Another bleak year for the textile industry

Hendarsyah Tarmizi, Contributor, Jakarta

"Seriously depressed" might be the right words to describe the condition of the country's ailing textile and apparel industry.

In the overseas market, many local manufacturers can no longer compete with their foreign rivals, while at home, many buyers prefer to buy less expensive imported products.

"2003 could really be the hardest time for Indonesian textile and apparel producers," the chairman of the Association of the Indonesian Textiles (API) Benny Soetrisno said.

The inability of many Indonesian textile and garment producers to compete with foreign producers is mostly due to their inefficient production facilities. It is no longer a secret that most local producers have to use old and technologically obsolete machinery due to the lack of financing to catch up with the new technology.

With such old machinery, it is difficult for them to compete with manufacturers in neighboring countries, especially those originating from newly emerged textile exporters such as Thailand and Vietnam, who have applied far more sophisticated technology, which can help them not only to cut production costs but also to produce high quality textile products.

But producers said that the blame should also be addressed to the government which had failed to provide a business climate conducive to stimulation of the country's textile and apparel industry.

Business players in the sector have blamed the government for its policies such as those related to fuel, labor and import duties, all of which make production costs higher. The high interest rate of bank loans is also one of the problems making Indonesian garment products less competitive.

Their request for lower import tariffs when buying machinery from overseas have never been followed up on by the government. The customs office has, instead, been accused of taking bribes to allow smuggled textile products into the country.

Benny said that it was now time for the government to review its policy related to the country's textile industry. Otherwise, more and more textile and garment producers will close down and tens of thousands more jobs will be lost this year.

The textile and apparel industry which employ more than one million workers is one of the important pillars in the country's economy.

The sector is one of the main contributors of the country's foreign exchange earnings. Exports from the sector reached a peak at US$8.2 billion in 2000 but the fiercer competition in the international market had caused a continued decline in export earnings. Exports of textile and apparel products dropped to US$7.6 billion in 2001 and could experience a further drop in 2002. During the period from January to August, the value of textile and apparel exports were recorded only at about US$4.6 billion. The total value for all of 2002 might be 10 percent lower compared to last year's amount.

The industry estimates that the export will further decline by 20 percent this year.

Benny said that entering the export market was much more difficult nowadays as Indonesia's main competitors such as Thailand and Vietnam had gained more control on the U.S. and European markets.

"Vietnam's textile exports to the U.S. has reached more than US$450 million a year from merely US$40 million a few years ago," he said.

With the mounting problems, Indonesia's textile and apparel producers which at present supply about four percent of the world's demand worth about US$350 billion a year will further lose its market if the government fails to produce effective measures to stimulate the industry.

"The problem faced by Indonesian textile and garment producers is not merely how to compete with their foreign rivals but also to beat the smuggled products," he said.

In the past, many garment producers took the advantage of the surge in the local market to off set the lower demand from foreign buyers, Benny said. "But the increase in the cheap imported products make the business more uncertain," he added.

The demand in the local market has significantly increased during the past four years. In 2001, the local market absorbed about 705 tons of garment products, a substantial increase from 674 tons in 2000 and 645 tons in 1999. The volume of the textile products supplied in the local continued to increase in 2002. From January to August, the volume had already reached 735 tons exceeding the total volume booked in 2001.

However, a further influx of smuggled products could pose another threat to the industry.

"In 2002, some 19,000 people lost their jobs in the textile sector. I am afraid the number of the lay-offs will increase to 300,000 people this year with such mounting problem," he said.

Besides the high-cost factors, many foreign buyers switched to manufacturers in other Asian countries due to concerns over the unfavorable security situation. They fear that growing labor disputes combined with news of bombings will cause a delay in the shipment of their orders.

Non-economic factors would further hurt the Indonesian textile producers with the rising specter of war in the Middle East.

"If the United States and its allies attacked Iraq, there would be a sharp drop in the order from Arab countries," said Andi Anang, the chairman of the textile association's branch in Central Java.

He added that a war would not only result in the increase in the delivery cost resulting from the rise in the insurance premium but could also reduce the overall demand from the Middle East, one of the important buyers of Indonesian's garment products.

Local producers could redirect their exports to Asian countries but be able to compete in this region, they would have to go head to head with Vietnam and China, which are able for a variety of reasons to offer big discounts to their buyers, he said.

The possible attack on Iraq would further worsen the gloomy outlook in the country's textile and apparel industry. The government's help is surely needed to help this business sector face this difficult situation.