Policies needed to boost industrial competitiveness

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)