Public Investment Fund’s HPDC and IsDB Target Projected US$4.6 trillion Global Halal Market Through Joint Projects and Investments in the Kingdom and OIC Member States

Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), continues to consolidate its investment involvement with the local and global Halal economy since the launching of the Halal Products Development Company (HPDC) last October.

In early May 2023, HPDC signed a MoU with the Islamic Development Bank (IsDB) to promote and identify investment opportunities in Saudi Arabia’s Halal sector and in the Halal industries of IsDB Group’s 57 member countries. According to the MoU, IsDB and HPDC will explore joint investment opportunities in key Halal subsectors such as food, pharmaceuticals, and cosmetics, as well as helping to develop an ecosystem for high-quality Halal products.

Mr. Fawaz Al-Harbi, Chairman of the Board of Directors for HPDC, stressed that “driven by a mission to promote the Kingdom of Saudi Arabia as a world-renowned hub for Halal products, our partnership with IsDB is an embodiment of our commitment to investing in Halal industry players and supporting innovation, growth, and consistent development. By leveraging IsDB’s expertise regarding Islamic finance and commerce, we are in an advantageous position to create value for our partners, businesses, and investors. In addition, this agreement will significantly increase both the development and diversification of the Kingdom of Saudi Arabia’s base economy in line with the aims and objectives of Vision 2030.”

The entry of PIF, with assets under management of US$650 billion, into the Halal market is a major boost to the global Halal economy, which is estimated to rise to US$4.96 trillion by 2030 and indirectly to the estimated US$3.5 trillion Islamic finance industry. Growth opportunities, aside from traditional markets in Organization of Islamic Cooperation (OIC) member states, will increasingly emerge across non-OIC countries, driven by growing globalisation and awareness of Halal products and its preference by many non-Muslim consumers, and both policy momentum and private sector investments.

HPDC also complements and synergises the “Made in Makkah” and “Made in Madinah” identities and brands launched in January 2023 as part of the wider “Made in Saudi Arabia” initiative launched by the Saudi Export Development Authority (SEDA) in 2021. According to Saudi Minister of Industry and Mineral Resources and Chairman of the Board of Directors of SEDA, Bandar Alkhorayef, “the special status that Makkah and Madinah enjoy among Muslims in all parts of the world has made the products of the two holy cities most favourite among the majority of Muslims around the world.”

The company’s launch is underpinned by the strong creditworthiness of its parent, PIF.

In March 2023, Moody’s Investors Service upgraded PIF’s credit rating outlook to “positive” and affirmed the Fund’s A1 issuer rating. Such ratings are measures of creditworthiness, and A1 is considered an indication of very strong fundamental credit strength.” Moody’s highlighted PIF’s steady dividend income stream, high-quality investment portfolio, and sector diversification. PIF has a National Scale Rating – opinions of the relative creditworthiness of issuers and financial obligations within one country – of, the highest possible NSA rating that entities in Saudi Arabia can obtain.”

The PIF is a pillar and an essential enabler of the Kingdom’s Vision 2030, and the main mobilizer of the domestic economy and the diversification of its sources of income, as the fund’s strategy enhances the efforts that contribute to the development of the Kingdom’s wealth through investing domestically and globally to enable the growth potentials for the priority sectors in the Kingdom, which will contribute to enhancing economic diversification, contributing to the growth of non-oil GDP, increasing local content, and empowering the private sector.

Apart from the business case, there is also a compelling demographic driver of the Halal economy. The global Muslim population exceeded the 2 billion mark at end April 2023, when it was estimated at 2,007,821,549 people, which represents over 25% of the world’s total population of 8,031,286,196.

The market opportunity is so huge and its growth so diverse that multinationals are getting firmly embedded in the Halal economy, albeit in selected segments. Similarly, the World Bank recently saw fit to publish a report on “Islamic Finance and the Development of Malaysia’s Halal Economy.”

The State of the Global Islamic Economy Report 2022 puts Saudi Arabia second to Malaysia on its Global Islamic Economy Indicator, followed by the UAE and Indonesia. Saudi Arabia says the Report has bolstered its Islamic economy, especially in Halal food, Islamic finance, and fintech.

Halal food exports to OIC countries from Saudi Arabia only decreased by 2%, despite the pandemic. Hajj and Umrah tourism was heavily impacted by the pandemic in 2020/21, but is recovering as post-pandemic recovery and normalisation continues. Saudi Arabia has continued to invest in its tourism sector as part of its Vision 2030 strategy. The PIF is investing in luxury resorts, an airline, and a cruise line in its efforts to expand leisure tourism.

Similarly, according to US-based Frost & Sullivan’s report last October on “Global Halal Economy Growth Opportunities,” the market for the global Halal economy will likely witness impressive growth, reaching an estimated US$4.96 trillion by 2030 from US$2.30 trillion in 2020.

