Shoe producers predict exports down this year

Shoe producers predict exports down this year

JAKARTA (JP): Local shoe producers foresee a continuing drop
in export orders to US$1.5 billion this year from $1.8 billion in
1998 as foreign buyers anticipate economic and political
instability in Indonesia, an industry executive has said.

The Secretary General of the Indonesian Footwear Association
(Aprisindo), Djimanto, said last week buyers were concerned that
uncertainty in a country that has been rocked by tumultuous
events would hamper producers' ability to get their shoes
delivered on time.

"Export orders may fall because of trade financing problems
and vulnerable security, and buyers doubt we can deliver our
orders on time," Djimanto told The Jakarta Post after an
exporters meeting with top government officials on trade
financing.

As the year commences, several scattered outbreaks of unrest
across the country have already brought more international
attention to Indonesia, further discouraging buyers from ordering
from the country, he said.

Djimanto said shoe exports had been going downhill since the
beginning of the economic crisis in mid 1997, causing local
producers with heavy reliance on imported materials to stagger
under the weight of trade financing problems.

Locally issued letters of credit were rejected by
international banks as confidence in the country's banks eroded.

Later, after the government secured financial guarantees to
encourage the international banks to accept the locally-issued
L/Cs, local banks still required producers to deposit cash to the
value of the L/Cs before the issuance.

This is a burden for many cash-strapped companies, while banks
have frozen credits due to a tight money policy.

But it was not until the second half of 1998 that exports were
further dragged down by a series of politically and
nonpolitically motivated outbreaks of social unrest, starting
with the bloody May riots in Jakarta which led president Soeharto
to resign.

Topping off the disasters is an emerging phenomenon of
robberies on inter-city roads of trucks carrying products to be
delivered or exported.

"Since the change in the presidency, followed by endless local
and international media exposure of riots things had gotten
worse," Djimanto said.

Many subcontracting orders have now moved to the more
competitive China, Indonesia's long-term rival in the shoe
industry.

Foreign investors are now setting up new shoe factories in
Vietnam instead of Indonesia, he said.

Some large brands have had reduced orders, while others have
shifted their orders to foreign-invested companies producing in
the country.

Shoes produced by foreign-invested companies, totaling 50
factories, contributed 50 percent of the country's total exports
of footwear, he said.

"The foreign-invested companies suffer less damage from trade
financing problems because they get help from their mother
companies," he said.

Many local factories have closed down, he said. Aprisindo,
which was 170-members strong before the crisis, now only has a
membership of 107 companies, he said.

Some factories completely closed down, while some temporarily
ceased production and were taking a wait and see stand, he said.

Djimanto said many of the local producers collapsed because
they had relied solely on one large brand buyer.

On the other hand, the less affected local producers supply
two or three smaller buyers per factory, so that they did not
rely on one particular buyer, he said.

These producers, however, were expected to be more flexible
with the design of their footwear products, he said.

The domestic market for sports and formal shoes was now "dead"
because of diminishing buying power, but the market for casual
sandals or half sandals has flourished and some producers even
export them to Malaysia, he said.

Djimanto said Aprisindo had been inviting foreign buyers to
visit footwear factories in the country to ensure them that
prompt delivery was guaranteed.

"But as conditions become more uncertain the buyers are scared
to come to the country now, so we have to go and meet them in
their respective countries," he added. (das)