USA ($1 billion), and China ($0.8 billion).
The domination of some Muslim minority countries in particular economic sectors of the halal industry clearly indicates that the halal industry still has room for development even in a country with a lesser population of Muslim.
C. The halal industry in Malaysia and how it affects the Malaysia economy
The development of the halal industry in Malaysia started in 1974 when the Research Centre for Islamic Affairs Division started issuing halal certificates. Over the years, this country has recognized the urgency and potential of the halal industry. The establishment of the Halal Industry Development Corporation in 2006 demonstrated the strong willingness of Malaysia to be the leading country in the halal industry. This agency is under the Ministry of Economic Affairs and is responsible for coordinating the overall development of the halal industry in Malaysia (HDC Global).
The government support to advance the halal industry in Malaysia is clear. The most recent and obvious proof is the Halal Industry Master Plan (HIMP) 2008-2020, in which its vision is to make Malaysia as the global halal hub. The desired outcome of this policy is to make Halal as the new source of economic growth (MITI). Other than that, Malaysia also hosts two of the most important annual events in the halal industry, namely the Malaysia International Halal Showcase (MIHAS) and the World Halal Forum (WHF). Both play a pivotal role in building the country’s reputation as the global reference and trade centre for the new mainstream halal industry since 2003 (Visit Malaysia 2020). Moreover, the seriousness of Malaysia to be the global halal hub is also demonstrated by the establishment of Halal Park, a community of manufacturing and service businesses located on common property with the aim of preserving the integrity of halal products. From 2010 to 2017, the total investment in Halal Park has reached MYR 13.27 billion and it has received a total of 14 Halmas throughout Malaysia. Halmas is an accreditation given to the Halal Park operator who has successfully complied with the requirement and guidelines stipulated under the HDC Designated Halal Park development. In relation to that, the Malaysian government has set tax incentives to promote the attractiveness of Halal Park for certain products, such as livestock and meat production, probiotics, speciality processed food, pharmaceuticals and nutraceuticals, cosmetics and personal care, and halal ingredients (HDC Global).
The result of the government’s efforts to advance the Halal Industry in Malaysia can be seen from both the contribution to GDP and halal exports value. In terms of the contribution to Malaysian GDP, the halal industry experiences a positive trend in recent years. In 2017, it contributed 7.5% to Malaysian GDP and it is expected to increase by 1.2% this year or the contribution will be 8.7%, according to Economic Affairs Ministry’s Service Industry Section director Dr Khalid Abdul Hamid (The Star, 2019).
For halal exports, the number of Malaysia’s halal exports experienced a gradual increase from 2010 to 2018. However, in 2018, it slightly declined from the previous year due to the challenging time in the palm oil industry, including the lower palm oil derivatives, Hanisofian Alias said (The Malaysian reserve, 2019). The chart below shows Malaysia’s Halal Export value from 2014 to 2018.
Source: Halal Industry Development Corporation (HDC).
Despite the amount of halal export increased in 2017 from the previous year, the percentage of halal export contribution to Malaysia’s total export value decreased in the next two consecutive years. This is due to the rapid increase in the total value of Malaysia’s export. In 2016, the contribution to Malaysia’s total export is 5.3% with the total export MYR 787.0 billion. The next two years account for 4.6% with MYR 935.4 billion and 4.0% with MYR 998.0 billion consecutively.
In addition, the full support from the Malaysian government towards the halal industry development facilitates Malaysia to be the leading country of the Global Islamic Economy Indicator. This indicator gives a comprehensive picture of which countries are currently best positioned to address the multi-trillion-dollar global opportunity. It measures the strength of the Islamic economy for 73 countries, across supply and demand drivers, governance, awareness and social considerations, and is a weighted composite of 49 important metrics (State of the Global Islamic Economy Report 2019/20). Two Middle Eastern countries are tailing Malaysia in the first position, which is UAE in the second and Bahrain in the third place.
The world has recognized the halal industry as the new engine of economic growth. It can be seen from the increase of halal products in many countries which is not limited only to Muslim majority countries. Indeed, halal is not perceived as a mere label by its user. The use of the halal label identifies that certain products have good standards and quality. Many countries that have recognized the urgency of the halal industry and its potential are now racing to be the top of halal product providers. It is also an effort to cope with the market demand that gradually increased in recent years.
Furthermore, within the next four years, there will be an increase in the consumption of halal products throughout the world. Even countries with a small Muslim population are predicted to be the main players in the halal industry. For example, Brazil and China where they will be the main exporters of halal meat and clothing to OIC countries.
Malaysia as the leading Global Islamic Economy Indicator has a longstanding journey of halal industry dating from 1974. Through the Halal Industry Master Plan (2008-2020), Malaysia is aiming to be the global halal hub. To achieve that goal, Halal Industry Development Corporation (HDC) is established and one of the bold movements under HDC is the establishment of Halal Park. In fact, HDC has contributed positively to the growth of Malaysia’s halal export value. It is proven by the significant increase in terms of halal export value by 163% from MYR 15.2 billion in 2010 to MYR 40 billion in 2018. It will help this country to have a greater competitive advantage, bring in higher wages and increase job opportunities. Other than that, the significance of HDC is emphasized by the forecasted increase of the halal industry contribution toward Malaysia’s GDP to 8.7% in 2020 from 7.5% two years earlier. Furthermore, Halal Park with its tax incentives has contributed to a huge number of investments in the halal industry, which is MYR 13.27 billion from 2010 to 2017. It also has a total of 14 Halmas (Halal Park operator) throughout Malaysia. It means that more jobs emerged as a result of Halal Park. In addition, Malaysia must maintain this positive trend and increase its efforts in order to always cope with market demand.
Researcher: Rif’at Abdillah
Editor: Chee Hor
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