The nation’s textile industry has been dealt a double blow by the global economic slowdown and the imminent Asean free-trade agreement with China, with more than half of the manufacturers here turning into mere trading houses and 155 producers going out of business in 2009.
With demand hit by the global crisis, production more costly due to high electricity prices, and the expected arrival of a flood of cheap Chinese goods, many textile producers believe selling imported garments is now more profitable then producing domestically, Benny Soetrisno, chairman of the Indonesian Textile Association (API), said on Wednesday.
As many as 155 textile producers went bankrupt in the last year, according to the API. “Some [owners] tried their luck at other businesses such as property, but what concerns me most is that more than half of them have now become traders of textile products,” Benny said.
The shift is worrying because he believes trading companies will make a smaller contribution to the economy than producers.
“By becoming traders, these businessmen had to lay off their workers, and what makes it even worse is that most of the traders import products from China and export them to countries like Colombia,” Benny said.
Export revenue from textiles declined to $7.8 billion this year through October, 11.3 percent lower than the in the year-earlier period.
For the full year, the API predicts revenues will fall to $9.4 billion, a 9.9 percent drop from 2008.
Benny, who is also a deputy chairman of the Indonesian Chamber of Commerce (Kadin), believes Indonesia is not ready for the free-trade agreement because it is still lags behind its neighbors in many areas, including better power infrastructure.
Indonesian businesses also face high interest rates. Local banks still charge average interest of around 14 percent on loans to manufacturers, compared to about 6 percent in China.
“The lowering of interest rates for manufacturers would have a snowball effect on the growth of industries such as textiles compared to other methods,” said Chris Kanter, another Kadin deputy chairman.