Muslims’ spending increased 8.9% year-on-year (y-o-y) from 2020 to 2021 and is forecasted to grow by 9.1% in 2022, according to the State of the Global Islamic Economy Report (SGIER) 2022. At least 1.9 billion Muslims worldwide spent a total of US$2 trillion in 2021 for food, pharmaceuticals, cosmetics, fashion, travel and media/recreation. It shows that the Islamic economy is still flourishing amid the economic impact of the COVID-19 pandemic.
Moreover, some countries, including Indonesia, implemented Islamic economy policies before the COVID-19 pandemic which resulted in a huge contribution to the recovery of the Islamic economy. The positive trend of the growth of the Islamic economy and its tendency to be more resilient to economic shocks make it seem possible to reach its forecasted growth in 2025 of US$2.8 trillion of total Muslim spending globally.
The financial sector is one of the most affected sectors in the world during the COVID-19 pandemic. However, SGIER 2022 indicated that Islamic finance has bounced its total value to US$3.6 trillion in 2021 and is forecasted to reach US$4.9 trillion in 2045. This rebound was followed by Islamic fintech, which is forecasted to increase from US$49 billion in 2020 to US$128 billion in 2025.
The consistent growth of the Islamic finance sector, especially amid the economic shocks due to the pandemic, shows the resistance of Islamic finance to the economic crisis. Moreover, investment in the Islamic economic sectors grew from US$11.8 billion in 2019/2020 to US$25.7 billion in 2020/2021, reaching 118% of YoY growth, dominated by the UAE, Indonesia and Malaysia.
The Halal food sector, the highest Muslim spending besides the Islamic finance sector, has a total of US$1.19 trillion in 2021 and is forecasted to reach US$1.67 trillion in 2025. On the other hand, the lowest Muslim spending is Halal cosmetics, with a total value of US$70 billion in 2021 and forecasted to reach US$93 billion in 2025. As the second-highest sector for Muslim spending, modest fashion has a total of US$295 billion of spending globally and is forecasted to increase to US$375 billion in 2025.
Meanwhile, the media and recreation sector has a total of US$231 billion of Muslim spending globally in 2021 and is forecasted to grow to US$308 billion in 2025. The global Halal tourism sector reached a total value of US$102 billion in 2021 and is forecasted to reach US$189 billion in 2025. In pharmaceuticals, there was at least US$100 billion of Muslim spending globally in 2021 and forecasted to grow to US$129 billion by 2025.
Review of 2022
Looking back over the past 12 months, there were the improvement of technology and the expansion of investment in the Halal food sector by some OIC countries as their strategic ways of facing the disruption of the supply chain from the impact of the pandemic in 2020 and 2021. The Islamic Organization for Food Security has identified various programs to achieve food security and self-sufficiency.
For instance, Saudi Arabian food giant Almarai invested US$1.76 billion to double the poultry market share and there was a US$7.2 million investment from Brazilian meatpacker BRF for the new Saudi facility.
On the other side of the world, Malayan Flour Mills’s received an investment of a total of US$104 million from US-based Tyson Foods. Regarding technological improvement in the Halal food sector, Nigeria has launched the first agricultural electronic center in Africa to develop climate-smart farming. Moreover, the first Halal blockchain network in the world has been developed by Malaysia’s Malakat Ecosystem to trace the origins of imported beef.
Indonesia has made a considerable contribution to the Islamic finance recovery after an economic shock due to the pandemic since it has notable growth markets and is supported by a big merger of Islamic banks in Indonesia. Indonesia also invested a total of US$300 million from the Hajj Fund in the hotels in Saudi Arabia for its contribution to the expansion of Shariah compliant investment.
In terms of Islamic fintech, it is notable that Indonesia’s BukuWarung fintech has received the most prominent Series A investment with a total of US$60 million. This fintech focuses on developing and digitalizing MSMEs in Indonesia. The total of 64.19 million MSMEs in Indonesia, which contributed to 61.97% of the GDP, will lead to the expansion of the real sector in Indonesia, especially in the Halal industry.
Preview of 2023
Apart from being the largest sector, the growth of Halal food and Islamic finance is forecasted to remain steady from 2022/2023 to 2023/2024 at 7.1% and 7.9% respectively. This constant growth will also be experienced by the media and recreation sector, with a 7.4% growth from 2022/2023 to 2023/2024. Nevertheless, Halal cosmetics and modest fashion are forecasted to be the sectors with the highest growth, which will increase from 7.2% in 2022/2023 to 7.4% in 2023/2024 and from 6% in 2022/2023 to 6.2% in 2023/2024 respectively. Simultaneously, Halal tourism and Halal pharmaceutical growth are expected to increase slightly from 6.9% in 2022/2023 to 7% in 2023/2024 and from 6.6% in 2022/2023 to 6.7 in 2023/2024 respectively.
Conclusion
The data from SGIER 2022 showed that there would be a positive trend of the Halal industry in almost every sector in the year ahead regarding the economic recovery process in each country. Aside from the massive growth of the Halal industry in the world, there is still a huge potential market that needs to be utilized effectively. Appropriate technology and policies will be two significant factors in the effort to enable a conducive environment for the Halal industry to expand extensively in each country. Meanwhile, improving the synergy of each country has become another critical thing to create an efficient and effective Halal industry ecosystem.
Dr Sutan Emir Hidayat is the director of the Islamic Economy Supporting Ecosystem at the National Committee for Islamic Economy and Finance (KNEKS), Indonesia. Ardhini Jacinta is the analyst at the Directorate of Islamic Supporting Ecosystem. They can be contacted at [email protected] and [email protected] respectively.