Gloomy year for manufacturing sector

Johannes Simbolon, The Jakarta Post, Jakarta

The country's manufacturing industries were mostly in the doldrums at the beginning of the year. Twelve months later, most of them remain in bad shape and are anticipating another gloomy year.

Most of the manufacturing industries have projected a drop in export revenue this year and a further decrease in exports next year.

For instance, the Indonesian Footwear Association, which contributed US$2 billion in export revenue in 2000, projected the industry's export revenue this year at $1.3 billion, down from $1.6 billion last year.

"In 2003, this labor-intensive industry is going to be locked up in its gloomiest ever. We'll be grateful if export value will reach $1 billion," association chairman Anton Supit said, adding that about 100 shoe manufacturers had closed their operations in the past three years.

The furniture industry, which is also a major industry in the country, is also envisaging a gloomy future.

Yos S. Theosubrata, chairman of the Indonesian Furniture Club, said the industry's export revenue was projected to decline to $1.04 billion this year, from $1.8 billion last year. The export revenue will further slump to below $1 billion next year.

The textile and garment industry, which is the country's largest foreign exchange earner in the non-oil and gas sector, was also experiencing a downturn.

Sunjoto Tanudjaja, the head of international relations and foreign trade at the Indonesian Textile Association predicted the country's garment and textile exports would fall to $7 billion this year, from $7.6 billion. The industry booked a record performance throughout the economic crisis in 2000 with total exports of $8.377 billion.

The association's data says that 76 garment and textile manufacturers had ceased activities in the past several years, while another 40 firms were running at a loss this year.

The industry is facing such a grave situation that one executive of the association predicted this year that it could collapse within several years.

The electronics industry, which is one of the country's largest foreign exchange earners outside the oil and gas industry, did not fare well either this year.

Thus far, the Association of Indonesian Electronics Producers (Gabel), which are mostly composed of South Koreans and Japanese, is reluctant to make statements about their estimated revenue for this year and next year. But, many analysts believe the industry is also facing serious problems, which is evidenced by the shock decision by Japanese giant Sony Corp. late November to relocate its audio manufacturing plant to Malaysia.

The country's electronics exports dropped to $5.91 billion last year, from $6.45 billion a year earlier.

Minister of Industry and Trade Rini MS Soewandi apparently shares the pessimism prevailing in the manufacturing sectors, as reflected in her statement in the middle of the year that aside from the oil and gas sector, the main driver of export growth next year will be the agricultural sector rather than the manufacturing sector. Still, the minister believed the country's exports could grow five percent next year.

Problems confronting the manufacturing sectors range from external factors, including the tougher competition launched by producers in other countries, particularly China, to internal factors, including high labor costs, numerous illegal levies, legal uncertainties, security problems, smuggling and burdensome fiscal policy.

The shoe industry said the security problems and labor issues had created fear among foreign buyers that local shoe manufacturers could not meet product delivery on time, prompting the buyers to seek alternative suppliers in other countries like China and Vietnam.

Rising production costs following the increase in electricity tariffs, fuel prices and labor wages have also hurt the competitiveness of the country's shoe industry, according to industry players.

Players in the furniture industry said the excessive levies imposed by provincial governments and rising labor wages were the main internal factors that hurt the competitiveness of Indonesian furniture.

Indonesian producers also face tougher competition from China's producers, who could make cheaper furniture products using illegally-cut logs smuggled from Indonesia to the country, according to industry players.

"Many buyers have postponed placing orders for Indonesian furniture because China offers cheaper prices with the same quality wood," Yos of the Indonesian Furniture Club told The Jakarta Post.

Meanwhile, the electronics industry said the government's "burdensome" fiscal policy and smuggling were the main obstacles for them to expand their manufacturing operations in the country; while the textile and garment industry singles out smuggling as the most damaging factor to their business.

In fact, smuggling has become an enduring issue throughout the year to which the industry players and the government were struggling to find solutions in vain.

The country's electronic manufacturers blamed their shrinking share in the domestic market on the smuggled goods, which were sold cheaper than the locally-made products. They repeatedly warned the government that unless the smuggling issue was solved, the country's manufacturing industry would become history in the not-so-distant future.

A similar warning was voiced by the textile and garment manufacturers, who have become much more dependent on the domestic market for survival amid the decline in their shares in the export market.

The Crisis Center set up by Minister Rini and several businessmen to solve problems in the business sectors also put smuggling on top of its priority list of problems that urgently needs solutions.

In response to the business sectors' demand, the government set up an anti-smuggling task force comprising ministers in charge of economic affairs, the police chief and the military commander early this year, but the results of their work remains unclear as complaints from industry players about the influx of smuggled goods continue.

Disappointed by the failure of the notoriously-corrupt customs office to curb smuggling and other customs-related fraud, many businessmen, supported by Rini, called for the reinstatement of the pre-shipment inspection scheme to take over the inspection job of the customs office on imported goods.

Thus far, the government prefers to reform the customs office by hiring foreign surveyors to conduct the pre-shipment inspection.

Due to the strong pressure from the business community and the government, the customs office announced several programs in the last months of the year, including the controversial re- registration of importers, in a bid to curb smuggling and other fraud. The programs will be fully implemented next year.

Should the programs bring fruit, next year may be not as gloomy as this year for the country's manufacturing sectors.