Special Interview: Putu Rahwidhiyasa
The Director of Sharia Business and Entrepreneurship KNEKS / The Acting Director of Halal Product Industry KNEKS
Indonesia has great potential to become the world’s halal centre. This is the Government’s ideal that is stated in various strategies. What kind of strategy is being implemented by the Government? What are the challenges facing Indonesia?
To accelerate Indonesia’s achievement as the world’s halal centre, the Government, through the National Committee for Sharia Finance and Economics (KNEKS), has launched the Indonesian Halal Industry Master Plan (MPIHI) 2023-2029 in October 2023, specifically for Halal products, and the Indonesian Sharia Economic Masterplan (MESI), which was previously launched in 2019 and focuses on financing and developing Sharia finance.
One of the challenges still an obstacle to date is helping to develop halal Small and Medium Enterprises (SMEs), especially in capital and management. In KNEKS itself, this task is carried out by the Directorate of Sharia Business and Finance.
To obtain a more comprehensive picture of the direction of policies and strategies for developing the national halal industry towards the global market, especially the development of SME capacity, Jurnal Halal magazine had the opportunity to interview the Director of Sharia Business and Entrepreneurship of the National Committee for Sharia Economics and Finance (KNEKS), as well as the Acting Director of the KNEKS Halal Product Industry, Putu Rahwidhiyasa, in Jakarta (26/02/2024). Here is an excerpt:
What is Indonesia’s Position and Role in the Current Global Halal Market?
Indonesia plays an important role in the global halal market as one of the primary producers of halal products and a centre for developing the Halal Industry. With abundant natural resources/raw materials, the largest Muslim population in the world (241.7 million as of December 2022 based on data from the Ministry of Home Affairs), and the Government’s strong commitment to halal certification, Indonesia can become a major player in the global halal ecosystem. This aligns with the direction of the Vice President of the Republic of Indonesia and the Daily Chair of KNEKS that Indonesia aims to become the World’s Leading Halal Producer in 2024.
Based on the State of Global Islamic Economy Report (SGIER) 2023, Indonesia is ranked 3rd. This position has increased from 2022 which was in 4th position. Indonesia’s increased ranking proves that efforts to strengthen the Halal Product Assurance (JPH) ecosystem are increasingly showing positive results. Of the 6 sectors in the Global Islamic Economy Indicator (GIEI) ranking assessment indicators, namely: Sharia Finance, Halal Food, Muslim-Friendly Tourism, Modest Fashion, Islamic Media and Recreation, Halal Pharmacy and Cosmetics, Indonesia is ranked in the top 5 for the Halal Food, Modest Fashion and Halal Pharmacy and Cosmetics sectors.
Based on SGIER 2023, it is estimated that 2 billion Muslim consumers worldwide will spend US$2.29 trillion in 2022 on products/services in the food, pharmaceutical, cosmetics, fashion, travel, and media/recreation sectors. This figure represents a year-on-year growth of 9.5%. Global Muslim spending on food and beverages is estimated to reach US$1.89 trillion in 2027. Seeing Indonesia’s potential, this is a golden opportunity that Indonesia must optimally utilize.
To Take Advantage of This Golden Opportunity, what is Indonesia’s Policy to be Able to Compete in the Global Halal Market?
In order to be able to compete in the global market, Indonesia is implementing policies, including, first, strengthening regulations related to halal certification to ensure that products produced domestically have met globally/internationally recognized halal standards. Second, improving the quality of halal products to increase added value, especially superior export products, prioritizing food safety and developing green industries.
Third, supporting international cooperation/international partnerships with other countries in developing the halal industry and playing an active role in promoting halal products domestically and in the global market. Fourth, improving infrastructure in the halal product industry ecosystem to support halal products’ production, distribution and marketing processes to expand the global market and improve the reputation of halal product businesses internationally.
What are the Strategies?
The strategy for developing the Sharia Economy and Finance is stated in the Indonesian Sharia Economy Masterplan (MEKSI). The programs derived from MEKSI are also implemented to make Indonesia a leading Halal Producer worldwide. In its implementation, some of the strategies include: First, increasing productivity and competitiveness; Strengthening the Halal Value Chain, Developing superior and competitive human resources; Strengthening Halal Industry Actors, including MSMEs and Islamic boarding schools, as well as strengthening the incubation of halal business startups based on innovation and technology; Increasing research and innovation.
Second, implementing and strengthening policies and regulations. Strengthening the halal industry through supporting policies and regulations with sufficient benefits, certainty, and justice, from upstream to downstream; Implementing the Halal Product Assurance System (Certification and Traceability).
Third, strengthening finance and infrastructure: Support for inclusive sharia finance; Strengthening halal industry infrastructure; Compiling indicators and databases for the halal industry; and fourth is strengthening halal brand and awareness: Increasing social preferences and halal lifestyle through promotion and education; Establishment of international economic diplomacy relations in the halal industry.
What are the Challenges or Obstacles Faced by Indonesia in the Global Halal Market Competition?
Structural challenges that include raw materials and auxiliary materials for the Indonesian processing industry are still dominated by imports; low-tech products still dominate exports of Indonesian products; and the participation of Indonesian products/industry in the global value chain is not optimal.
