Losing shine as demand sinks
Hendarsyah Tarmizi and Blontank Poer, The Jakarta Post, Jakarta
The textile industry, once considered the economy's most promising sector, is losing its shine. Low demand, internal financial problems and a lack of efficiency have left the industry in a difficult position.
The industry has been a major engine of Indonesia's economic growth for the past several years. As one of the country's major foreign exchange earners, the textile industry has also played a critical role in providing jobs for millions of Indonesian workers.
However, recent developments have brought an end to the industry's charmed life. Although the sector remains the largest contributor to the country's non-oil exports, its leading role in raising foreign exchange is diminishing.
Low overseas demand, internal financial problems, industrial inefficiency, and non-economic factors such as security problems and increased labor disputes have made the climate difficult for the industry's major players.
"I have run out of words to describe how severe the situation being experienced by Indonesian textile and garment producers is," said Ade Sudrajat, the secretary general of the West Java- based Association of Indonesian Textile Producers (APTI).
Ade said that, in such difficult conditions, the textile companies in the province had no choice but to lay off workers in a bid to keep themselves afloat. The lay-offs are continuing, as overseas demand continues to decline, and at an increasing rate.
At least 100,000 workers in West Java, one of the country's major textile producing centers, have lost their jobs due to poor overseas demand. Lay-offs have also been initiated by textile producers in such areas as Jakarta, Central Java, East Java and Batam.
The conditions facing the industry deteriorated further following the Sept. 11 terrorist attacks on the United States.
Major buyers of textiles and garments reduced their orders out of fear that the terrorist attacks would spread worldwide, crippling the global economy in the process.
Textile producers in Central Java are also severely hurt by the downturn.
"Many friends in the textile manufacturing industry are considering changing their profession to traders. Becoming a trader might be more profitable at present as imported products such as those from China are much more competitive in the local market," said Setiawan Santoso, the owner of garment producer PT Rodeo.
According to him, the decline in overseas demand has forced many garment producers in Central Java to cut production. Although some of them are able to survive, most are in a critical situation.
Setiawan said that some textile companies had managed to maintain their activities thanks to the help from larger textile firms, which sub-contracted part of their orders to smaller firms. "But the situation has changed following the terrorist attack against the World Trade Center (WTC) in September last year. Many buyers have canceled their orders," he said.
Separately, the chairman of the Central Java chapter of the Association of Indonesian textile producers (API), Andi Sanang Romawi, said that falling overseas demand was not the only factor contributing to the local garment producers' difficulties. He said that low domestic demand was also part of the problem.
"The decline in people's buying power due to the country's economic crisis remains a major problem in the domestic market," said Andi, who is also the president of PT Damatex Salatiga.
According to him, the utilization of the province's textile production capacities has dropped to about 60 percent due to the fall in the demand.
Bambang Priyono, the head of the foreign trade department of the provincial office of the Ministry of Industry and Trade, said that many overseas importers had chosen to buy from China, Vietnam or Bangladesh because Indonesian textile products were too expensive.
The fall in overseas demand in the aftermath of Sept. 11 has been just one of many problems confronting the textiles sector over the past three years.
The regional financial crisis that spilled over into Indonesia in late 1997 and brought the economy to its lowest point in recent history, posed severe problems for major Indonesian companies, most of whom had raised U.S. dollar-based loans to support their operations.
The sharp drop in the value of the rupiah against the U.S. dollar has almost tripled the rupiah cost of their U.S. dollar denominated debts.
Besides facing difficulties in financing their foreign debts, textile companies have also been lacking the financial support needed to cope with the surge in prices of imported materials.
Exports of garments and other related textile products, which reached $6.42 billion in 1996, fell to $5.16 billion in 1997 when producers started to feel the pinch of the crisis. Exports deteriorated further and dropped to $4.99 billion in 1998 when the financial crisis, which had led to the downfall of the authoritarian leader Soeharto after 30 years in power, reached its peak.
Exports rose again to $6.8 billion in 1999 thanks to an improvement in the political situation. The more conducive environment the following year encouraged foreign buyers to look more favorably at Indonesian goods.
In 2000, exports of textiles and garment products reached a record level of $8.23 billion. With an improvement in the level of business confidence, exporters were able to take full advantage of the weak rupiah in competing on the world market.
However, the world economic slowdown the following year reversed the trend. In 2001, Indonesia's total exports dropped by 9.8 percent -- the largest drop recorded in the last 12 years -- to $56.03 billion, partly due to a fall in non-oil exports.
According to data provided by the National Statistics Bureau (BPS), non-oil exports dropped by 9.11 percent to $43.40 billion last year.
Although the statistics agency did not reveal the combined value of textile and garment exports in 2001, the trends were not encouraging.
Existing data only cover the value of unknitted textile products, which mostly consist of fabrics and threads. Last year, exports of these products totaled $3.2 billion.
But the data show a slight increase in exports of garment and textile products to $4.77 billion in the first half of last year from $4.69 billion in the same period the previous year.
The textile association estimates that textile exports would decline by 25 percent in 2001.
Observers and analysts are generally skeptical about the industry's ability to sustain export levels this year. Although the rupiah remains weak against foreign currencies, the country's textile and garment products still face difficulties in competing with those from their main rivals, such as Thailand, China and Vietnam.
The fact that the world's textile buyers have switched to garment products from South America has added to the woes facing Asian exporters, particularly those from Indonesia.
At least 75 percent of the world's apparel production, worth more than $135 billion per annum, is imported by the U.S., Europe and Japan. In 2001, however, apparel exports from Asia showed only a 5 percent increase, while those from South America rose by 25 percent.