Fall in export growth
Fall in export growth
Indonesia, accustomed to annual growth rates of 17 percent to
20 percent in the exports of non-oil products over the past
decade, should be greatly concerned at the downward tendency in
its export expansion since early this year. Preliminary figures
show that in the first six months non-oil exports grew by only
6.7 percent, as against the robust growth of more than 16 percent
throughout last year.
Some optimistic trade officials simply see the trend as a
temporary downward cycle that has depressed the prices of
Indonesia's major export commodities. But this observation seems
too optimistic as almost all key indicators point to a
significant pick up in the world's economic performance this
year.
Many economists, including those within the government, are
apprehensive that some more fundamental reasons lie behind the
slackening export growth. The fact that the fall seems more
apparent in such light industrial products as textiles and
garments and sporting shoes indicate that fiercer market
competition, rather than weakening market demand, could be a
major reason.
The latest developments further portend a worrisome trend in
that even the products of such resource-based enterprises as
plywood might fall way below their export records of more than
US$5 billion last year. Most plywood companies are lowering their
estimates of profits for this year due to the combination of
declining prices and heavy-handed marketing measures by
Indonesia's sole export agency -- the Indonesian Wood Panel
Association (Apkindo) -- that apparently have disgusted importers
overseas.
This trend should cause great concern indeed because plywood,
textiles and garments last year accounted for almost 40 percent
of the nation's total non-oil exports. Further down the line,
non-oil products now account for more than 70 percent of the
country's total export earnings. Since manufactured products now
supply over 70 percent of non-oil exports, a declining growth
rate in this sector has other far reaching implications on
employment and tax revenues.
Many economists share the view that Indonesia's light
industrial products have now become less competitive on the
international markets due to the entries of new suppliers which
offer lower prices. In fact, an increasing number of foreign
investors who relocated their labor-intensive plants to Indonesia
soon after the massive deregulation measures in the latter part
of the 1980s have also been complaining about the diminishing
edge on their competitiveness.
The problem is that the competition in the international
market for such products as textiles, apparel, canvas shoes,
gloves, toys and electric appliances has now become so fierce
that producers have only a razor-thin margin. Even the slightest
rise in production costs will impair their price competitiveness,
while prices are the most crucial factor in the marketing of such
goods.
It might be true enough that Indonesia could be losing out to
other lower-cost producers, such as India, Pakistan, Bangladesh
and China, in several labor intensive products. But given the low
minimum wage of only about US$2.50 a day, we find it hard to
accept that Indonesian labor costs are no longer competitive.
Instead, we suspect that the other costs incurred in the
importation of basic materials, port handling, land
transportation, export and regulatory paperwork processing may be
much higher compared to those in other countries. Efficient port
handling, land transportation and expedient paperwork are crucial
for most of the export-oriented enterprises because they are
industries that depend largely on imported materials and
intermediate goods. They require fast tracks of imports and
exports to reduce inventory and capital costs.
The government, we think, should thoroughly investigate the
problem through meaningful dialogs with businessmen. Perhaps the
issue is no longer related to a lack of deregulation, but instead
has to do with the extremely inadequate enforcement of the
numerous packages of reform measures introduced since 1985.