Redtape and tax on raw materials hurt shoe exports

Redtape and tax on raw materials hurt shoe exports

JAKARTA (JP): Foreign investors see the prospects of
Indonesia's shoe industry as gloomy unless the government takes
immediate action to improve the investment climate.

Patrick K. Tang, the head of the Hong Kong delegation at the
sixteenth International Footwear Conference in Bali, said over
the weekend the government should simplify the procedures to
import raw materials and improve custom services to attract
foreign investment.

"Customs redtape, port delays and inadequate facilities at
seaports often lengthens the time it takes for the delivery of
imported materials from ports to factories by up to 14 days,
compared to one day in China," Tang was quoted by the Bisnis
Indonesia daily as saying.

He said customs clearance of imports in Indonesia took about
three days, compared to one day in China.

"These delays increase the interest costs borne by shoe
factories in Indonesia," he said.

He said since Indonesia's shoe industry depended largely on
imported raw materials, smooth import flows were crucial for
improving competitiveness in the international market.

The Director General of Light Industries, Doddy Soepardi, said
the competitiveness of Indonesian shoes internationally had been
weakening because of the high dependence on imported materials.

"The government is therefore preparing new rules to improve
the climate for investments in industries that produce raw and
intermediate materials for shoes," Soepardi said.

Tang said the biggest disadvantage to the local production of
raw materials in Indonesia was the 10 percent value added tax
imposed on the sale of local materials to shoe factories.

However, export-oriented shoe makers can drawback the duties
and value added tax paid on their imported materials.

Tang suggested local material suppliers be exempt from the 10
percent value added tax if they sell to export-oriented shoe
factories.

"If the government exempts local materials from the value
added tax, more foreign investors will be attracted to invest in
the shoe industry here," Tang said.

The president of PT Afa Samwoo Gemilang, a producer of leather
materials for shoes, said indirect export support like value-
added tax relief for local materials would also benefit local
leather producers.

The chairman of the Indonesia Association of Shoe producers,
Anton J. Supit, told the conference his association had long
suggested such measures, but the government had done nothing.

Raw materials account for 60 percent of the cost of making
shoes with labor costs making up 16 percent and overheads 24
percent.

Labor cost

Tang said the drastic rise in the minimum wage had made
Indonesia less attractive to foreign investment.

"In the last four years the minimum wage had risen by about
170 percent," he said.

He warned that foreign investors might move their factories to
China or Vietnam, where wages were cheaper.

He said Indonesian workers were less productive than workers
in China.

A shoe factory with 15,000 workers in China could make 1.3
million pairs of shoes a month, whereas his three shoe factories
in Indonesia with 17,000 workers could make only 800,000 pairs a
month, he said.

He said Indonesia still had an advantage over China because
China is not a member of the World Trade Organization so its
shoes carry an import duty 20 percent higher than Indonesian
shoes. China's shoes are also subject to import quotas in the
European Union.

Indonesian shoe exports were worth US$2.1 billion last year.
(das)