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Friday, August 19, 2011, 00:00

Textile industry in need for succor

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By ROSSIE INDIRA

In February, Indonesias Trade Minister Mari Elka Pangestu said exports this year would depend heavily on the prices of principal export commodities such as textiles, footwear, paper and its end products, and processed cocoa products.

Of these, the fiber, textile and garment (FTG) sector is very important, employing an estimated 11 percent of the total industrial labor force. In 2010, it accounted for 8.9 percent of the countrys total exports.

With 2,886 textile companies where about 1.4 million people work, Indonesias textile industry is a complete one from upstream (fiber maker) to downstream (apparel industry), according to ASEAN Federation of Textile Industry chairman Ade Sudradjat.

Apart from being labor intensive, it is also a capital intensive industry. That explains why a number of textile factories found themselves mired in debts in the wake of the Asian financial crisis in 1997. Things were so bad that the ownership of many of these units transferred hands to foreign investors.

Some had just finished building new factories or modernizing the existing ones. The Texmaco group was one. One of its listed companies was PT. Polysindo Eka Perkasa that became PT. Asia Pacific Fibers after a name change.

Damiano Investment bought debt note of POLY (share trading code of PT. Asia Pacific Fibers) during the crisis of 1997, says Budi Budar, a fund manager at Samuel Asset Management.

They bought it at a very cheap price when POLY was in distress. At that time, POLYs debts amounted to $1.6 billion. Damiano bought $641 million of their unsecured debt.

However, adds Budar, POLY is now doing very well even though it still has $260 million of un-restructured debt.

Their facilities are almost in full capacity. I think it is the result of the improvement of the textile industry over the past two years as well as increasing demand from both local and foreign markets, he says.

Competitions, however, are becoming fiercer globally. The China-ASEAN Free Trade Agreement (CAFTA) in January 2010 also throws up a new challenge.

In the wake of the global economic crisis in 2008, production dropped by 11 percent in 2009. In 2010, however, there was a remarkable improvement. Exports reached $11.2 billion: a 21 percent increase compared with 2009, says Sudradjat.

According to data made available by the Indonesian Textile Association, imported FTG from Chinagrew by 62.4 percent in 2010 compared with the previous year.

Chinese fabrics that flooded the Indonesian domestic market in 2010 were worth $1.3 billion accounting for 76 percent of the total FTG imported from China. Imports of Chinese garments were also increasing, from $96 million in 2009 to $133 million in 2010.

Exports to Chinaon the other hand also rose, thanks to CAFTA. The export volume jumped 67 percent, from $180 million in 2009 to $300 million in 2010, mostly in the form of yarns and fibers.

The Ministry of Trade figures show that garment exports rose from $3.1 billion in 2009 to $3.6 billion in 2010.

However, Indonesias FTG industry still faces stiff competition from ASEAN countries (Vietnamand Cambodia) and China.

Much of it can be blamed on Indonesias inability to adapt to the fast changing trends and new styles in the fashion industry. In fact, Global Business Guide Indonesia 2011 cites this as the main reason for the countrys failure to expand fast in the export market.

While shipping times are unreliable because of the poor transport infrastructure and logistics, the rambling customs processes make things even worse. An import clearance takes at least 27 days and exports 20 days, says the World Bank Doing Business Report 2011.

All this is enough to put off the upmarket and tech-savvy fashion apparel industry. So, its high time to do things faster, according to industry experts. Indonesiacan no longer take things for granted. It must assure people that its a country where infrastructure is strong, power supply is uninterrupted and the system is efficient.

In every respect investors must feel comfortable.

Global Business Guide Indonesia 2011 reports that at the beginning of the year, the Indonesian Textile Association announced the relocation of 15 Chinese textile firms to Indonesia. Up to 100 companies are expected to follow suit. But that hasnt happened yet.

As far as we know, there are no Chinese textile or garment companies in Indonesia now, but maybe in the near future, there will be some, says Sudradjat who is also the Indonesian Textile Association chairman.

 
 
 
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