How will Indonesia’s new government cement its halal economy?

Indonesia is five months away from welcoming defence minister - Prabowo Subianto - as its next president.

President-elect Subianto will succeed incumbent Joko Widodo in October. 

From an Islamic economy standpoint, how will the baton of the Sharia economic & finance national agenda be handed over to the next government?

The transition has, so far, been managed smoothly between the current and upcoming government, says Sutan Emir Hidayat, Sharia ecosystem infrastructure director at the National Sharia Economy and Finance Committee or KNEKS.  

Gauging from the communication conducted with the upcoming president’s Shariah economy teams, there is clear intent to strengthen KNEKS to become an independent entity. 

KNEKS operates under the ministry of finance. 

“They have shown strong commitment to continue what we have achieved. There were discussions regarding KNEKS and its transformation into an independent body, its pros and cons,” Hidayat told Salaam Gateway.

At the moment, KNEKS consist of 16 members, including three coordinating ministries; eight ministries – finance, religious affairs, industry, trade, cooperative & SME, state-owned enterprises (SOE), tourism & creative economy, national development plan - and three institutions as well as the Indonesian chamber of commerce and the Indonesia Ulema Council (MUI). 

KNEKS has regional representative offices in almost all provinces across Indonesia except nine, including Papua Island, Bali Island, Nusa Tenggara Timur and Maluku, where majority of its residents are non-Muslims. 

Hidayat added that the Sharia economy and finance agenda is already a part of the National Long Term Development Plan (RPJPN) 2025-2045 and its derivative - the five-year medium term development plan (RJPMN) 2025-2029.

The medium development plan outlines more detailed performance indicators about the Sharia economy masterplan (MEKSI). 

“We are currently completing the MEKSI document and have welcomed governors from regions to explicitly include Sharia economy and finance agenda in their regional development plans with sustainability and continuity. We have asked provinces such as West Kalimantan, Riau, Gorontalo and they have shown enthusiasm so far,” says Hidayat.

The new Sharia economy masterplan, according to Hidayat, is a refinement of MEKSI 2019-2024 and has 13 priority programs. 

“We have worked on these priority programs, but they are very basic and still have gaps. To be more comprehensive, they must be developed further. The new MEKSI will be in line with the five-year medium development plan that is being drafted and it will be used to support the vision of Indonesia’s 2045 social economic transformation,” he emphasises.

The Sharia economy and finance agenda is also included in the 2025 state budget which specifically outlines performance indicators for ministries and institutions that are KNEKS members.

Hidayat hopes the new government, consisting of Subianto and vice-president Gibran Rakabuming Raka, finds new sources of growth. 

Meanwhile, Rezza Artha, a team member of the upcoming government, says the new vice president himself is strongly committed to advancing the Islamic economy through several policies such as training and upskilling professionals in the Islamic banking sector, improving the quality of halal tourism, and the overall halal industry in Indonesia.

During the electoral campaign, the president and vice president issued a vision and mission document, which outlined how the new government will use the Islamic economy as an engine of growth, encouraging Indonesia to become a center of the global halal economy through strengthening its Islamic financial institutions, expanding the ecosystem, education and research, as well as optimizing the utilization of social funds (zakat, sadaqah, waqf, etc.).

“The document also stated that they will establish a Waqf Bank as an economic driver based on the Sharia economy on the basis of academic, thorough study, and comprehensive feasibility tests as well as the preparation of laws and regulations related to the Waqf Bank,” says Artha.

Other initiatives include strengthening state-owned enterprises and the private sector that conduct businesses or offer services across the Islamic economy.

“Prabowo-Gibran clearly stated in their Asta Cita (vision and mission document) that the Islamic economy is a sector they will develop if they received the mandate to run the government in the future,” he adds.

Key challenges
Hidayat admits that not all of the 13 priority programs of the Sharia masterplan ran smoothly during the last five years, the delay of the mandatory halal certifications being one. 

Last month, the country’s coordinating minister for economic affairs, Airlangga Hartarto, announced that the government has postponed the mandatory halal certification of products until 2026, particularly for micro and small enterprises. Micro enterprises are companies whose annual sales are in the range of around $62,586 to $125,295. Sales of small enterprises reach approximately $939,718 per year.

The policy has been postponed for food and beverage products as well as those in the traditional, herbal, and other medicines. The mandate also applies on cosmetics and chemical products, accessories, household goods, and medical device categories.

The original October 2024 deadline for the certification policy will continue to be applicable on medium and large enterprises. 

"We had aimed that by 2024 there would be 10 million halal-certified MSME products, but only 4.4 million have secured certifications so far. On that basis and perhaps due to lack of education and awareness, we require a big budget since the Halal Product Assurance Agency (BPJPH) and KNEKS alone are not enough for a country as big as Indonesia. That’s why the regulation was postponed for two years. I know we have a risk of reputation following this setback. But it is in the best interest of MSMEs,” says Hidayat. 

LPPOM director Muti Arintawati said many stakeholders will feel a sense of relief. Recognizing the vast number of businesses and the limited time until October this year, she acknowledged the challenges MSMEs would face in meeting the deadline. 

However, she cautions that this extension should not encourage complacency. Intermediate programs and strict targets must be established to ensure businesses do not delay the certification. 

“The attention should not be solely on the business scale within the MSME sector. The focus should be put on businesses supplying critical materials used in other industries, regardless of whether they are MSMEs or not. This is because the supply of food and beverage-related materials and services involves both large/medium and small/micro businesses," said Arintawati.

For example, meat availability from animal/poultry slaughterhouses is crucial, as meat and its derivatives are used in various culinary products. Extension of such MSMEs in the halal supply chain would hamper the availability of halal meat, hindering halal certification of businesses using meat. Several MSMEs offer repackaged products for spices and baking ingredients as well as operate services related to food and beverage.

Therefore, LPPOM urges the government to focus on solving halal issues in the upstream sector first. 

"Ensuring the availability of halal materials and services will make it easier for MSMEs to produce halal food and beverage end products. It's like a domino effect. If upstream issues are resolved, most halal product issues in Indonesia will also be resolved. The halal certification process will be easier, and the halal guarantee can be more accountable," said Arintawati.