Mandatory halal certification as Indonesia
tries to snare share of $3trln Sharia market
With almost 269 million people, Indonesia
is the world’s most Muslim populated country. However, when it comes to cashing
in on the global halal industry it ranks 10th, alongside Brunei, for its
ability to seize opportunities in the Islamic economy.
Mandatory halal certification of products
sold in Indonesia commences October 2019
All that could soon change. Both President
Joko Widodo and presidential aspirant Prabowo Subianto have vowed to make
Indonesia the fifth largest halal economy in the world if they emerge as
winners in next month’s presidential elections. Up for grabs is a slice of a
market expected to reach $3 trillion by 2023.
In pursuit of this goal steps are underway
to increase the range of halal-certified goods available for purchase in
Indonesia through a compulsory certification and labeling programme commencing
in October this year.
By 2022 all drugs, cosmetics, chemicals and
biological or genetically engineered products suitable for use by Muslims will
need to be labelled as such. Currently only about 20 per cent of halal products
in Indonesia are so labelled.
Halal certification will cost manufacturers
between $140 and $320 depending on a
company’s size, said Sukoso, head of the Halal Product Assurance Organizing
Agency (BPJPH), and could generate the government about $1.6 billion annually.
“We’re preparing the infrastructure now. We
hope we can reach every corner of Indonesia”, Sukoso said.
Indonesia Sharia sector’s missed
opportunities
Indonesia’s Shariah economy is projected to
hit $427 billion by 2022, with halal food alone accounting for more than 50 per
cent says Bank Indonesia
Last year 17,398 halal certificates were
issued, double the number from the previous year. To reach a target of 100,000
new certificates in 2020 an additional 5,000 auditors are to be employed, said
Muti Arintawati, a deputy director at the cleric council’s National Agency of
Drug and Food Control (NADFC), noting that there is some 1.5 million F&B
companies requiring certification.
While Bank Indonesia (BI) predicts that
Indonesia’s Shariah economy will expand to $427 billion by 2022, with halal
food accounting for more than 50 per cent, it pales into insignificance compared to the size of the
sector in Malaysia.
According to figures from the Dubai Islamic
Economic Development Centre (DIEDC) and Thomson Reuters, in 2016 Indonesia
imported some $169.7 billion of halal food and beverage, while in 2017 Malaysia
exported more than $10.6 billion worth of halal-certified products.
The cost to manufacturers and importers is
also considerably more than the certification cost, with some warning the
requirement could have undesirable consequences.
Halal certification applies to products by
category, such as processed meats, dried fruit, detergent, or beverages.
Manufacturers only need one certificate per product group.
However, before applying for halal
certificates for products, manufacturers must first be certified under the
Halal Assurance System (HAS) and obtain a minimum ‘B’ rating. Amongst other
things, HAS certification requires manufacturers’ staff to undergo internal and
external training on an ongoing basis.
To ease the burden on small manufactures
the Indonesian government will subsidise certification for 1.6 million small
and medium-sized food companies.
While the pharmaceutical industry will have
until 2026 to comply with the halal labeling laws, Parulian Simanjuntak, head
of International Pharmaceutical Manufacturing Group told Reuters that it might
not be long enough.
“The definition of halal is too strict.
Life-saving products, such as vaccines or drugs containing blood might be
barred after the deadline passes”, he said.
Muslim travel to top $200bln in 2020
It’s not only halal food and beverges where
the Indonesian government sees opportunity. The number of Muslims traveling
abroad for tourism is forecast to reach 156 million people by 2020, driving an
industry worth some $200 billion.
Next month it is expected that Indonesia
will be ranked first at the Global Muslim Travel Index (GMTI) for global halal
tourism and as a Muslim tourist-friendly destination.
Muslim tourism is forecast to top $200
billion by 2020 ? Indonesia hope to attract 5million Islamic visitors this year
To capitalise on this Indonesian Tourism
Minister, Arief Yahya, has set a target of attracting five million Muslim
tourists this year, an almost 43 per cent increase on 2018.
For 2019 Indonesia is aims to attract 20
million foreign visitor arrivals and in 2017 was ranked second only to Malaysia
as the preferred Muslim tourist destination.
The blossoming Islamic market has not
escaped the attention of other Asean member states. Brunei, Cambodia, Thailand,
the Philippines, Singapore, Vietnam, Myanmar, and Lao are all setting their
sights on the huge potential of the global halal industry.
In the Philippines, the Department of Trade
and Industry (DTI) in Region 12 recently handed over $96,000 worth of support
facilities for the Double “A” halal abattoir in Cotabato City, while the halal
food industry in Thailand is part of the bigger plan of Thailand being the
‘kitchen of the world’.
Malaysia leads with Sharia banking
The Islamic banking sector is another area
where Indonesia authorities see opportunity. According to the State of the
Global Islamic Economy Report, in 2015 there was $2.004 trillion in assets held
in a sharia compliant manner.
Malaysia is well on its way to reaching the
peak of its Financial Sector Blueprint 2011-2020, which aims at establishing
the country as an international centre for Islamic finance. By 2020 Sharia
banking is expected to reach 40 per cent of total financing, up from 29 per
cent in 2010.
By comparison just $32.128 billion, or 5.7
per cent of the total combined assets of Indonesia’s 182 Islamic banks and 20
Shariah business units were managed under Sharia.
Brunei is another country actively chasing
the Sharia finance market. Its Financial Sector Blueprint 2016-2025 also
focuses on establishing the country as an international Islamic finance centre,
particularly in sukuk and takaful, through the introduction of more innovative
Shariah-compliant financial products and services.
As of 2017, Brunei’s Islamic banking assets
totaled some $11.2 billion, up 2.7 per cent from $10.9 billion in 2016,
accounting for 64 per cent of the country’s total banking assets.
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