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Four trends to watch in Southeast Asia’s halal economy Listen with ReadSpeaker

Four trends to watch in Southeast Asia’s halal economy

Over recent years, global brands have started to focus on the Muslim economy and tap into the rising purchasing power and the shifting spending priorities of consumers. Gen Z and Gen Alpha consumers are especially coveted because of their aspirational attitude and quest for new lifestyle experiences.

As defined by the 2021 State of the Global Islamic Economy report, the Islamic economy “is anchored in Muslims’ worldview of their faith and its principles adopted as a way of life.” These values have “found a broader, universal appeal, and guide consumption behavior and business practices.” This is particularly relevant to Southeast Asia. The region is home to around 260 million Muslims with the majority living in Indonesia as well as Malaysia, Thailand, Philippines, Singapore, Myanmar and Brunei.

In the last decade, there has been an increase in the number of halal lifestyle events and campaigns held across the region designed to stimulate interest in Islamic travel, foods, fashion and cosmetics and financial services.

Of course, 2020 was a hugely disruptive year. Halal providers of fashions and travel products were particularly impacted. But innovations and large investments into the Islamic economy were noticeable throughout 2020, especially in shariah-compliant finance and travel booking technology, as well as halal-food production and distribution.

Optimism exists that the Islamic economy will continue to diversify, guided by a large and growing Muslim population and national strategies to develop halal products and services. As we kick-off 2021, here are four factors that may influence the future development of the halal economy in Southeast Asia.

Indonesia, which has the world’s largest Muslim population, garners much of the attention for halal products and service providers. As well as being Southeast Asia’s largest nation, it has begun formally integrating Islamic principles into pivotal sectors of its consumer economy, ranging from foods to pharmaceuticals and finance.

 

Indonesia’s Halal Product Assurance Law of 2014 entered into force in 2019. Since then, Indonesia has begun the mandatory halal certification of food products sold to consumers, plus cosmetics and pharmaceuticals. In 2020, Matahari Putra Prima, or MPPA, became the first hypermarket to be accredited by Indonesia’s Ulema Council Assessment Agency for Food, Drugs and Cosmetics.

 

Implementation of the new law is being watched closely across the region as it relates to the sourcing, handling, processing, labeling and selling of consumer products. This is highly relevant in Malaysia, which wants its halal consumer products sector to export greater volumes and Brunei which is investing in its agricultural and food processing sectors to increase international sales of halal-certified food products.

 

Takeaway

  • Domestic and international brands operating in Indonesia must comply with the halal certification process for foods and other product categories
  • Halal standardization is likely to drive innovation in food products and services for Muslim consumers
  • Markets like Malaysia and Brunei are intent on expanding exports of halal-certified consumer products

During a socially distanced, facemask-wearing year in 2020, sales of halal cosmetics and fragrances generally declined. However, sales of “above-the-mask” beauty products like eyecare items, facial creams and innovations emerged. Japan’s Shojin Cosme launched a dedicated halal and vegan make-up brand made from organic natural ingredients while Indonesia’s beauty brand Wardah launched facial creams to protect against the glare of computer screens for women who work on laptops at home.

 

Modest fashions and athletic wear gained international attention in recent years as more global brands created hijab collections and bespoke labels. Now ethical chic may be about to disrupt the mainstream. In 2021, Indonesia’s Muslim Fashion Festival is urging designers to create modest fashions that encourage shoppers to behave sustainably by eschewing winter and summer collections in favor of upcycled fabrics that can be worn year-round.

 

The pandemic has stimulated interest in personal health and fitness as modest sportswear and swimwear are widely tipped as growth segments in the coming years. New modest styles could enjoy a boost by being worn and promoted at the delayed 2021 Olympics in Tokyo.

 

Takeaway

  • While halal-certified food products attract strong attention, broader awareness is emerging about innovations across the lifestyle economy
  • Aspirational Muslim customers are seeking customized products that they can enjoy at home or at work while working out or socializing and on vacation
  • More businesses are expected to create and market product ranges that fuse the lifestyle choices and faith requirements of young Muslim consumers and travelers

Shariah finance is a trend to watch in 2021. Banks in markets like Indonesia and Malaysia are seeking new ways to promote shariah-compliant financial services. Adoption of Islamic financial products remains relatively low but considerable room for growth exists given the high number of “unbanked” people in Indonesia that do not currently own a bank account.

 

In addition, banking infrastructure is evolving. In Indonesia, for example, three state-owned banks are planning to merge and create the nation’s largest Islamic bank and Zurich Insurance acquired a majority stake in Indonesia’s Adira Islamic insurance business. In late 2020, Singapore awarded its first digital banking licenses and while the initial tranche did not include Islamic banks, it signals a regional move towards lower cost, more inclusive online banking services.

 

As a result, new Islamic finance start-ups are expected to emerge and consolidations may occur among existing players. More awareness-raising campaigns about the benefits of shariah finance will be rolled out. These may focus on fintech and blockchain technologies that make shariah transactions more convenient and secure for cashless and eCommerce transactions.

 

Takeaway

  • More digital banking products will be specially developed for Muslim consumers
  • New campaigns will promote the benefits of shariah financial services
  • Broadening financial inclusion will enable more people to participate in the digital economy

Air travel, hospitality and tourism have been devastated worldwide by the pandemic. Muslim tourists will be among the world’s most coveted cohorts when travel recommences. In 2019, 200 million Muslims traveled worldwide spending around USD 194 billion but spending plummeted in 2020, particularly with the cancelation of hajj and umrah.

 

Before COVID-19, Muslim travel was one of the fastest-growing segments in the tourism industry. Young, adventurous Muslim travelers were driving innovations in travel experiences, hospitality, food and beverage services and retail far beyond traditional Muslim-friendly destinations.

 

The 2020 Insights into Muslim Travelers report by Wego/Pear Anderson shows that more than 55 percent of Muslim travelers from Indonesia and nearly 48 percent from Malaysia said they prefer to travel to non-Muslim majority nations when taking trips. Moreover, during 2020, several large investments were made into the Muslim online travel booking ecosystem and overall Muslim travel spending is predicted to recover to reach USD 208 billion by 2024.

 

Takeaway

  • Travel is a strong driver of Muslim consumer spending around the world
  • Muslim travelers accounted for around 12 percent of global tourism spend in 2019
  • Significant investment during 2020 in Muslim travel technology firms will support the future recovery of outbound travel