Fuel, power price hikes hit shoe exporters
The Jakarta Post, Jakarta
Global branded footwear makers might think twice before relocating their plants from China to Indonesia due to the government's recent decision to increase fuel and electricity prices.
The Indonesian Footwear Association (Aprisindo) said on Thursday that since the United States and Europe issued an anti- dumping policy against Chinese products recently, global shoe companies have been considering relocating their Chinese plants and Indonesia was one of their options besides Vietnam.
"We have made contacts with the companies and they are still calculating the risks of investing here," Aprisindo chairman Harijanto told the press on Thursday.
The association, he said, projected that if the footwear makers chose Indonesia as an alternative site for their factories, the domestic shoe industry could increase its export market value by 20 percent, or between US$1 million and $2 million.
The increase, he added, would create over 75,000 jobs.
Aprisindo data shows that the United States and Europe were Indonesia's main footwear markets last year. Exports to the U.S. stood at 35.5 percent while to Europe at 35.8 percent.
"If it (the increase) happens, we can regain our domination in global shoe export market of 1996," Harijanto said, adding that Indonesia was currently the eighth biggest footwear exporter.
Data from Aprisindo also shows that national footwear exports have been declining in recent years. Footwear exports dropped from US$2.19 billion in 1996 to $1.18 billion in 2003, before increasing slightly to $1.32 billion in 2004. The association expected exports to reach $1.69 billion this year.
Footwear exports reached about $590 million from January to May.
"If electricity and fuel keep going up, we may lose our competitive advantage because our production costs are also increasing," Harijanto said, referring to the government's decision to hike the price of diesel fuel for industry in July and power rates for industry in September.
He said the price hikes had caused an increase in production costs of between 1.5 percent and 2 percent, that narrowed the profit margin for shoe companies.
"If the margin is too small, it will not be attractive to investors. One investor finally chose Vietnam over Indonesia because it thought that production costs here were expensive. Moreover, our labor cost is already twice that of Vietnam," he said.
Harijanto said if the government wanted to keep the industry attractive to investors, the government should give incentives to industry players.
"We're not asking for a fuel subsidy, but there are a lot of forms of incentives that the government could think of," he said, adding that the government could consider reducing income tax for their staff or taking over the obligation to provide workers insurance.
Harijanto cited an example of Vietnam that had given incentives to labor-intensive and export-oriented businesses that employed more than 500,000 people.
Iwan Koswara of PT Prima Inreksa, a supplier of German brand Adidas, said government incentives could also be in the form of developing infrastructure for the supply of alternative energy sources, such as coal and gas.
"We agree that the subsidy should be eliminated. But if we want to turn to other energy sources, are the supply and distribution channels available to meet our demand?" he said. (006)