Textile industry has better survival odds

By Devi M. Asmarani

JAKARTA (JP): Despite the extend of the economic crisis, which has hit the country since mid last year, the textile sector is one sector that has a higher chance of survival.

The rupiah's nose-dive by almost 70 percent against the U.S. dollar has in fact helped Indonesia maintain its standing as the world's 12th largest exporter of textile-related products.

The industry expects a slight increase in the export value of textiles and garments to about US$7.8 billion this year from $7.3 billion last year.

This is a heartening fact, considering that textiles and garments were the country's fourth and eighth foreign exchange earners respectively in 1997.

The rise in exports, however, is paired with a shrinking production for most small and medium-scale textile producers.

Those which have benefited the most from the crisis are mostly large-scale producers of textiles or garments because they have capital, stronger markets, good lobbying and a supply of materials.

On the other hand, small and medium-scale producers of textile and textile-related products have felt the greatest brunt of economic downturn.

This year, the number of smaller-scale textile-related producers significantly dwindled.

Some producers have had to cut back workers' shifts, while others have laid off thousands of their workers since early this year.

The rupiah's sharp drop in value has made the prices of imported materials, especially cotton, soar.

This has been a major blow to small-scale textile producers, especially since the domestic textile market has dropped considerably, making total production fall by 30 percent this year.

The secretary-general of the Indonesian Textile Association, Irwandy Muslim, said the sluggish domestic market was most apparent in the advent of the most celebrated Muslim holiday, Idul Fitri, in January. Domestic sales of textile products normally soar prior to Idul Fitri.

"Before the crisis, all customers and retailers from across the country usually flocked to Jakarta to begin stocking up on textiles and garments close to Idul Fitri," Irwandy told The Jakarta Post last Thursday.

Now, the number of those shopping for textiles has reduced, he said.

Soaring prices of imported materials were not the only problems faced by textile producers.

Like other companies heavily reliant on imported materials, textile-related companies suffered the severe consequences of eroded confidence of the international community in the country's banking sector.

Trade financing has become a thing of the past for most companies, with international banks rejecting letters of credit issued by local banks to back up imports.

Many companies were forced to pay cash when ordering materials from overseas.

Larger producers could bypass these problems as they had either closer links with their suppliers or more abundant capital resources.

Small-scale companies, in particular, suffered the most from the demands for cash payments, as scarce liquidity had sent credit interest rates up, making it next to impossible for them to obtain working capital.

None of the government-sponsored trade financing schemes had so far taken effect and helped these ailing companies.

Because of their stronger capital resources, the large scale- producers were able to retain their foreign buyers even after a series of unrest hit the country this year, including the fatal May riots which led to president Soeharto's resignation.

Though orders slowed down briefly after May, following the looting of several trucks containing export products, large-scale textile producers were able to convince their buyers that their products were worth buying.

"Many of our regular buyers no longer want to visit Indonesia, they would come as far as the (Jakarta) airport or even Singapore," Irwandy said.

"But we anticipated this, instead we go to meet them in Singapore or Hong Kong," he said.

But many small-scale companies found it hard to finance trips abroad to meet their customers, especially now that the government increased departure tax to Rp 1 million from Rp 250,000 early this year.

They were no longer able to benefit from exporting traditional costumes to Malaysia and Brunei, two markets where they had been dominant.

Garments

The scarcity in raw material supply led to the closure of many small-scale textile producers. This meant a smaller supply of materials for export-oriented garment producers.

Garment producers slashed their output by between 40 percent and 60 percent this year to cope with the crisis, leading to a decrease in garment exports.

Many garment producers face difficulties in getting sufficient raw materials, especially cotton and rayon fabric. The closure of many textile factories in Java has caused a fabric shortage.

The garment producers, however, have survived by becoming mere "tailors" to foreign buyers, which now supply them with the fabrics.

Garment producers that have a better chance of survival are those which "indirectly export" their products to the non- traditional Middle East and African markets.

Buyers from these markets buy garments at the Tanah Abang and Cipulir textile markets in Jakarta, cutting through the usual distribution chain of Singapore and Hong Kong, before exporting the products to their home country.

Irwandy estimated that these unregistered exports amounted to $5.6 billion of the total $7.8 billion exports of textile-related products this year, up from about $2.1 billion of last year's total $7.3 billion exports.

The association targets exports to reach $8 billion next year.

This will depend on the government's ability to manage the industry's trade financing problems.

The government has pledged to establish a Trade Financing Agency to iron out problems in export financing, but it has yet to announce any follow-through implementation.

Issues regarding political stability will also remain a major factor in the development of the textile sector next year, as the country gears up for the riot-sensitive general election and presidential election next year.

But Irwandy said many companies had secured orders from foreign buyers for the next six months.

"Some buyers are still optimistic because political upheaval of a worse scale also happens in other parts of the world," he said.