The main factors driving the Halal industry are favourable population demographics, government policies, and private sector initiatives. Growing non-Muslim demand for Halal foods, said the report, will be driven by its association with safe and healthy eating, while Halal fashion and tourism should also find increasing acceptance among more conservative non-Muslim consumers.

“With higher levels of Halal trade and Islamic finance potentially accelerating infrastructure development,” explained Neha Anna Thomas, Senior Economist at Frost & Sullivan, “the Halal economy is poised to become more integrated with global trade and supply chains. Further, governments are strengthening regulatory and policy support through national masterplans and Halal certification scope expansion, which will boost the industry’s growth. This creates the need to progressively ensure trade and supply-chain transparency while driving awareness of Islamic financing solutions.”

Another report published in February 2023 by US-based Coherent Market Insight titled “Halal Products Market 2022 Analysis by Market Trends, Size, Share, and Outlook” maintains that “the competitive landscape of the global Halal products market is fragmented. The emergence of large numbers of key players is the main reason for such fragmentation in the global market. In the next few years of the forecast period (2020-2030), global market competition is expected to only intensify.”

Some of the key players involved include Nestlé S.A. (Switzerland), Cargill (U.S.), Unilever (UK), Al Islami (Dubai), American Foods Group (U.S.), QL Foods (Malaysia), PRIMA AGRO (Malaysia), Saffron Road (US), Allanasons (India), Kawan Food Manufacturing (Malaysia), The Coca Cola Company (US), Krafts Food Group (US), GlaxoSmithKline (UK), L’Oreal S.A (France), Ulker (Turkiye) and Savola (Saudi Arabia). There are of course thousands of dedicated medium-and-small-sized companies from across the five main geographic regions in North America, Europe, Asia Pacific, Middle East-Africa, and Latin America involved in the Halal economy.

The rationale behind PIF launching HPDC is to “building on Saudi Arabia’s position in the Islamic world, unifying global efforts (in the halal economy) and promoting Saudi Arabia as a global Halal hub.” 

HPDC’s core objectives include:

a) Increasing the efficiency of the Halal economy ecosystem locally, while supporting the development of knowledge, technology and innovation for the development of Halal products including foodstuffs, cosmetics, and pharmaceuticals, with plans to export to markets globally.

b) Developing the Halal production industry by partnering with key players and providing specialized advisory services domestically and globally, to increase efficiency and innovation and promote opportunities.

c) Enabling local players, SMEs in particular to grow and expand across global Halal markets.

d) Contributing to job creation.

e) Promoting investment and economic opportunities for the industry by introducing various services, including fund raising and specialized advisory.

“The launch of the company aligns with PIF’s strategy, which focuses on developing and enabling the capabilities of key sectors– including consumer goods and retail, and food and agriculture – to improve the trade balance, localize and develop the industry, and contribute to the diversification of the economy and growth of non-oil GDP, underscoring the objectives of Saudi Vision 2030,” added PIF in a statement.

Frost & Sullivan identified sector-specific growth opportunities, with digital transformation opportunities emerging as a recurring theme, whether blockchain-based solutions for Halal foods traceability or Islamic fintech solutions. According to Neha Anna Thomas, “transparency and traceability along the Halal product value chain are crucial. Due to this, governments should encourage the adoption of advanced technologies such as blockchain and the Internet of Things (IoT) when developing Halal economy masterplans, while businesses can partner with tech start-ups.”

Technological infrastructure innovation and digitisation in the Halal economy, for instance, is also a core aim of Malaysia’s Halal Industry Master Plan 2030 (HIMP 2030), which was launched on 23rd March 2023 by Investment, Trade and Industry Minister (MITI), Tengku Datuk Seri Zafrul Tengku Abdul Aziz.

HIMP envisages the Malaysian Halal industry to expand to US$113.2 billion by 2030, with a GDP contribution of 8.1% by 2025. According to MITI, Malaysia’s Halal exports continued with its growth trajectory in 2022 with a total Halal export value of RM59.46 billion, an increase of RM23.16 billion or 63.8%n from the previous year. The Malaysian Halal ecosystem includes the Halal Development Corporation (HDC), Martrade, and the annual Malaysia International Halal Showcase (MIHAS) with its pioneering B2B platform, which according to Tengku Zafrul “has grown from strength-to-strength, and has also established itself as one of our key drivers to build on the Halal momentum by exploring new frontiers and untapped opportunities in this industry.”

The challenge for the Halal economy per se is to generate revenue and jobs across the spectrum including MSMEs to diversify economies away from dependence on hydrocarbons, and more recently also to promote sustainability and ESG considerations in line with the UN and national SDG agenda and the Net Zero goals of the Paris Agreement.

The connectivity between Islamic finance and the Halal economy also remains fragmented, under-researched exacerbated with under-reporting, poor data collection, confusing methodology in terms of criteria and metrics which relies too much on catchall and aggregate sector data as opposed to clear national data as to the size of the industry and its constituents.

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