Indonesia year-end review 2023: Investment, threats & efforts

Six-month trade performance

In the first quarter of 2023, both the textile and apparel industries experienced a substantial decline in export numbers. Specifically, the textile industry saw a decline of 25.4 per cent, while the apparel industry witnessed a 20.4 per cent decrease in exports compared to the same period in the previous year. Data from the Indonesian Employers’ Association (APINDO) revealed that nearly 80,000 workers from 111 textile companies were laid off with an additional 12,000 individuals expected to be affected by layoffs by the third quarter of 2023.

During the same quarter, the textile industry’s GDP growth rate was 0.07 per cent, compared to 3.61 per cent (year-on-year) in 2022. The industry's contribution to the national GDP also decreased to 1.01 per cent, compared to 1.10 per cent in Q1, 2022. The utilisation rate of the textile and apparel industries declined to 67.59 per cent and 74.79 per cent, respectively in May 2023.

In the period from January to April, the country's export value of textile and textile products decreased by 28.44 per cent to $3.7 billion compared to the corresponding period in 2022, which recorded $5.1 billion.

Over the six-month period, the apparel and textile trade fell in both exports and imports. While the exports, already 10.78 per cent down between March 2022 and March 2023, dropped by 18.7 per cent and imports by 19.8 per cent.

Increased investment

A steep surge of 89.41 per cent over last year was seen in investment in the Textile and Textile Products (TTP, as it is called in Indonesia) industry during the Q1, 2023, that reached $4.63 billion. The investment led by local investors, particularly in the domestic market, rose due to growing demand for textile products within the country. The trend was further supported by the ordering process of TTP equipment and machines that began last year and the goods also arriving as planned. Since the exports usually rely on foreign investment, the decline in export orders did not have much impact on the local textile and textile products industry. Production slowdown made many factories conduct maintenance and replacement of machines and spare parts. As a result, major investment went into purchasing of machinery and spare parts rather than constructing new facilities. As per Investment Coordinating Board, while the PMDN (domestic) investment increased 401.25 per cent amounting to $2.95 billion during the quarter, the foreign direct investment declined 9.4 per cent to $114.2 million.

Most of the investment that came into TTP, came from the intermediate industry sector – knitting, woven and finishing fabrics sub-sector, mainly to procure weaving machines, spinning machines and spare parts. The timing of these investments also coincided with the period before the general elections (scheduled for February 14, 2024) during which the demand for TTP typically increases for campaign support products such as T-shirts and banners.

Threat from China

In June, the ministry of industry prepared steps to anticipate a slowdown in the performance of the domestic textile industry due to global economic conditions and the influx of imported textile products from China. The ministry aimed at implementing policies to minimise the impact of global economic conditions, particularly in Europe, on the Indonesian industry. The domestic textile market experienced an influx of imports from China which, while facing reduced demand, had started to stockpile textile products and seek new markets, including Indonesia. Being a country with stable economic growth and a large population, Indonesia stands as a potential market for textile products from China, posing a possible threat to the domestic textile industry. Therefore, the government promptly worked on policies to protect the domestic market and minimise the impact of declining demand and potential dumping from China.

Government efforts

The ministry of industry received reports of a reduction in production in the fibre industry due to influx of synthetic fibres, filaments and fabrics into the domestic market. This condition resulted in a significant reduction in manpower in the first half of 2023. To address this issue, the ministry implemented short- and long-term policies to enhance supervision of the local market and improve the domestic textile industry. Furthermore, the ministry proposed changing the limited prohibition policy and shifting supervision from post-border to border zones for apparel products, clothing accessories, and textile goods. Another important step taken was the immediate formulation of industry standards, including the preparation of technical specifications (ST) and procedural guidelines (PTC), to ensure business certainty, smoothness, and efficiency in domestic and international trade transactions. The ministry evaluated the existence of bonded logistics centres, totalling 106, to investigate alleged deviations in the release of imported goods from these centres. This made a large number of imported ready-made garments to go on e-commerce platforms at significantly cheaper prices and quickly reach consumers.

The government also announced to follow up on proposed electricity payment relief incentives for the industry, apart from implementing policies to increase exports, control imports and enhance industrial competitiveness. The export-boosting programme is being carried out by encouraging FTA cooperation with the European Union and the United States. In an effort to increase industrial competitiveness, the government is developing and training industrial human resources, restructuring industrial machinery and equipment, and subsidising certain natural gas prices, particularly for the upstream textile industry.

Work towards sustainable future

Indonesia currently produces 92 million tonnes of textile waste each year. At this rate, it is estimated to produce annual waste of 134 million by 2030. However, there is a herculean target of reducing this number to 3.9 million tonnes in 2030, as the present linear industry model is not seen as sustainable. To achieve an entirely sustainable and circular business model, the WCTD (World Circular Textiles Day) collaborated for a workshop on circularity with Rantai Tekstil Lestari (RTL) – an association of like-minded stakeholders from Indonesian textile and fashion industries, on May 8 at The Hermitage hotel in Jakarta. The ‘Roadmap to 2050’ workshop aimed at establishing a circularity tool kit to support the global textile and fashion roadmap by engaging Indonesian stakeholders and identifying the challenges that face the nation. The WCTD developed its own definition of circularity for textiles, based on three pillars – products & services, materials, and people, which meant that products must be designed for circularity and kept in circulation for as long as possible through reusing, repairing and renting. Once products are past the stage of reuse, they must go into material circularity as renewable and recyclable. For the Indonesian people, the implementation of circularity model can create more jobs.

ALCHEMPro News Desk (WE SB)