Demand for halal goods and services is expected to rise with global Muslim spending forecast to hit $2.8 trillion by 2025, says a new report. This represents opportunities for businesses in BIMP-EAGA countries, which have large Muslim populations.
The 2022 State of the Global Islamic Economy Report: Unlocking Opportunity see a 4-year cumulative annual growth rate of 7.5% after Muslim spending in 2021 reached $2 trillion, up 8.9% from 2020. Spending is expected to grow by 9.1% in 2022 despite continued uncertainty from the coronavirus disease (COVID-19) pandemic. The report was produced by research and advisory firm DinarStandard, with news and insights platform Salaam Gateway and the Dubai Economy and Tourism.
Steady growth of the market is credited to a large and growing Muslim population, increasing urge to adhere to Islamic ethical values relating to consumption, and a growing number of national strategies dedicated to halal product and service development.
While the report cited opportunities in the Muslim market, it said countries and businesses will need to strengthen the business environment, improve supply chains, and overcome funding gaps and lack of uniform standards, among other challenges, to take advantage of rising demand.
For the 9th year running, Malaysia topped the report’s ranking of 15 countries best positioned to tap opportunities in the global halal economy. Indonesia came in 4th, retaining its previous ranking. They are the only BIMP-EAGA countries that made it to the top 15.
Brunei Darussalam fell off the top 15 ranking. It ranked 8th in the previous year’s report. The report did not cite the reason for the fall but noted a change in methodology in ranking countries. The report now includes an innovation dimension. The weighting of each dimension and sector has also been changed to better reflect the impact of the different dimensions and sectors.
For the first time, the Philippines, along with other countries, was included in the report, but its overall ranking was unavailable.
Other countries in the top 15 are Saudi Arabia, 2nd; United Arab Emirates, 3rd; Turkey, 5th; Bahrain, 6th; Singapore, 7th; Kuwait, 8th; Iran, 9th; Jordan, 10th; Oman, 11th; Qatar, 12th; United Kingdom, 13th; Kazakhstan, 14th; and Pakistan, 15th.
Growing the Islamic economy
According to the report, “the Islamic economy has moved up the agenda in several countries and is considered a core part of economic recovery policies from the pandemic.” Malaysia and Indonesia are among those that are aggressive in developing ecosystems to support the Islamic economy.
Malaysia, which leads in Islamic finance, halal food, travel, and media and recreation sectors, has set the “global standards for creating a successful halal economy,” from a robust Islamic banking and finance industry to all-inclusive halal certification standards and policies. The Southeast Asian country plans to bolster development of halal talent, establish halal professional recognition, accelerate industry development, improve product competitiveness, and position Malaysia as a global halal hub.
Under the 12th Malaysia Plan, the halal industry is expected to contribute 8.1% to the country’s gross domestic product and generate 56 billion Malaysian ringgit ($12.7 billion) in export revenues in 2025 versus 30.6 billion ringgit in 2020.
Indonesia has now made it mandatory to certify halal products and has codified and digitized halal certificates to track halal products’ value and volume information. It also continues to move up the halal food indicator ranking, placing 2nd this year. Its export of halal foods to Organisation of Islamic Cooperation (OIC) countries jumped by 16%. It continues to strengthen the Islamic finance sector and was the largest sovereign sukuk issuer in 2020.
Halal food. Muslim spending on food rose by 6.9% in 2021 to $1.27 trillion from $1.19 trillion, and is expected to grow by 7.0% in 2022 and reach $1.67 trillion in 2025 at a 4-year cumulative annual growth rate of 7.1%.
According to the report’s survey of industry representatives, global demand for halal food is on the rise, with ready-to-eat meals, traceability and halal logistics, agritech, and food security among the top growth areas. The executives, however, cite rising costs leading to food insecurity, lack of universal halal standards, and poor access to halal ingredients among the challenges facing the sector. They also said significant investments are needed to boost the halal supply chain’s capacity and capabilities. Harmonization of halal standards will create unified halal commerce gateways. Some respondents proposed adopting technology, like artificial intelligence and blockchain, to make it easier to authenticate and trace the origins of food products and to move halal goods, which will benefit both producers and consumers.
