90% Import Reliance Threatens Growth of Indonesia’s Halal Pharma Sector

Jakarta – Indonesia has secured a place among the world’s top four players in the halal pharmaceutical and cosmetics sectors. However, behind this achievement lies a structural weakness: the industry remains heavily dependent on imported raw materials, accounting for roughly 90 percent of supply.

Murniati Mukhlisin, a researcher at the Center of Sharia Economic Development (CSED) at the Institute for Development of Economics and Finance (INDEF), said Indonesia holds significant potential to become a major global player in halal pharmaceuticals and cosmetics. The country benefits from a large domestic market, while global demand for halal products continues to rise steadily.

The global halal cosmetics market, valued at around $92 billion in 2024, is projected to grow to $124 billion by 2029. Meanwhile, the halal pharmaceutical market is expected to expand from $112 billion to $146 billion over the same period.

“The halal pharmaceutical and cosmetics industries in Indonesia have strong growth prospects in line with increasing global demand,” Murniati said during a public discussion hosted by CSED INDEF on Monday.

Despite these opportunities, the sector has yet to fully capitalize on its potential. One of the main obstacles is the limited national capacity for innovation, particularly in producing high value-added halal pharmaceutical and cosmetic products that can compete internationally.

At the same time, reliance on imported raw materials remains a major challenge. This dependence weakens the competitiveness of Indonesia’s halal industry compared to countries that have already established stronger upstream capabilities.

Murniati emphasized that developing the halal industry requires more than product certification. The government needs to adopt a more integrated policy approach, covering raw material development, research and development, investment incentives, technological adoption, and export support.

Policy harmonization across ministries and institutions also remains an issue for businesses. Expanding mandatory halal certification, she warned, must be matched with increased industrial capacity so that it does not become an additional burden, particularly for micro, small and medium enterprises (MSMEs).

Technology, she added, could play a key role in strengthening the national halal ecosystem. Blockchain, for instance, can improve traceability of raw materials from upstream to downstream, ensuring transparent verification of halal status.

Meanwhile, artificial intelligence can support document verification, risk assessment of raw materials, supplier mapping, and the harmonization of halal standards across countries. These technologies are also expected to accelerate certification processes and facilitate exports.

To enhance competitiveness, Murniati proposed the establishment of Halal Local Hubs across regions. These hubs would integrate business assistance, market access, sharia-compliant financing, halal certification, and research and laboratory support within a single ecosystem.

She expressed hope that each province would eventually have such a hub, connected to universities, local governments, industry players, halal certification bodies, and Islamic financial institutions.

According to her, these steps are essential for Indonesia to move beyond being merely the world’s largest consumer of halal products and instead become a leading producer and innovator.

“Indonesia must not only be the largest consumer of halal products globally but also emerge as a key producer and innovator capable of generating added economic value and strengthening national competitiveness,” she said.

Separately, Nur Hidayah, head of CSED INDEF, stressed that the halal industry and Islamic finance must operate as an integrated system.

“In reality, Indonesia’s halal industry and Islamic finance sector still operate separately. The halal industry generates economic activity, while Islamic finance provides funding, investment, and risk mitigation,” she said during the same discussion.

She noted that the linkage between the two sectors remains weak. In countries with successful halal ecosystems, strong integration between industry and finance allows both sectors to reinforce each other.

As a result, Indonesia’s Islamic finance sector has yet to become the primary funding engine for the national halal industry.

This is particularly evident among MSMEs, many of which already hold halal certification but still rely on conventional financing due to limited access to competitive Islamic financial products.

The situation also reveals gaps in the implementation of the Halal Product Assurance Law, which has so far focused mainly on raw materials and production processes.

Going forward, Nur Hidayah argued that the halal value chain must be treated as a fully integrated system from upstream to downstream. Businesses claiming halal certification should ideally align their operations with sharia-compliant financing.

Such measures are necessary, she said, because Islamic finance—still in its early stage of development—often struggles to compete directly with the more established conventional financial sector.

“This is where government intervention is needed, through affirmative and protective policies for Islamic finance, along with incentives for institutions that fund halal MSMEs, so that Islamic finance can become the preferred financing option,” she said.

Indonesianpost.com | Antara