Textile sector faces multifarious problems

Textile sector faces multifarious problems

Anissa S. Febrina, The Jakarta Post, Jakarta

The already-ailing Indonesian textile sector had the ladder
kicked away from it this year.

Early in 2005 it was charged with being ill-prepared to face
the termination of the Multi Fabric Agreement (MFA), which 20
percent of textile manufacturers here were previously reliant
upon.

The termination agreement was in fact reached a decade ago.

Without the global textile quota system, the market will
indeed be freer, that is for those with high competitiveness,
which currently reads, China.

With considerably rich natural materials, higher productivity
and more integrated infrastructure, in the first five months of
2005, China's exports to the European Union (EU) increased by
almost 50 percent while Indonesia's dropped by 12.7 percent.

Exports to the EU are among the most important for Indonesia
as countries under the group absorbed some 40 percent of global
textile imports, followed by the United States with 30 percent.

To give some relief, based on the Central Statistics Agency's
data, Indonesia's 2005 average monthly exports to the U.S.
increased to US$160 million from $130 million in 2004.

However, later in the year, those figures were strongly
questioned.

And while China's strategy is clearly working, Indonesian
textile and garment companies are facing more complicated
challenges in increasing their competitiveness.

Let us start with surging imports from China to, not only the
U.S. and EU markets, but also to the Indonesian domestic market.

Shopping in Tanah Abang, Central Jakarta -- known as Southeast
Asia's largest textile market, with daily transactions amounting
to Rp 150 billion (US$15.33 million) -- one cannot help but be
taken aback by the predominance of made-in-China textiles and
garments, rather than those produced here.

In the first quarter of the year, garment imports from China
increased tenfold to $4.27 million from the same period last
year, the Indonesian Textile Association (API) said.

Along with the increase in imports, exports to the U.S. in the
first five months of the year also increased by 10 percent,
raising suspicions of transshipment.

The API argued that such an increase was unlikely as 77
textile manufacturers had stopped operating the month before.

The Ministry of Trade then required a stricter procedure in
the issuance of Country of Origin (COO) documents for exported
textiles. However, illegal practices have not significantly
decreased.

To make things worse for the sector, illegal imports flooding
the domestic market have also been a chronic problem, both in
terms of new and secondhand goods.

At Senen Market, also in Central Jakarta, three levels of
kiosks sell imported secondhand garments with shirts priced at Rp
5,000 and quality suits for an unbelievable Rp 20,000.

So, that takes the biscuit for the mass lower domestic market.

Meanwhile, in the upper market, foreign brands from the U.S.
or EU dominate with, once again, outsourced products from China
or Vietnam.

Aside from the external problems, textile manufacturers must
deal this year with increases in both power rates for industrial
use and fuel prices.

State power firm PLN raised later in the year the industrial
coefficient rate, and on top of that applied a kind of penalty
for those using power more than the allowed quota during peak
time.

API chairman Benny Soetrisno said the sector was among those
operating 24 hours a day to maintain productivity and the policy
to increase fuel prices would increase operating costs by at
least 25 percent.

Energy costs contributed to almost 30 percent of total
operating expenses.

The Oct. 1 fuel price increases -- which saw the prices of
premium gasoline and diesel fuel nearly double and that of
kerosene triple -- in the end also leads to higher transportation
and labor costs. The two factors contributed quite significantly
to the increase in expenses as the sector is labor-intensive.

In terms of company infrastructure, the productivity of
manufacturers lags behind those in China since they still utilize
old machinery.

The industry ministry estimated that the sector would require
a $5 billion investment to revamp its production facilities.

Separately, industry players calculated that they would
require at least $100 million for a first-phase rejuvenation of
their machines.

This would require the support of the banking sector, which
unfortunately remains reluctant to grant loans to textile
companies. Not to mention the currently high interest rates.

As a result of these overlapping problems, the sector only
grew by 1.1 percent in the first nine months of 2005, as compared
to 4.2 percent in the corresponding period of 2004.

The industry is likely to fail to meet the targeted growth of
4.2 percent by the year end, despite the increase in total
exports.

However, there is a silver lining.

According to the Investment Coordinating Board (BKPM), foreign
investment in the textile industry had reached Rp 1.57 trillion
as of September, with the commitment of two more foreign
investors.

In November, considering the on-paper data of exports and
investment, then minister of industry Andung A. Nitimihardja,
before being replaced by Fahmi Idris on Dec. 7, set the 2006
exports target at $8.3 billion.

His projected exports target for 2009 was even more optimistic
at $11.8 million.

Such positive thinking needs to be followed up by action.

First of all, the annual growth of the global textile and
garment market is estimated at a steady 5 percent at the moment.

Indonesia will always have a large market, though it must
fight for its share.

Second, the termination of the quota system could be perceived
as a blessing in disguise as companies are increasing their
efficiency while opportunities for increasing exports are wide
open.

For the textile industry to get back on its feet, fresh
investments to revamp old machinery and increase productivity are
crucial.

In line with this, as generally required by other export-
oriented sectors, the government must be able to built integrated
infrastructure that could speed up exports and imports processes.

Those two may be easier said than done, but the jobs of 1.2
million textile and garment workers are at stake.