According to the Indonesian Textile Association (API), the gradual economic recovery of the U.S., Indonesia’s biggest market, is buoying textile exports. For the first two months of 2014, Indonesian textile exports were valued at $697.5 million, according to the Ministry of Trade. In 2013, exports totaled $12.68 billion, a 1.76% increase year-on-year.
Ade Sudrajat Usman, chairman of the API, said that a resurgent E.U. also accounts for the positive outlook. Indonesia is currently in negotiation with the E.U. regarding a free trade agreement that some estimate could triple the nation’s export industry in just five years’ time. Domestic textile sales are expected to leap 7 percent year-on-year to approximately $7.5 billion.
While many consider Indonesia a rising star in textile manufacturing, its progress has been stalled by persistent challenges, especially its recurrent electricity shortages, only exacerbated by a government plan to raise electricity tariffs. Currently, the government intends to raise electricity prices by a startling 38.9% for all businesses that use medium-voltage power, which includes apparel and footwear producers. The price hike should go into effect on May 1.
Also, while its massive supply of low-cost labor has been a point of attraction for Western retailers, low wages have ignited civil unrest, with workers taking to the streets in huge numbers protesting their alleged exploitation. Only several months ago, twelve province governors were compelled to increase minimum wages by an average of 19 percent in response to persistent strikes that were stymieing business. In 2012, there was a similar adjustment of the salary structure, raising the minimum wage by as much as 40 percent, depending upon the province in question. This pegs the minimum wage somewhere between $80 and $160 dollars per month in Indonesia, compared to $75 in Cambodia, a fierce competitor.
Indonesia also faces stiff competition from China and rival ASEAN nations, and has found China’s fiber, textiles and garment exports particularly difficult to counter, especially after the passage of CAFTA. These disadvantages have only been exacerbated by inadequate sovereign marketing. According to the Global Business Guide of Indonesia: “Branding and marketing of Indonesian made textiles has been conducted poorly in the past and domestic brands have not taken a strong footing among Indonesian consumers. Foreign apparel brands have flourished in the upper end of the market as have the imports of cheap garments from China that are on trend. With a reorientation of the sector toward higher quality goods and greater focus being placed on innovation and creativity; Indonesia has a strong base for further developing its textile garment, textile and fibre industries.”
Finally, Indonesia’s breakneck growth has made it difficult for its textile machinery and technology to keep pace with prevailing manufacturing standards. Some industry experts estimate that more than 70 percent of its textile machinery is technologically outdated. The problem has become so widespread the government initiated an ambitious textile machinery restoration program intended to modernize its aging technology.
The good news is that Indonesia is population-rich, blessed with 260 million people, giving it deep reserves of potential labor. Also, it largely has an investment-friendly business environment and laser-like focus on textile and garment production. The government has also demonstrated a twin commitment to political reform and infrastructural modernization. Especially if it can successfully negotiate a comprehensive trade agreement with the E.U., Indonesia is on track to become a viable sourcing alternative to ever more expensive China and politically fraught Bangladesh.