Cédomir Nestorovic, Professor of Management and Geopolitics at ESSEC Business School, Asia-Pacific, explores the amazing success of Malaysia in the Halal business sector and how its position as leader is now being threatened by the rise of a small, but bullish United Arab Emirates.
Is Malaysia losing its leadership in the global halal market? Abridged from an original paper presented by Professor Cédomir Nestorovic, ESSEC Business School, Asia-Pacific, at the EuroSEAS Conference, Berlin, 12th September 2019.
In the domain of Islamic business, Malaysia was and still is the leading country. Without surprise, Nestlé has established its halal hub in Malaysia and students used to come in hundreds to learn about Islamic finance at the International Islamic University of Malaysia (IIUM) or INCEIF (International Centre for Islamic Finance Education) in Kuala Lumpur. Tabung Haji was the synonym of the efficient Hajj organization and Islam Hadhari was studied at Universities and Institutes across the country. How come that a relatively small country in South East Asia – where Muslims represent only 60% of the population – became a reference in the global halal market while its halal expertise was practically nil only a few decades ago? And is it possible that it can maintain its leadership when new competitors like Dubai come to the market?
Malaysia as a leader
The General Election in Malaysia in 1981 brought to power Dr. Mahathir Mohamad who believed that it was possible to emulate the Asian tigers of that time (South Korea, Taiwan, Hong Kong and Singapore) and achieve similar economic results. Although having more natural resources than the Asian tigers, the population did not share the same entrepreneurial spirit as their neighbours. Mahathir Mohamad’s challenge was therefore twofold: to achieve the same performance as the Asian tigers and promote and empower the Muslim population in Malaysia. He decided to combine Islam and modernity, a concept which was proposed in various countries under different names (political Islam, Islamic economy) but never fully implemented… until 1979.
It was a year that was a turning point for Muslims worldwide, the Iranian Islamic Revolution (December 1978-January 1979) transforming probably the most Westernized Muslim country in the world into an Islamic Republic in a very short span of time, and giving rise to a project to spread Shi’ism across the globe. A second event came in the guise of the Grand Mosque seizure of Mecca in November-December 1979 which came as a shock for the Muslim community. It took two weeks for the Saudi army and its allies to end the seizure with the result that following this attack, Saudi Arabia hardened its Islamic stance.
These two events occurred in a time of religious movements revival in the Muslim majority countries of South East Asia, most notably Indonesia and Malaysia, and therefore served as a source of inspiration for the emerging Islamism in these countries. Faced with the competing attempts to spread both Shi’ism and Salafism in south-east Asia, Malaysia – belonging to the Shafi’i school of thought and governed under Mohamad Mahathir – came up with a project that would at the same time help the economic performance of Malaysia and resist the proselytism coming from Saudi Arabia and Iran. But while it was relatively easy to contain the influence of Iranian and Saudi Arabian official activism in Malaysia, it was much more difficult to limit the spread of Islamist ideas among the population. Mahathir decided to co-opt major Islamists within the establishment and commit himself to an Islamisation programme in order to cut the grass of domestic activism. In order to win their support, Mahathir established a distinction between Islamic values and Islamic rules and laws, establishing ‘Islamic values’ in Malaysian society through the Islamisation of productive, financial and educational structures and a halalisation of food standards. The halalisation was a way to make the society, families and Islamic parties accept to abandon their maximalist views about Islamic economy and participate in government activities through organisations like JAKIM, which was in charge of the halal sector in Malaysia.
How the world was won
Deciding to halalise the food sector is one thing, realising it is another. Malaysia needed the support of those who could produce and ensure the Shariah-compatible character of products and service and this could not be done by Malaysian companies which lacked international exposure, marketing expertise and competence in manufacturing halal products in various countries. Malaysia thus asked a renowned company, well known for its willingness to transfer competence in all countries where it operates to help it. The influence of Nestlé, a company present in Malaysia for more than a century was a crucial one.
In 1980, Nestlé established the first internal halal committee and started implementing a formal halal policy in 1992, at a time where no halal standards existed. The cooperation with JAKIM (Jabatan Kemajuan Islam Malaysia – Department of Islamic Development in Malaysia) resulted in the first halal certificate received in 1994. The first halal standard in the world launched as MS1500:2000 was revised in 2004. It was completed in 2009 and hailed as the ‘mother of all halal standards’. It became the world reference in the domain of certification of Shariah-compatible food products. Nestlé then took the JAKIM certificate in order to obtain the religious legitimacy. This was a classical win-win scenario. In short, Nestlé served JAKIM and JAKIM served Nestlé.
