Business group is pinning high hopes on textile-sector growth

Andi Haswidi, The Jakarta Post, Jakarta

Defying skepticism over the future of the textile industry, the Indonesian Chamber of Commerce and Industry (Kadin) has identified it as being among the main engines that will help drive the economy as part of its 2030 vision and road map for industrial development.

The Kadin vision and road map, which were recently formulated to guide the development of Indonesia's private sector, says that by 2030, exports of textile products could reach a staggering US$75.33 billion and account for about 5 percent of the world export market.

"The textile industry has always been the biggest contributor to our non-oil and gas exports. This has been due to strong global demand for its products and its excellent reputation," economist Faisal Basri told The Jakarta Post on Tuesday, speaking as the chief researcher for Kadin's industry road map.

After conducting nine months of research in collaboration with various business associations, Faisal concluded that textiles, along with three other industries -- electronics, automotive and shipping -- would be the main engines behind economic growth of more than 7 percent per year.

"Textile exports will continue to grow. By 2010, they are expected to reach $13.88 billion, with net exports standing at $11.7 billion," Faisal said.

In line with the industry's growth, he said it was expected to generate 2.25 million new jobs by 2010 and 6.17 million by 2030.

Exports have always been the focus of Indonesia's major textile companies as they offer better prices and, most importantly, because the domestic market is flooded with cheap, and often smuggled, products from countries such as China and Vietnam.

According to the Indonesian Textile Association (API), of 1.013 million tons of textile products on the domestic market in 2006, some 50 percent of them were illegal, 45 percent were local products and 5 percent were legitimate imports.

The textile industry has also been lagging behind in terms of production capacity and quality compared to foreign competitors as most producers here still use machinery that is more than 20 years old.

In order to help the industry overcome these problems, the government has allocated Rp 255 billion this year to subsidize interest on machinery reequipping loans.

The government has also introduced tax incentives, and removed all import duties on cotton, a primary raw material used by the textile industry.

Faisal said that in the next three years, the industry would embark on a major restructuring, which would involve a massive reequipping drive that would not only help firms boost product quality, but also further diversify products.

Faisal warned, however, that two main problems currently affecting the sector -- energy supply and labor -- would have to be quickly addressed.

The industry has said that state-owned electricity utility PT PLN -- on which they rely for 70 percent of their electricity supply -- had increased its charges by between 10 and 15 percent.

API also complains about the disparity between the cost of Indonesian workers and productivity. Indonesian workforce productivity ranks 59th in the world according to the Manpower and Transmigration Ministry, while China ranks 31st.

In contrast, the average wage for Indonesian factory workers is 0.76 cents per hour, compared with China's 0.55 cents.
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