The demand for halal products has surged significantly over the past decades, reflecting the increasing affluence and preferences of Muslim consumers worldwide. State of the Global Economy Report 2023 mentions that Muslim spending on halal products has risen from US$ 1.62 trillion in 2012 to US$ 2.29 trillion in 2022, with forecasts projecting further growth to reach US$3.1 trillion by 2027, representing a robust 4.8% compound annual growth rate (CAGR) over the five years.
Drivers of Growth in the Islamic Economy
Several factors contribute to the growth of the Islamic economy, both on the demand and supply sides:
- Sizeable Muslim Youth Population: The growing youth population within Muslim communities represents a significant consumer demographic, driving demand for halal products and services.
- Affluence of Muslim Consumers: Increasing disposable incomes among Muslim consumers enable greater spending on halal goods, ranging from food and beverages to fashion and travel.
The IMF projects that the combined GDP of OIC member nations will rise by 21.7% to reach $25.4 trillion in 2023. Additionally, recent World Bank figures (2021-2022) indicate that GDP per capita in several Muslim-majority countries surpasses the global average, notably in all GCC countries, Brunei Darussalam, and Guyana. These advancements in Islamic economies, along with the prosperity of the Muslim populace and their youthful demographic, serve as significant catalysts for the expansion of the Islamic economy.
- Centrality of Islamic Values: Islamic values and principles play a central role in shaping consumer preferences, with halal certification serving as a key determinant of product authenticity and compliance.
- Digital Connectivity and E-commerce: The rise of digital connectivity and e-commerce platforms has facilitated access to halal products, particularly in Muslim-majority countries.Digital platforms accelerate the supply side to meet demands.
- Intersection of Islamic Values with Sustainability and Ethics: The alignment of Islamic values with sustainable and ethical consumerism has further propelled the demand for halal products, emphasizing factors such as ethical sourcing, environmental sustainability, and social responsibility.
Government Support and International Engagement
On the supply side, governments of member countries in the Organization of Islamic Cooperation (OIC) have played a pivotal role in fostering the growth of the Islamic economy. Initiatives include:
- Halal Certification Requirements: Governments have mandated halal certification for imported products, ensuring compliance with Islamic dietary laws and consumer preferences.
- Support for Halal Producers: Financial and regulatory support provided to halal producers encourages local production and enhances market competitiveness.
- Regional Agreements for Intra-OIC Trade: Bilateral and multilateral agreements within the OIC framework promote intra-OIC trade, facilitating the exchange of halal products and services among member states.
Islamic finance also contributes significantly to the Islamic economy ecosystem, providing ethical financial solutions and investment opportunities in line with Shariah principles. Furthermore, the involvement of international brands has expanded choices for Muslim consumers, offering a diverse range of halal-certified products and enhancing market accessibility.
Blockchain Technology: A Catalyst for Transformation
Amidst this dynamic landscape, blockchain technology emerges as a catalyst for transformation within the halal economy. By leveraging blockchain's capabilities for transparency, security, and efficiency, stakeholders can address key challenges and unlock new opportunities across various sectors. From enhancing supply chain transparency to strengthening halal certification processes and facilitating ethical finance, blockchain holds immense potential to drive innovation and foster sustainable growth within the halal economy.
Blockchain technology is an internet-based innovation highly esteemed for its ability to authenticate, record, and disseminate transactions through immutable, encrypted ledgers. Essentially, blockchain technology enables the creation and distribution of ledgers documenting every transaction to numerous computers connected to global networks.
Due to its encryption of transactions and ledgers, blockchain technology offers enhanced security compared to traditional banking methods. While modern banking ledgers are also encrypted, blockchain technology provides added value through its distributed ledger system and multi-layered security. This system reduces the risk of data manipulation or exploitation by any single entity. Furthermore, blockchain’s immediate internet-based transmission eliminates the lengthy clearing process and associated expenses of conventional bank transfers. The term "blockchain" originates from the interlinked "blocks" of authenticated and immutable transactions forming a sequential chain.
The convergence of rising consumer demand, government support, and technological innovation underscores the unprecedented growth and potential of the halal economy. With blockchain technology poised to reshape the landscape, stakeholders have an opportunity to harness its transformative power and create a more transparent, secure, and inclusive halal ecosystem. By embracing blockchain and continuing to uphold Islamic values, the halal economy can chart a path towards greater prosperity and sustainability, meeting the evolving needs of Muslim consumers worldwide.
Reference:
State of the Global Economy Report 2023
AUTHOR(S)
Ganjar Primambudi is a Research Executive at iBantu's Indonesia office, with a focus on the intersection of Islamic Economics and Sustainable Finance. He holds a Master's degree in Economics and focuses on sustainable economic development.
