Another bleak year for the textile industry

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.