Gloomy year for manufacturing sector

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.