As of the 27th October 2020, the World Health Organization reported that there have been more than 42.9 million cases worldwide due to COVID-19 with more than 1.1 million deaths. Compared with the global financial crisis in 2008, the impact of the current pandemic is more severe, since it attacks the public health system resulting in multidimensional implications.
COVID-19 has forced many countries to implement lockdowns and partial-lockdown policies which resulted in disruptions to various aspects of life and the economy including the Halal and Islamic finance industries, although the level of impact varies in certain sectors.
Review of 2020
The Halal food and pharmaceutical sectors are two of the few that have benefited from the current pandemic because of the strong support provided by the government as these sectors cover people’s basic needs which were given priority to be secured.
Brazil, one of the top exporters of Halal poultry, recorded an increase in the sales of meat exports. Its largest export destination, China, increased its imports by 46% in August 2020 compared with the same period in 2019, reaching 54,700 tons in the month. Its second-largest client, Saudi Arabia, increased its imports by 24% in August 2020 compared with the same period in 2019, totaling 46,700 tons in the month, according to the Brazilian Association of Animal Protein.
The profitability of the pharmaceutical and health industries increased due to the rise in demand for disinfectants and health products. The Halal pharmaceutical sector is no exception.
Duopharma Biotech, one of Malaysia’s pharmaceutical firms, recorded solid financial results despite the uncertainties arising from the pandemic. Cumulatively over the six months of 2020, the firm reported a profit before tax increase to RM19.39 million (US$4.69 million) (RM18.32 million (US$4.43 million) in 2019) and revenue of RM143.33 million (US$34.67 million) (RM145.47 million (US$35.19 million) in 2019).
Similarly, Indonesia’s oldest pharmaceutical company, Kimia Farma, recorded an operating profit in the first quarter of 2020 at IDR160.84 billion (US$11.3 million), up by 87.94% compared with the same period last year which recorded a profit of IDR85.58 billion (US$6.01 million). Kimia Farma ensures that the production of all the health products is Halal, although not all of them have Halal certification.
Muslim-friendly travel has been dealt a huge blow from the outbreak with grounded airplanes, travel restrictions and hotel closures. The World Tourism Organization reported a double-digit decrease of 56% in 2020, with international tourist arrivals in May down by 98% which translates into a loss of US$300 million in international arrivals and approximately US$320 billion in international tourism receipts.
In Muslim countries such as Indonesia and Malaysia, the pandemic has wiped out around US$5.9 billion from Indonesia’s tourism revenue as of July according to the Indonesian Hotel and Restaurant Association while GlobalData says that Malaysia’s tourism-related revenue is expected to drop by at least US$3 billion.
After seven months, Saudi Arabia, which had banned tourists as well as Umrah pilgrims from entering the Kingdom, has currently lifted the ban for only residents and visitors from selected countries. The pandemic threat has caused a decline in tourism revenues following the dramatic drop in the number of tourists where instead of more than two million Hajj visitors, only a thousand participated this year.
Meanwhile, despite the decline in the number of international travelers during the pandemic, the interest in Halal tourism has gained momentum in Turkey. The Halal International Tourism Organization reported that nearly 30 hotels in Turkey have converted their facilities and services to Halal tourism as well as taking the necessary measures against the pandemic to ensure a safe stay for their customers.
Preview of 2021
The demand for pharmaceuticals already took off in early 2020 after the outbreak started in late 2019 and increased further after that. Along with the increasing demand for health products, the demand for a COVID-19 vaccine with Halal certification may also rise. The Indonesian government is still in discussions with MUI to ensure that the vaccine would receive Halal certification.
Meanwhile, Malaysia’s Halal Development Corporation (HDC) is getting ready to introduce a Halal certification standard for biological products, including vaccines. The HDC is working closely with the Department of Islamic Development Malaysia and the Department of Standards Malaysia to develop the standard.
The growth of financing in Islamic finance can be expected to be slow because of the focus on preserving asset quality rather than business expansions.
The current pandemic has brought many changes not only to the way we live but also the way of doing businesses and we can expect more changes to come. The sudden push for businesses to refresh their development and strategy during the disruptions as well as during recovery is a great wake-up call.
Dr Sutan Emir Hidayat is the director of the Islamic Economy Supporting Ecosystem at the National Committee for Islamic Economy and Finance (KNEKS), Indonesia. He can be contacted at [email protected]