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.