Nestlé participated actively in the Islamisation of standards in Malaysia by organizing trainings for SMEs, NGOs and supporting the ‘halal sciences’ tracks in Malaysian universities. In the early 2000s Malaysia played a very active role in spreading its halal model by sending systematically delegations to all conferences on world ethnic food and organising conference and events in Malaysia, such as the World Halal Forum. The World Halal Forum (WHF) was launched in 2005 and since that year hosted every year hundreds of specialists.
That year Malaysia was ready to lead the halal wave through a combination of private initiatives (given by Nestlé and other food giants such as Colgate or McDonald’s) and public commitment (halal standard, the World Halal Forum and HDC with the final aim to lead the halal standards harmonization with the International Halal Development Initiative – IHI). At that time Malaysia shined as the global leader recognized by all other Muslim countries. Mahathir could say: ‘Mission accomplished’.
The political situation however changed in 2009 after the General Election which brought to power a new Prime Minister, Najib Razak, who departed from the Islamic agenda by introducing the concept of 1Malaysia. Since that time, Malaysia stagnated, in spite of the fact that new halal standards have been developed by Malaysian Standards (MS). The World Halal Forum has been renamed the World Halal Conference with a lower participation from other countries. Mihas was much smaller than before and IHI has been dismantled. Nestlé is still there, together with JAKIM and HDC, but the mojo is not the same and other countries started to look attentively at the way they can take a slice of this lucrative market. Among the newcomers, Dubai was the most aggressive.
Back in the UAE
The United Arab Emirates (especially Dubai) were not well known for their hard stance on Islam. The UAE is a federation of seven emirates and some of them (like Sharjah) are ‘more Islamic’ than others. Dubai is certainly not on this list. On the contrary, Dubai has been dubbed ‘the sin city’ of the Gulf because of its relaxed rules for locals, expatriates and tourists.
Virtually all Emirati citizens are Muslims so there is no need to specifically empower Muslims, contrary to Malaysia, where there is competition between the three communities (Malays, Chinese and Indians). Halal was not an issue in Dubai (same thing for many Muslim countries in the region) since all food was deemed to be halal, except for specific non-halal points of sale, clearly indicated and open to non-Muslims. It was thus a surprise to see Dubai engaging in Islamic economy and specifically halal food by the end of the first decade of the 21st century, exactly at the same time when Malaysia slowed down its activism.
Dubai: Everyone’s political friend?
From the external political point of view there was no need to push for an Islamic agenda because Saudi Arabia and Iran do not proselytize in Dubai. Saudi Arabia does not put pressure on the Emirates because they constitute with Bahrain the closest allies to Saudi Arabia in the region. The influence of Iran is a little bit more complex. About 15 per cent of Dubai citizens are Shia and Iran tends to act as a protector of Shia, whether they are Iranians or Arabs, especially those who belong to the Twelver branch of Shi’ism. About 400,000 inhabitants in Dubai have Iranian nationality and many of the leading trading families in Dubai can trace their roots to Iran, a legacy of centuries of trade in the Persian Gulf. Islamic Republic of Iran needs Dubai as a trading post in times of sanctions.
As Hong Kong was vital for China, so is Dubai to Iran. As such, there is no reason for Iran to destabilize Dubai and proselytize there. Iran never tried to export its revolution in Dubai and there was no need for Dubai to resist this kind of challenge and Islamise its society.
From the internal political point of view, the situation in Dubai is different from that in Malaysia. In Malaysia, the political system permits to all kind of political ideas to flourish, especially all shades of Islamic conceptions of society. There are many political parties and societies participating to elections where real power is at stake. This is not happening in Dubai, where political parties are banned and the Federal National Council in Abu Dhabi has much less power than Parliament in Kuala Lumpur. All in all, it is possible to express a plurality of ideas pertaining to Islam and society and Islam and economy in Malaysia while this is not the case in Dubai.
From the institutional point of view there is no place in Dubai to contest the official point of view or decisions. If there is no institutional challenge, there might be non-institutional challenge from groups and societies. Groups like Muslim Brotherhood or Hezbollah are closely watched and its members routinely expelled from the country. The real danger is spontaneous unrest like the Arab Spring in 2011. Even closer was the unrest in Oman. Unlike in Malaysia, there was no pressure (external or internal) to push for the halalisation of society in Dubai. So the primary reason for halalisation was the economic one.
