Wednesday June 12, 2024

Covid-19 set to cut spending for Islamic economy sectors

By Erum Zaidi
December 31, 2020

KARACHI: Muslim spending for the six real-economy sectors would likely fall by eight percent during the outgoing year due to economic fallout from the coronavirus pandemic, the State of the Global Islamic Economy Report 2020/21 said on Wednesday.

The online launching ceremony of the report was held at the Centre of Excellence in Islamic Finance Institute of Business Administration.

This year’s report estimates that Muslims spent $2.02 trillion in 2019 across the food, pharmaceutical, cosmetics, fashion, travel and media/recreation sectors, all of which were impacted by Islamic faith-inspired ethical consumption needs.

This spending reflects a 3.2 percent year-on-year growth from 2018. In addition, Islamic finance assets were estimated to have reached $2.88 trillion in 2019.

“The pandemic is forecasted to result in an 8 percent decrease in global Muslim spending in 2020 for the Islamic economy sectors covered in this report. All of these sectors, except travel, are expected to return to pre-pandemic spend levels by the end of 2021,” the report said.

Muslim spending is forecasted to reach $2.4 trillion by 2024 at a five-year cumulative annual growth rate (CAGR) of 3.1 percent.

The report stated that despite the havoc wreaked by Covid-19, the past year saw many notable developments in the Islamic economy — led by acceleration in digital transformation, disruption in global supply chains, and increased government focus on food security-related investments.

The global Islamic economy continues to be underpinned by eight key drivers, including a large and growing Muslim population, an increasing adherence to Islamic ethical values impacting consumption, and a growing number of national strategies dedicated to halal products and service development.

Countries continue to build more robust Islamic economy ecosystems. Malaysia currently leads the overall Global Islamic Economy Indicator (GIEI) rankings for the eighth consecutive year, while Saudi Arabia moved up to second place, followed by the UAE and Indonesia. New entrants to the top 15 include Nigeria, Sri Lanka, and Singapore. Brunei, Sudan, and Bangladesh have fallen out of the top 15.

Several national Islamic economy strategies were launched last year, most notably Indonesia’s mandatory halal law, which came into force for halal food products. Saudi Arabia also launched a national regulation system for halal products during the same month.

Indonesia and the Philippines formed strategic partnerships to expand their halal trade, as did Japan and Malaysia. In the Islamic finance sector, Pakistan, Qatar, and Kuwait announced plans for new centralised regulations.

“Despite the hit to the tourism sector, Saudi Arabia remains invested in its Vision 2030 strategy and are planning to launch a $4 billion tourism fund focused on travel technology and supporting mixed-use destinations,” it said.

Investments in Islamic economy-relevant sectors across OIC and select non-OIC markets fell by 13 percent to $11.8 billion in 2019/20 from $13.6 billion in 2018/19. Indonesia, Malaysia, and the UAE saw the highest number of investments, with Indonesia bagging 25 percent of all deals recorded. In terms of sectors, halal food and Islamic finance comprised 52 percent and 42 percent of the total deal value, respectively.

Digitalisation is rapidly transforming the halal food sector, a trend accelerated by the spread of COVID-19. E-commerce and online grocery/delivery became critical as people had to stay at home due to social distancing restrictions.

The halal food industry moved a step closer towards the standardisation of halal regulation, with the Standards and Metrology Institute for Islamic Countries (SMIIC) publishing key halal standards. In the wider ecosystem, Malaysian Islamic banks CIMB and Standard Chartered Saadiq have launched initiatives to help the country’s halal food small and medium enterprises (SMEs) grow, a much-needed move across the Islamic economy.

“Muslim spending on food increased by 3.1 percent in 2019 from $1.13 trillion to $1.17 trillion, and is expected to drop slightly in 2020, before growing to reach $1.38 trillion in 2024 at a five-year CAGR of 3.5 percent.”

This past year, the Islamic finance sector saw an enhancement of regulations to drive trust and growth in the sector. Islamic finance assets were valued at $2.88 trillion in 2019, and were expected to remain the same in 2020 and grow at CAGR of five percent between 2019 and 2024 to reach $3.69 trillion.