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JP/Textile

Textile products become less competitive in overseas market

JAKARTA (JP): Although Indonesia's textile exports performed remarkably well last year, rising operating costs, political uncertainty and the unstable rupiah have made the industry less competitive in such major buying markets as the United States, Europe and Japan.

The economic slowdown in the U.S., the main buyer of Indonesian textile products, has also added to the problem.

The Association of Indonesian Textile Producers has described the current situation as the most difficult ever faced by local textile producers.

The association's vice chairman, Lily Asdjudiredja, said the increase in production costs as a result of the recent hike in fuel and electricity rates made most of Indonesia's textiles no longer competitive in the world market.

Beginning this year, the price of diesel for industrial users was set at 50 percent of the international price in a bid to reduce the government's fuel subsidy. This has caused an increase in the price of diesel fuel for industries by an average of 50 percent. The government also raised the electricity rate for industries by about 100 percent.

The rise in fuel and electricity rates has caused an increase of more than 10 percent in the total operating costs of most textile producers, according to the producers.

With the slowdown in the global economy, Indonesian textile exporters are facing a more difficult situation. The poor condition of existing production and processing facilities makes the situation even worse, the textile association's executive said.

"What we are most concerned about is the industry's falling productivity," Lily told The Jakarta Post in a recent interview. "Of the 240,000 weaving machines operated by textile producers, only 10 percent are under 10 years old," he added.

According to Lily, with the existing facilities it is difficult for Indonesia to compete with China, Thailand and Vietnam. "We have, in fact, been edged out, especially in the middle and low end of the market," he added.

Structural reform in the industry is needed, otherwise Indonesia will lose its domestic market to other members of the Association of Southeast Asian Nations (ASEAN) once the ASEAN Free Trade Arrangement (AFTA) has been fully implemented next year.

Under AFTA, the flow of goods including textile products within ASEAN's members, which includes Malaysia, Singapore, Cambodia, Brunei, Indonesia, Laos, Myanmar, the Philippines, Thailand and Vietnam, will be free from tariff and nontariff barriers.

Indonesia's textile exports, which dropped by about 3 percent to US$7.2 billion in 1999, rose by 15 percent in 2000 to $8.3 billion, the highest level ever achieved by the industry. The growth rate was also the highest level recorded during the past eight years.

The persistent drop in the value of rupiah against the U.S. dollar during 2000 has caused difficulties to most local textile producers, especially in the procurement of imported raw materials.

But the relatively strong demand for textile exports in 2000 was also much helped by the fall of the rupiah, which dropped to between Rp 10,000 and Rp 11,000 against the American greenback last year, compared to between Rp 9,000 and Rp 10,000 in 1999.

Indonesia's total exports jumped to a record level of $62.02 billion in 2000, an increase of 27.43 percent during 1999. Non- oil and gas exports last year rose by 22.91 percent to $47.78 billion, while oil and gas exports jumped by 45.39 percent to $14.24 billion.

The performance of textile exports for the first quarter of this year was, in fact, not so bad despite the gloomy outlook.

According to data provided by the Central Bureau for Statistics, textile exports in the January to March period rose by 11 percent to $2.01 billion comprising $1.14 billion from garments and apparel and $870.2 million from textiles.

Most local producers are pessimistic that the rise in textile exports can be maintained. They say, besides the low rate of productivity, their higher operating costs will make it difficult for them to survive fierce competition in the international market.

The strengthening of the rupiah against the U.S. dollar to an average of Rp 8,500 following the recent appointment of Megawati Soekarnoputri as president has had, to some extent, a negative impact on export-oriented companies such as textile producers.

Lily from the textile association said the stronger rupiah reduced the competitiveness of textile products.

In terms of dollars, the labor costs for the Indonesian textile industry is no longer competitive. "With the appreciation of the rupiah, labor costs for local textile companies is now the highest among Asian textile producers," he said.

According to him, at the exchange rate of Rp 11,500, the average monthly wage in the Indonesian textile industry was about $35. With the strengthening of the rupiah to Rp 8,500, the labor wage has risen to $49, higher than $40 in Vietnam, $35 in Cambodia and some $27 in Myanmar.

The association's secretary general, Irwandi Muslim Amin, said that the impact of the global economic slowdown has pinched deeper into the country's textile industry.

In a recent newspaper report, he said that many American, European and Japanese buyers had cut their imports from Indonesian exports during the first quarter of this year due to the economic slowdown.

He said that many buyers had also shifted their orders to other countries due to political uncertainties and the growing number of labor disputes within the industry.

As a result, many textile companies have reduced their production levels to about 60 percent, compared to 90 percent last year, he said.

"Many local textile companies only opened for half a day due to the lack of demand," he added.

The textile industry is not only the country's largest foreign exchange earner but also the largest job provider. As one of the economic engines, the industry has received strong support from the government, mostly in the form of low import duties.

But Lily said such support was no longer enough to revitalize the industry where many companies had been forced to shut down due to their inability to compete in the global market.

"There should be concrete action from the government to restructure the industry," he said, citing that many companies are dying due to a lack of capital and taking out bank loans is very expensive for them.

According to him, the tight money policy adopted by the central bank has caused an increase in lending rates to a level that is no longer affordable to most business players.

"The government should come up with concrete action to cope with the high interest policy," he said, adding that many textile producers may soon close down if they don't manage to secure new sources of income.(Hendarsyah Tarmizi)