Indonesian Textile Industry sees hope for a better future

Indonesian textile industry is one of the many sectors that have hit a low during the slowdown of the global economy. As Indonesia is failing to compete with Vietnam, many textile firms in Indonesia are becoming bankrupt as production costs spiral and sales dwindle. But the industry still has hope for a better future.

Vietnam outshines Indonesia in this sector as they has already joined the Trans-Pacific Partnership (TPP) and completed negotiations for a free trade agreement (FTA) with the European Union. Indonesia, meanwhile, will not be joining the TTP for another two years.

According to the Indonesian Textiles Association (API), 6,000 workers were laid off during the first semester of last year. The industry’s contribution to GDP also fell 6.1 percent.

The International Monetary Fund (IMF) has cut its previous prediction of global economic growth from 3.6 percent to 3.4 percent, which is certain to affect textile exports, given the industry’s dependence on the global economy.

The Indonesian textile industry’s main markets are the United States and Europe. Typically, 31 percent of total exports are destined for the US and 16 percent are sent to Europe.

However, last year, textiles exports to the US plummeted by 5.3 percent year-on-year, and exports to the European market suffered a similar decrease. One of the reasons for this decline in exports is tight global competition with Vietnam, which is Indonesia’s main competitor in the footwear and textile industries.

For this industry to recover fully from this lull, the government must control imports, and ensure that local materials are available for the industry to use.

Bank Mandiri analyst sees a glimmer of hope for the Indonesian textile industry. The Investment Coordinating Board (BKPM) recorded an increase in investor interest in textile industry. The industry has started to rally this year, and potential exports amount to US$ 65.5 million.