Islamic finance. The sector was adversely affected by the pandemic, but showed robust recovery in the first half of 2021, with global sukuk issuances reaching a record high of $100 billion and set to make new records by yearend. Digital acceleration due to COVID-19 has led to a surge in Islamic fintech. Islamic finance transactions are expected to more than double by 2025 to $128 billion from around $49 billion in 2020.
The survey shows that top growth areas include disruptive finance brought on by technology use, Shariah-compliant social impact investments, sukuk for infrastructure and financing, and initiatives promoting small and medium-sized enterprises. Underdeveloped safety nets and resolution frameworks, weak private sector transformation, lack of investor protection, and poor public awareness of Islamic financial products are among the challenges facing the sector.
Tourism. The global tourism slump did not spare the Islamic travel market as halal restaurants had banked on Muslim tourists. Hajj and umrah Islamic pilgrimages to Mecca also fell in 2020 because of heavy COVID-19 regulation. Still, tourist spending rose to $102 billion in 2021 from $58 billion and is expected to grow by 50.0% in 2022 to $154 billion and reach $189 billion in 2025.
Top growth areas are digital transformation within the industry and domestic tourism, while constraints include absence of unified standards and terminology, funding challenges, and limited awareness among OIC countries.
Modest fashion. The Islamic fashion sector also had a tough year because of the pandemic. However, the shift to e-commerce and omnichannel marketing has helped prop up sales. Muslim spending on fashion jumped by 5.7% in 2021 to $295 billion from $279 billion and is expected to grow by 6.0% in 2022 to $313 billion and reach $375 billion in 2025.
Survey respondents cite athletic wear, underserved Muslims in Western markets, and related services like modeling, stylists, and advisors among the growth areas. However, the sector faces challenges like fragmented markets, limited private equity interest in modest fashion, and lack of modest fashion incubators or accelerators.
Pharmaceuticals. The pandemic has put a spotlight on the sector. Now, there is pressure from OIC developing countries to improve self-sufficiency in pharmaceuticals and develop locally produced active ingredients and medicines, including halal-certified options. Already, the pandemic has resulted in the development of a halal-certified COVID-19 detection kit in the United Kingdom and a halal-certified face mask in Singapore. Digital healthcare is also gaining popularity in many OIC countries. Muslim spending on pharmaceuticals increased by 6.5% in 2021 to $100 billion from $93.5 billion and is expected to grow by 6.7% in 2022 to $106 billion and reach $129 billion in 2025.
The survey identified halal-certified COVID-19 vaccine, halal innovation hubs, rising popularity of indie brands, and halal-certified ingredients among the sector’s top growth areas, while challenges include raising halal awareness among Muslim consumers and healthcare practitioners, lack of widely accepted or recognized halal standards, and lack of government support in sourcing halal pharmaceuticals.
A related sector, halal cosmetics, did fairly well amid a challenging business climate. More halal brands have emerged while established players have expanded their product portfolios. Muslim spending on cosmetics jumped by 6.8% in 2021 to $70 billion from $65 billion, and it is expected to grow by 7.2% in 2022 to $75 billion and reach $93 billion in 2025.
Media and recreations. The media sector did well during the first year of the pandemic as the Muslim market became a captive audience due to mandatory lockdowns. Mainstream media outlets are also developing content for the Muslim market because of high demand. Muslim spending on media rose by 7.2% in 2021 to $231 billion from $216 billion, and is expected to rise by 7.5% in 2022 to $249 billion and reach $308 billion in 2025.
Survey respondents see children’s content and digital infrastructure development among the top growth areas, while challenges include lack of investment from OIC investors and poor digital infrastructure.