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)