The large number of MSMEs with varying levels of quality and understanding of JPH. Indonesia’s business actors are around 65 million units, with 98% being MSEs. These business actors are spread throughout Indonesia at the district and city levels. The government has a target of 10 million halal certifications, and based on BPJPH data (February 2024), around 3,907,884 products have been certified halal. The right strategy is needed to accelerate MSE halal certification.
Another challenge in halal products is the difference in halal standards in each country. Therefore, international cooperation is needed, including mutual recognition and acceptance of halal standards and certification.
In addition, a lack of understanding of global consumer needs and preferences can be a barrier to effectively marketing Indonesian halal products in the international market. Indonesian companies must conduct in-depth market research and adapt to global trends to understand what international consumers want and expect.
Another thing is that production and logistics costs in Indonesia are often higher compared to other countries, especially in terms of transportation and distribution. This can result in higher prices for Indonesian halal products in the international market, making them less competitive.
One of the programs being implemented is about literacy. How important is this program for the halal industry in Indonesia?
Public literacy about Sharia economics, in general, is still relatively low, around 23 percent. This is because there is still an assumption that halal products and sharia economics are related to Islamization.
But it’s not like that, right? Countries whose populations are mostly non-Muslim have long paid attention to halal products and Sharia economics…
That’s right, we who are very Muslim are still lagging. Vietnam and Thailand, for example, export their halal products to the Middle East quite a lot. This requires literacy, and the world very much needs halal products. We are developing a national literacy strategy by compiling a curriculum for universities up to high schools and various other activities. We are targeted to increase literacy from 23 percent to 50 percent by 2025. Alhamdulillah, it is currently around 28 percent.
With the various challenges and current conditions, what is the direction of developing Indonesian halal products?
Indonesian society is currently in the middle-class income category; of course, it is one of the prominent market niches in the country for developing the national halal industry. Based on the Indonesia Halal Market Report (IHMR) 2021/2022, Indonesia has the opportunity to add USD 5.1 billion or IDR 72.9 trillion to the Gross Domestic Product (GDP) from sectors included in the halal industry, including sharia finance, halal food, Muslim-friendly tourism, modest fashion, Islamic media and recreation, halal pharmaceuticals and cosmetics.
To develop the halal industry to achieve Indonesia’s vision and economic growth, Indonesia has launched the Indonesian Halal Industry Masterplan (MPIHI). The direction and objectives of MPIHI align with the mandate of the National Medium-Term Development Plan (RPJMN) and the National Long-Term Development Plan (RPJPN). In addition, MPIHI is also in line with and is a deepening of the halal industry development strategy in the Indonesian Sharia Economic Masterplan (MEKSI) 2019-2024, which aims to encourage increased added value, employment, investment in the real sector, and industrialization. From time to time, the development of the halal industry in Indonesia will be aligned with the programs of the Ministry/Institution related to the development of the halal industry, which are stated in the National Priorities (PN), Priority Programs (PP), and Priority Activities (KP).
How Far Can Indonesian Products Compete in the World Halal Market?
As a country with the largest Muslim population in the world, Indonesia has great potential in the development of the Sharia economy, including the consumption of halal products. Indonesia also has an important position in the global halal product trade, as seen from Bank Indonesia data in 2022, which shows that the total market share of Indonesia’s halal industry to the global market share reaches 11.34% and is projected to increase by 14.96% in 2025. In addition, based on SGIER 2023, it was noted that there is currently an increase in public awareness of the halal lifestyle in the period, as indicated by an increase in consumer spending in 2012 of US$1.62T, increasing significantly in 2022 to reach US$2.29T. With the achievements and strategies for developing the halal industry that have been carried out and support for strengthening regulations on halal certification obligations, Indonesia is optimistic that it will be more competitive in the world halal market.
Is the Mandatory Halal 2024 Policy Able to Boost Indonesia’s Potential in the Global Halal Market?
The mandatory halal 2024 policy can boost Indonesia’s potential in the global halal market share. The mandatory halal policy is an effort to provide legal certainty regarding the halalness of a product, as evidenced by a halal certificate. This aims to provide comfort, security, safety, and certainty of the availability of halal products for the community. In addition to providing peace of mind to consumers, this halal certificate can increase added value for business actors to produce and sell halal products.
The halal certificate guarantees quality, which ensures that all products sold and distributed in Indonesia meet halal standards. This will increase consumer confidence, not only domestically but also in the international market, which will lead to increased competitiveness of Indonesian products in the global market.
By implementing the mandatory halal policy, Indonesia can expand its export market share to countries with large Muslim populations worldwide. Indonesian halal products will have easier access to these markets, helping to increase exports and national economic growth.
Indonesia can strengthen its position as a centre for the production and distribution of halal products. This can attract foreign direct investment to the halal sector and help create new jobs. Mandatory halal policies encourage industry to innovate in developing innovative and sustainable halal products. The use of domestic halal raw materials will be increasingly massive. This innovation will not only strengthen the domestic market share but can also attract the interest of global consumers who are increasingly aware of halal products.
However, in order to be able to drive Indonesia’s potential in the world halal market, it is crucial for Indonesia to not only focus on mandatory halal policies alone but also to continue to be accompanied by efforts to improve infrastructure, regulations and promotions to support the halal industry as a whole. (FM/AH)
