Mon, 10 Jan 2000

Bigger share awaits RI in global textile market: API

JAKARTA (JP): The country's textile industry is considered a local giant, providing 19 percent of the country's nonoil and gas revenue and a 1.2 million-strong work force.

However, according to the Indonesian Textile Association (API), it accounts for only 2 percent of the global market, which recorded US$350 billion in sales in 1998.

In terms of export, the country's textile industry ranked 12th with $7.8 billion in export sales in 1998, compared with top performers China and Hong Kong, which respectively booked $34.7 billion and $31.5 billion in the same year.

These figures, nonetheless, suggest there is still plenty of room for the country's textile industry to grow.

According to API, the textile industry is the world's third largest after tourism and information technology, which rank first and second respectively.

In Indonesia, the industry comprises over 2,300 companies, including 1,700 API members.

Among the largest companies are PT Indo-Rama Synthetics, PT Argo Pantes Tbk, PT Apac Centertex Corporation Tbk and PT Texmaco Jaya Tbk.

"Analysts say the Indonesian textile industry has no future, but I think they're wrong," API's secretary-general Irwandy Muslim Amin said.

Some analysts said the industry would naturally shrink as the income level of Indonesians rises.

They said economic growth would lead to higher wages which the industry could not afford. The industry would thus move to less developed countries with lower wages to maintain competitiveness.

Irwandy said a key factor to the growth of the textile industry was population growth.

Indonesia's large population and heterogeneous income structure are the main factors for the industry to maintain growth, he said.

This stands in contrast to the situation of previous textile nations in Europe or Japan, where the fairer distribution of welfare allowed them to simultaneously abandon the textile industry and adopt more technologically advanced industries, he said.

Irwandy said in the future, the world's three main textile producers would be developing countries with the largest population.

Specifically, the main producers would be China, with its large cotton plantations, India, which is also supported by its cotton plantations and Indonesia, which owns ample resources for producing synthetic fibers.

API data said Indonesia's textile exports grew at an annual rate of 5.28 percent between 1993 and 1997, with a total value of $6.4 billion in 1996, $7.3 billion in 1997 and $7.8 billion in 1998.

It is estimated that exports could rise to $8 billion this year and to between $12 billion and $20 billion in 2012.

The economic crisis dealt the first blows to the industry in 1998, a year after it hit.

When the crisis struck in mid-1997, the country's textile companies had secured one-year purchase contracts with foreign buyers. This made the industry well-secured in the crisis's first year.

However, in 1998, buyers preferred short-term contracts, given the country's uncertainties, causing orders to fluctuate along with the volatile political situation.

The economic crisis forced domestic demand to drop and caused an oversupply which producers were only able to sell abroad after lowering prices.

But the increase in export volume was less than the increase in export revenue, he said.

"Maintaining the 1998 export figure for this year will be a challenge," Irwandy said.

Among the main buyers of Indonesian textiles in 1998 were the United States with some $1.8 billion, Japan with some $454 million and Germany with about $429 million, the association said.


Indonesia faces tight competition with China, Pakistan, India, Thailand and Sri Lanka, with the governments of some countries providing incentives for their textile industries.

According to the association, textile producers from Thailand and the Philippines enjoy a four to eight year tax holiday incentive.

This generosity is lacking in the Indonesian government, API said.

Irwandy said the industry's main problem is the government. "A lack of attention," was what Irwandy called the government's stance.

He said the industry currently needs funding for their working capital and for overhauling its out-of-date machines.

However, the government's trade-financing facilities, such as those provided by Bank Export Indonesia (BEI), were deemed insufficient by many textile companies.

In addition, many companies are large debtors currently under the supervision of the Indonesian Banking Restructuring Agency (IBRA), a situation which has made it difficult for them to obtain new loans, he said.

"Textile producers have machines, laborers, orders and debts," Irwandy said.

Of some 800 large textile companies, 134 of them are being taken over by IBRA with a total debt of $7.9 billion, the association reported.

He said without debt rescheduling, it would be difficult for producers to import raw material. Hence, production would stop, orders would be unattainable and laborers would face unemployment, he said.

In 1998, about 60 percent of the industry's total working capital of $3 billion was spent on imported raw material which included $1 billion for cotton.

Irwandy said the government should therefore provide textile companies with the opportunity to obtain loans easier.

"We also need capital to replace our old machines," he said.

Irwandy said over 80 percent of the industry's machines were over five years old, which has lead to production inefficiencies and lower product quality.

For instance, there are about seven million spinning machines, of which 50 percent had to be scrapped due to old age, he said.

Data from the association showed that the percentage of synthetic fiber machines above five years old is 78 percent, weaving machines 88 percent, knitting machines 84 percent and garment machines 81 percent.

These old machines make it increasingly harder to meet export or even local demand, he said, but added that textile of low quality could still be used for production of clothes for farmers.

In the long run, production inefficiency could make Indonesia lose some of its market share to other countries which produce better quality products, he said.

However, he added, textile companies could seek alternative funding, for instance from Japanese textile machine producers, which offer credit with low interest rates.

Textile producers also blamed the high production costs on corrupt bureaucracy.

According to API, the government could cut the industry's production costs by 20 percent, if the government restructured its bureaucracy.

The association estimated that various fees for transportation, shipping and port services cost the industry about Rp 300 billion per year.

API executive Benny Soetrisno said production costs of Indonesian textile producers ranked second after China in terms of competitiveness.

"However, once our products reach the port, our competitiveness drops to number seven because of the fees," Benny told the daily Kompas.

Indonesia's competitiveness further plunged to number 15 by the time its textile products reached export destinations, he said.

Benny said textile exporters have little choice but to pay these fees because failure to meet the schedule would risk a penalty from importers.

In a hearing with the House of Representatives last month, API proposed some solutions, which were mostly concerned with the government's handling of the industry, to optimize performance.

API called on the government to facilitate the financial restructuring of the industry, practice clean and efficient governance and provide export support facilities.

API further called on the Ministry of Communications to abolish all excessive fees and to delay a hike in port service charges until inefficiencies and other questionable port costs were abolished.

It also appealed to the Ministry of Finance and Bank Indonesia to optimize the function of the newly established BEI by simplifying the procurement of loans.

BEI aims to boost export, but its was criticized by some industries for its strict lending terms.

The association also urged the State Ministry of Investment and State Enterprises Development to push state port company PT Pelindo to generate revenue by improving efficiency rather than imposing excessive fees.

While directing most of its demands at the government, API called on its members to boost their exports and to continue providing jobs for the massive manpower of Indonesia. (03)