Dubai: An economy looking for necessary alternatives
Contrary to Malaysia, Dubai does not have natural resources. Oil represents less than 5 percent of the GDP while in Abu Dhabi it represents 40% of the GDP. The main activities in Dubai are trade, financial services and real estate. The debt crisis in 2008 was a painful wake-up call because Dubai needed a $20 billion bailout from oil-rich Abu Dhabi to escape a debt crisis caused by collapsing property prices, which had threatened to force some state-linked companies to default on billions of dollars of debt.
The Emirate had to find new fuel for growth to add to its traditional sectors. The Emirates, along with many Middle East and North African countries, did not have its own halal standard and certification agency and had a rudimentary awareness about the potential size of the market. However, the realisation that a market of 1.8 billion Muslims worldwide might be interested in a specific (halal) offer was very interesting to Dubai at the time when it needed badly an additional source of income. This is when Dubai decided to harness the Islamic economy tide and put emphasis on halal.
The Malaysian model was a very inspiring one for Dubai. It did not need to reinvent the wheel, since Malaysia provided a very interesting blueprint and indicated the directions where to go: excellence in manufacturing, standards and certification and branding Dubai as the hub for halal. Since Malaysia’s journey to halal was backed by Nestlé, Dubai wanted to do the same. Nestlé has 18 factories in the Middle East, but only two of them produce food, while the 16 other produce water and beverages. The two food producing factories are in Iran and Dubai. Dubai also invited BRF from Brazil, the absolute leader in exporting halal meat (especially poultry) under the brands Hilal, Perdix and Sadia. The headquarters of BRF Middle East are in Dubai and the Emirate hosts the only production unit in the Middle East. Finally, Dubai also wants to promote domestic leaders in the halal business with brands such as Al Khazna, Al Islami foods or Al Kabeer.
As for the halal standards and certifications, Dubai did not have anything of this kind a few years ago. The halal character of imported food was checked upon the arrival by customs department while the locally-manufactured food was deemed to be halal even if it was not certified.
Now Dubai wants to impose its own standards and certificates to multinational and local manufacturers in the Emirate. To this end, ESMA (Emirates Standardization and Metrology Authority) equivalent of Malaysian Standards, located in Dubai, launched its first standard in 2014. Today the Emirati standards cover not only food, but also cosmetics. Contrary to the Malaysian example where the halal standards (Malaysia Standards) and halal certificates (JAKIM) are separated, Dubai decided to have both functions under the same roof so ESMA is responsible for both (standards and certification).
Finally, in order to communicate about Dubai as a global halal hub, Dubai launched its own version of HDC and World Halal Forum. The equivalent of the WHF is the Global Islamic Economy Summit (GIES) launched in 2011. Dubai went even further by publishing the Global Islamic Economy Report (GIER) in cooperation with Thomson Reuters and DinarStandard. Today, this is the main source of information about Islamic Economy and halal in particular. The annual presentation of the report every October is hosted by the Dubai Islamic Economy Development Centre (DIEC), established in 2013. As far as internet sources are concerned, www.salaamgateway.com is the leading global source of information.
Halal 2.0?
Everything is set for Dubai to replace Malaysia as a global halal hub. There are however two major obstacles. The first one is that Malaysia started decades ago and acquired a good reputation in halal that Dubai does not yet have. The number of halal standards in Malaysia ranging from food to pharmaceuticals and logistics is so vast that it will take time for Dubai to match it. The second one is that Dubai is very much dependent on international trade and if there is a crash similar to that of 2009, it will be hard for the Emirate to ask Abu Dhabi to bail out again. The Malaysian economy is much more diversified and resilient so the halal journey will continue, although at a lower pace.
The Malaysian journey to halal was not dictated by market forces – there was no sudden demand for halal water or halal cosmetics in the country – but was dictated by a political decision motivated by internal and external factors, supported by Nestlé. This journey was a successful one and Malaysia acquired a reputation expending far beyond the region. After 2009 a certain fatigue started to be felt in Malaysia while a newcomer, Dubai, aggressively wanted to take its spot by reproducing the same model. It managed to align the same forces as Malaysia did, but Dubai is very much dependent on trade and real estate so its future is not firmly assured.
In both cases, the halal journey is a political one: it remains to be seen if there is political willingness in Malaysia to embark on halal journey 2.0 or not. If it managed to be number one in the past, it can also be number one in the future due to its experience and competence.
Cédomir Nestorovic
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