Policies needed to boost industrial competitiveness
JAKARTA (JP): The government needs to encourage restructuring in the textile industry and upstream-downstream integration in the palm oil sector to maintain their international competitiveness, experts said yesterday.
At a seminar held by the Centre for Strategic and International Studies (CSIS), analysts also suggested the government open the petrochemical industry's upstream sector to more competition to strengthen the industry.
Mari E. Pangestu of CSIS and Chamroel Djafri of the Indonesian Textiles Association agreed that the country's textile-related industries were losing their international competitiveness due to rising costs.
"The textile and clothing industry is at a crucial crossroad and at an important stage of its transition phase toward development and structural change," Mari said.
The textile and textile-related industry was one of Indonesia's largest foreign exchange earners with annual exports exceeding US$6 billion. But the industry has been rendered less competitive by old and inefficient plant equipment and rising costs.
Given its large export contribution, about 15 percent of the country's total exports, the industry now must enter the next stage of development by producing higher quality fiber and yarn, higher quality synthetic fabrics and higher value-added clothing items, she said.
"It will be important to provide a conducive business climate and think of ways in which the government can provide assistance, such as through training and facilitation measures, as well as providing supporting infrastructure," Mari said.
Chamroel said the government could help the textile industry by abolishing, rather than refunding, value-added tax paid on raw materials bought from domestic suppliers.
He said that strong textile exports in the past were made possible by large investment in the sector. And the sector now needed new investment to restructure and upgrade its machinery to maintain export performance.
Other than restructuring and upgrading, the sector should also improve linkages and alliances between its upstream, mid-stream and downstream segments.
On the palm oil industry, Yuri Sato of Japan's Institute of Developing Economies said the industry's prospects were no doubt very bright due to the increasing world demand for crude palm oil and processed products.
But Indonesia's present advantages in the industry were not firmly-rooted but depended on cheap variable costs, especially labor costs, she said.
She suggested Indonesia cultivate stronger competitive advantages by developing a processing industry so it would not only become a major supplier of raw material but also of processed products.
"What the government should do is not ban new foreign investment in oil palm plantations but introduce a policy which provides incentives to investors entering the processing industry," Sato said.
Economist Djisman S. Simandjuntak said the government needed to deregulate the upstream sector of the petrochemical industry to more competition.
"The government always protects large businesses, and in the petrochemical industry the large businesses are usually in the upstream. If those in the upstream are protected, they burden those in the downstream operations, which are mostly small and medium firms," Djisman said.
He also suggested the government deregulate the production and distribution of petrochemical raw materials -- natural gas, naphta and condensate.
"While the distribution of those raw materials is still controlled by (state-owned oil firm) Pertamina, no private investor will dare to invest in refining," Djisman said.
Irwanto Hartono of PT Amoco Mitsui said the long list of investment projects already licensed in the petrochemical sector would discourage new investors from entering the sector.
He said he suspected that most investors included on the list were not really serious about realizing their projects.
"They just want to secure licenses so they can sell them at high prices when the sector is closed to new investment," Irwanto said.
"The board should be more selective in licensing petrochemical projects. It should license those which are serious and capable of investing in the sector," he said. (rid)