Textile industry has better survival odds

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.