President’s Speech on the Global Islamic Economy
Updated: Jul 9, 2020
The global Islamic economy is certainly in a healthy state with strong growth prospects. As of 2015, the size of the Islamic economy is estimated to be $1.9 trillion and expected to grow to $3 trillion representing a compounded annual growth rate of 8%. The Islamic finance sector which is a major pillar of the Islamic economy, in 2015, had assets of $2 trillion. Food and Beverage, which tops Muslim expenditure by category, was $1.17 trillion in 2015 followed by Clothing and Apparel at $243 billion, Media and Recreation $189 billion, Travel at $151 billion and Pharmaceutical and Cosmetics at $133 billion. Revenues from Halal-certified Food and Beverage products was $415 billion.
The Global Islamic Economic Indicator [GIEI] was devised to show the health and development of the Islamic Economy ecosystem. The GIEI is a composite weighted index of 6 sector level indicators over 73 core countries. The 6 sectors being Halal Food, Islamic Finance, Halal Travel, Modest Fashion, Halal Media and Recreation and Halal Pharmaceutical and Cosmetics. The ranking is weighted towards Islamic Finance and Halal Food as their economic impact is comparatively larger than other sectors. The index shows that Malaysia once again leads the GIE indicator, 35 points ahead of the second ranked country, namely the UAE. This demonstrates the relative strength of the Islamic ecosystem in Malaysia and also its strong performance in the Islamic finance indicator, where Malaysia’s large financial asset base, advance governance and alignment of policies give it a significant advantage. Malaysia also ranks second in both Halal Travel and Halal Pharmaceutical and Cosmetics, reflecting a strong tourism sector and effective certification of halal products.
UAE maintains second place in the GIE rankings. It is taken second place in Islamic finance but first spot in all other indicators. UAE also stands out as having established a healthy ecosystem for Islamic Economy companies. The strong government-led Islamic economy development initiatives has given the country a strong platform for the development for all Islamic economy sectors.
Four key Islamic market-based growth drivers have been identified as catalysts for strong prospects in the global Islamic Economy.
The large young and fast growing global Muslim demographic. The global Muslim population is expected to rise from 1.7 billion 2014 to 2.2 billion by 2030. It is expected to grow at twice the rate of the non-Muslim population. Despite significant economic challenges such as job creation, training, social services etc., this demographic trend presents its economies a substantial young consumer market and a strong entrepreneurship base.
Large and fast growing Islamic economies. The 57 mostly Muslim majority member countries of the OIC (Organization of Islamic Countries), had a GDP (based on PPP) in 2015 of $17 trillion which represented 15% of the total global GDP of $113 trillion in 2015. According to IMF growth projections, the average projected growth of the OIC between 2015-2021 is expected to be 4.1% compared to the rest of the world’s GDP growth averaging 3.6%.
Islamic ethos/values are increasingly driving lifestyle and business practices. This represents the adoption of Islam as a way of life for many Muslim countries to guide all aspects of their lives including their consumption behavior.
OIC economies growing emphasis on Islamic/Halal market development activities. Many OIC governments have launched several initiatives promoting the Islamic economy, leading to increased intra OIC trade of 191% in 2015.
There are other market based growth drivers that auger well for the growth of the Islamic economy and these include:
(a). Participation of global multinationals. Top global brands from food, finance, travel, fashion, pharmaceutical and cosmetics sectors are increasing their engagement in the Halal/Islamic sector. They are assisting in innovating Halal products and services leveraging their global R&D and marketing capabilities. Examples of such major food supplies include BRF from Brazil, Nestle etc.
(b). Developed economies seeking growth markets opportunities within their domestic economies have identified their domestic Islamic sub-sector as a growth area. We see this in Spain, US, France etc. (c). Growing emphasis on ethical business is another areas of support for the Islamic economy.
(d). Lastly, Islamic economies startup entrepreneurs are benefitting tremendously from increased technological developments and connectedness. This has facilitated development of global distribution networks and overcome fragmented markets particularly for halal food, modest fashion and Islamic finance. In the realm of technology, cellular subscription rate amongst Muslims globally is $1.3 billion which is 21% of the global figure with countries such as Saudi Arabia and Indonesia, representing the largest number of social media users globally. Millennials, as a whole, comprise a significant proportion of the Muslim economy. By 2030, 29% of the global young population (15-29) are projected to be Muslims.
Focusing on two key sectors of the Islamic economy, Halal food is the 2nd largest economic pillar of the Muslim economy. In 2015, global Muslim market for Halal food of $1.17 trillion represented 16.6% of global expenditure, compared to China’s expenditure in the Food and Beverage sector of $854 billion and the US of $771 billion. This is a fast-growing sector with interesting opportunities in a number of areas such as a rise in Halal online platforms (e.g. Halal Eat in UK), increase in private equity investments (e.g. Abraaj and Taxes Specific Group investing $400 million in KSA Fast Food Chain, Kudu), increase consumption from non-Muslim consumers, increase in development of Halal organic food and others.
However, there are still some challenges that need to be addressed such as lack of a common and unified standards regime globally which causes confusion for MNCs seeking to enter the Halal food market. Though accreditation bodies with halal programmes have emerged, the full responsibility of overseeing certification bodies globally is still evolving.
The other key sector of the Global Islamic Economy is the finance industry. This continues to play a pivotal role in the wider global economy. In 2015, Islamic assets were about $2 trillion and projections are that Islamic finance assets are expected to grow to $3.4 trillion in 2021. Islamic banking assets which were about $1.4 trillion in 2015 is expected to grow to $2.7 trillion in 2021. The value of Sukuks outstanding in 2015 was $342 billion. The sukuk market has considerable potential for growth and this sector of Islamic finance has been a real success story. Malaysia has an entrenched position in Islamic finance with a strong regulatory framework and high awareness. UAE has overtaken Bahrain to be number 2 in the overall ranking. Takaful assets which were $37.7 billion and Islamic funds which were $66.4 billion also offer significant growth prospects.
Based on these encouraging achievements and positive trends, the state of the Islamic Economy is indeed healthy with strong growth prospects. This should encourage more new entrants and investments in this fast growing sector.