Labor factors have forced some companies to lay off scores of workers. (JG Photo/Yudhi Sukma Wijaya)

Growth Slowing for Textile Industry as International Competitors Get a Stitch Ahead

AUGUST 11, 2015

Jakarta. The domestic textile and related products market has been projected to generate Rp 60 trillion ($4.3 billion) in the second half of the year as local products hold only 20 percent of market share and the industry feels the effects of a dragging economy, an association chief has said.

Ade Sudrajat, head of Indonesian Textile Association (API), said the textile industry would still be pressured in the second half of the year and predicted that sales and exports of textile products would remain sluggish.

He said imported products, particularly from China, had crushed the market share of local textile products. In the first half of this year, local market share reached 30 percent but will see a decline to 16.6 percent in the second half.

"Importing textile products from China is considered more profitable because it is cheaper. Thus it causes oversupply due to low demand from the markets following the economic slowdown. This situation only happens to domestic-oriented companies," Ade told Investor Daily recently.

"If they don't want any production or employee inefficiencies, the companies must be export-oriented, but not all companies can be like that."

Ade said the export target of textile product and market was $12.7 billion this year, the same as last year.

Textile makers, he said, cannot increase the target because Indonesian textile products cannot compete with Vietnamese products in terms of price. Indonesia's electricity costs are more expensive than in Vietnam, which affects production costs.

Ade urged the government to lower the electricity rate for industry to help the domestic players compete with foreign-made products. He also expected issues of dwelling times for containers to soon be settled to assist the industry.

"Dwelling time also affects us because it is related to raw material flow. If the flow is quick, we don't have to pay extra for the stockpiling cost," he said.

"Those things increase all the costs and many businessmen chose to be traders by importing products from China," he added.

Indonesian-made textiles are charged an import duty of between 11 and 30 percent to enter the US market, he said. Ade urged the government to have a free-trade agreement with the European Union and the US to help boost exports by as much as three times.Indonesia has not signed any FTAs on textiles.

According to Ade, the textile industry started to slow down in 2014 following the decline of the global oil price, and the increase of gas and electricity rates in January this year exacerbated the issue. Companies' obligation to cover health costs under the government's new BPJS health scheme also weighed on textile companies.

The domestic textile industry has recently laid off  6,000 employees in Majalaya, Bandung, following oversupply of textile products. Ade said the industry could not yet rehire them.

Investor Daily