Textile sector faces multifarious problems<\/p>\n
Anissa S. Febrina, The Jakarta Post, Jakarta<\/p>\n
The already-ailing Indonesian textile sector had the ladder
\nkicked away from it this year.<\/p>\n
Early in 2005 it was charged with being ill-prepared to face
\nthe termination of the Multi Fabric Agreement (MFA), which 20
\npercent of textile manufacturers here were previously reliant
\nupon.<\/p>\n
The termination agreement was in fact reached a decade ago.<\/p>\n
Without the global textile quota system, the market will
\nindeed be freer, that is for those with high competitiveness,
\nwhich currently reads, China.<\/p>\n
With considerably rich natural materials, higher productivity
\nand more integrated infrastructure, in the first five months of
\n2005, China's exports to the European Union (EU) increased by
\nalmost 50 percent while Indonesia's dropped by 12.7 percent.<\/p>\n
Exports to the EU are among the most important for Indonesia
\nas countries under the group absorbed some 40 percent of global
\ntextile imports, followed by the United States with 30 percent.<\/p>\n
To give some relief, based on the Central Statistics Agency's
\ndata, Indonesia's 2005 average monthly exports to the U.S.
\nincreased to US$160 million from $130 million in 2004.<\/p>\n
However, later in the year, those figures were strongly
\nquestioned.<\/p>\n
And while China's strategy is clearly working, Indonesian
\ntextile and garment companies are facing more complicated
\nchallenges in increasing their competitiveness.<\/p>\n
Let us start with surging imports from China to, not only the
\nU.S. and EU markets, but also to the Indonesian domestic market.<\/p>\n
Shopping in Tanah Abang, Central Jakarta -- known as Southeast
\nAsia's largest textile market, with daily transactions amounting
\nto Rp 150 billion (US$15.33 million) -- one cannot help but be
\ntaken aback by the predominance of made-in-China textiles and
\ngarments, rather than those produced here.<\/p>\n
In the first quarter of the year, garment imports from China
\nincreased tenfold to $4.27 million from the same period last
\nyear, the Indonesian Textile Association (API) said.<\/p>\n
Along with the increase in imports, exports to the U.S. in the
\nfirst five months of the year also increased by 10 percent,
\nraising suspicions of transshipment.<\/p>\n
The API argued that such an increase was unlikely as 77
\ntextile manufacturers had stopped operating the month before.<\/p>\n
The Ministry of Trade then required a stricter procedure in
\nthe issuance of Country of Origin (COO) documents for exported
\ntextiles. However, illegal practices have not significantly
\ndecreased.<\/p>\n
To make things worse for the sector, illegal imports flooding
\nthe domestic market have also been a chronic problem, both in
\nterms of new and secondhand goods.<\/p>\n
At Senen Market, also in Central Jakarta, three levels of
\nkiosks sell imported secondhand garments with shirts priced at Rp
\n5,000 and quality suits for an unbelievable Rp 20,000.<\/p>\n
So, that takes the biscuit for the mass lower domestic market.<\/p>\n
Meanwhile, in the upper market, foreign brands from the U.S.
\nor EU dominate with, once again, outsourced products from China
\nor Vietnam.<\/p>\n
Aside from the external problems, textile manufacturers must
\ndeal this year with increases in both power rates for industrial
\nuse and fuel prices.<\/p>\n
State power firm PLN raised later in the year the industrial
\ncoefficient rate, and on top of that applied a kind of penalty
\nfor those using power more than the allowed quota during peak
\ntime.<\/p>\n
API chairman Benny Soetrisno said the sector was among those
\noperating 24 hours a day to maintain productivity and the policy
\nto increase fuel prices would increase operating costs by at
\nleast 25 percent.<\/p>\n
Energy costs contributed to almost 30 percent of total
\noperating expenses.<\/p>\n
The Oct. 1 fuel price increases -- which saw the prices of
\npremium gasoline and diesel fuel nearly double and that of
\nkerosene triple -- in the end also leads to higher transportation
\nand labor costs. The two factors contributed quite significantly
\nto the increase in expenses as the sector is labor-intensive.<\/p>\n
In terms of company infrastructure, the productivity of
\nmanufacturers lags behind those in China since they still utilize
\nold machinery.<\/p>\n
The industry ministry estimated that the sector would require
\na $5 billion investment to revamp its production facilities.<\/p>\n
Separately, industry players calculated that they would
\nrequire at least $100 million for a first-phase rejuvenation of
\ntheir machines.<\/p>\n
This would require the support of the banking sector, which
\nunfortunately remains reluctant to grant loans to textile
\ncompanies. Not to mention the currently high interest rates.<\/p>\n
As a result of these overlapping problems, the sector only
\ngrew by 1.1 percent in the first nine months of 2005, as compared
\nto 4.2 percent in the corresponding period of 2004.<\/p>\n
The industry is likely to fail to meet the targeted growth of
\n4.2 percent by the year end, despite the increase in total
\nexports.<\/p>\n
However, there is a silver lining.<\/p>\n
According to the Investment Coordinating Board (BKPM), foreign
\ninvestment in the textile industry had reached Rp 1.57 trillion
\nas of September, with the commitment of two more foreign
\ninvestors.<\/p>\n
In November, considering the on-paper data of exports and
\ninvestment, then minister of industry Andung A. Nitimihardja,
\nbefore being replaced by Fahmi Idris on Dec. 7, set the 2006
\nexports target at $8.3 billion.<\/p>\n
His projected exports target for 2009 was even more optimistic
\nat $11.8 million.<\/p>\n
Such positive thinking needs to be followed up by action.<\/p>\n
First of all, the annual growth of the global textile and
\ngarment market is estimated at a steady 5 percent at the moment.<\/p>\n
Indonesia will always have a large market, though it must
\nfight for its share.<\/p>\n
Second, the termination of the quota system could be perceived
\nas a blessing in disguise as companies are increasing their
\nefficiency while opportunities for increasing exports are wide
\nopen.<\/p>\n
For the textile industry to get back on its feet, fresh
\ninvestments to revamp old machinery and increase productivity are
\ncrucial.<\/p>\n
In line with this, as generally required by other export-
\noriented sectors, the government must be able to built integrated
\ninfrastructure that could speed up exports and imports processes.<\/p>\n
Those two may be easier said than done, but the jobs of 1.2
\nmillion textile and garment workers are at stake.<\/p>",
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