New Halal Regulations Propel Indonesian Business Growth

JAKARTA – The recent implementation of new halal regulations in Indonesia is set to reshape the nation’s business landscape, opening up opportunities for growth both domestically and internationally. As the world’s largest Muslim-majority country, with over 230 million Muslims, Indonesia’s push for mandatory halal certification reflects its broader ambition to establish itself as a global leader in the halal market. The government’s initiative is expected to not only enhance consumer confidence but also provide a significant boost to Indonesian businesses, helping them cater to a growing demand for halal products around the world.

New Halal Regulations

Starting October 17, 2024, all food and beverage companies in Indonesia are required to obtain halal certification, including their raw material suppliers. This initiative, which comes as part of a phased approach, aims to ensure that products are compliant with Islamic dietary laws, or halal, and are free from any ingredients or processes deemed haram (forbidden). The regulations are overseen by the Ministry of Religious Affairs, which will handle the certification process and enforcement.

The implications are broad-reaching. Businesses that fail to secure halal certification by the deadline may face fines or risk having their products removed from store shelves. Additionally, non-halal products can still be sold in Indonesia, but they will need to be clearly labeled as such, with prominent disclosure of non-halal ingredients on their packaging. The overall objective is to make it easier for consumers to identify and purchase products that align with their religious beliefs, thereby fostering trust in local goods.

To assist the transition, the Indonesian government is issuing free halal certificates to 1 million micro, small, and medium enterprises (MSMEs), granting them an additional two years to meet the requirements. While large corporations are mostly prepared to meet the deadline, many MSMEs have found the certification process to be cumbersome and costly, facing administrative challenges that could hinder their compliance.

Halal Regulations in Indonesia

For businesses, obtaining halal certification is seen as a strategic move to capture the expanding market for halal products. According to the State of the Global Islamic Economy Report 2023, the global halal market was valued at over $2 trillion in 2022, spanning industries such as food, pharmaceuticals, cosmetics, fashion, and travel. The halal food market alone is projected to grow at a compound annual growth rate (CAGR) of 7.5% over the next five years. Indonesia, being a major Muslim-majority country, holds significant potential to tap into this growing demand both locally and globally.

Dellvionico, a marketing officer for Kecap Korma, a well-known local food producer of soy sauce, explains the challenges of the certification process but emphasizes the long-term benefits. “It can take several months for companies’ applications to be processed, and the costs add up, particularly for small and medium-sized businesses,” says Dellvionico. However, he adds that certification is crucial, especially for those looking to enter supermarkets and major retailers. “Having halal certification is a significant selling point and can expand distribution channels beyond traditional markets where prices are usually lower.”

Global companies with a presence in Indonesia, like Mondelez International, share similar sentiments. With popular brands such as Cadbury, Oreo, and Kraft Cheese already certified as halal, Mondelez sees the new regulations as an opportunity to further strengthen consumer trust. Adinda Maharani, representing Mondelez’s Indonesian unit, points out that the regulations will likely boost sales as consumers actively seek out halal labels. “Shoppers’ doubts about whether a product complies with Islamic rules will be dispelled, which will likely lead to increased purchases,” she explains.

The Halal Economy’s Potential

The new halal regulations in Indonesia are also expected to pave the way for increased export opportunities, enhancing the country’s profile in the international halal market. With more than 1.9 billion Muslims worldwide and a rising demand for halal products in regions such as the Middle East, Southeast Asia, and even non-Muslim majority countries, Indonesia’s focus on halal certification is a strategic move to become a key player in global trade.

Dellvionico from Kecap Korma believes that halal certification opens up opportunities beyond Indonesia’s borders. “We are currently focusing on the domestic market, but we see great potential in export markets like Malaysia, which shares a similar food culture and has a Muslim population of over 20 million,” he adds. By meeting halal standards, Indonesian companies can tap into these international markets, where demand for certified products is growing rapidly.

This expansion aligns with the Indonesian government’s vision to make the country a hub for halal goods. As part of the National Sharia Economy and Finance Committee’s roadmap, the goal is to enhance the competitiveness of Indonesian halal products and services, positioning them as reliable and high-quality choices for Muslim consumers worldwide.

Halal Real Estate

The halal regulations in Indonesia are not just transforming the food and beverage industry; they are also creating opportunities in other sectors, such as real estate. A growing number of local developers are looking to capitalize on the new regulations by establishing halal-certified industrial parks to attract foreign investment.

Modern Industrial Estate, a prominent local developer, sees the regulations as a catalyst for growth. Their halal-certified industrial park in Banten, west of Jakarta, has already caught the eye of international investors. One of Thailand’s largest conglomerates, the Charoen Pokphand Group, has acquired nearly 20% of the park’s total area, marking a significant investment driven by the new certification requirements.

Levina Siatono, a senior marketing executive at Modern Industrial Estate, notes an increase in inquiries from foreign investors interested in manufacturing halal products in Indonesia. “The government’s regulation has led to a growing number of investor inquiries. We see a significant business opportunity with the implementation of halal regulations,” says Siatono. With the right support and opportunities from the government, the company is even considering the development of a second halal industrial park in another part of Indonesia, further expanding the country’s halal industry infrastructure.

Indonesia as a Global Halal Hub

The introduction of halal regulations in Indonesia is part of a broader vision championed by President Joko “Jokowi” Widodo. By mandating halal certification, the government aims to bolster consumer confidence in local products and elevate Indonesia’s standing as a global leader in halal goods and services. “This is a big market, with big potential, which we must think about so that the existing opportunities are not lost to other countries,” said Widodo during a recent announcement, underscoring the significance of the halal economy for Indonesia’s future.

Moreover, the government has set ambitious targets, aiming to make Indonesia the world’s leading producer of halal products and services by 2025. To support this goal, various initiatives are being rolled out, including financial support for MSMEs, training programs to ease the certification process, and collaboration with international halal organizations to align standards and promote trade.

Challenges and Opportunities

While the halal regulations in Indonesia present substantial opportunities, they also bring challenges, particularly for smaller businesses. The cost and time required to secure halal certification have raised concerns among MSMEs, many of whom operate within the informal economy. To mitigate these challenges, the government’s provision of free certificates for the first 1 million MSMEs is a positive step, allowing these enterprises to participate in the halal market without bearing the initial costs.

For larger corporations and global players, the regulations offer a chance to enhance their brand reputation and tap into a wider market. With halal certification increasingly becoming a requirement in Muslim-majority markets, businesses that align with these standards stand to gain a competitive advantage.

The new halal regulations in Indonesia mark a pivotal turning point for businesses across sectors. By ensuring that products align with Islamic principles, the government is not only strengthening domestic consumer trust but also setting the stage for Indonesia to become a global hub for halal products. This development is poised to accelerate business growth, enhance export potential, and attract foreign investment, making it a significant milestone in Indonesia’s economic landscape.

As companies navigate the new certification requirements, the future of Indonesia’s halal industry looks promising, with endless opportunities for growth and expansion both locally and internationally.