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Indonesian Electricity Tariff Hikes Arrive May 1; Textile Import Prices Could Rise by 100%

Rivet's 2020 Denim Circularity report takes a deep dive into how the global denim industry is plotting its circular future amidst a worldwide pandemic.

In what is likely to significantly impact the apparel industry, a major increase in Indonesia’s electricity tariff will take effect May 1, 2014.

According to Ade Sudrajat, chairman of the National Committee of the Indonesian Textile Association (API), speaking to reporters at a press conference in Jakarta, the costs of the country’s textile imports could increase by as much as 100 percent as a consequence. Sudrajat also said that since production costs will certainly rise as a result, Indonesia textile firms might turn to imported goods, weakening a surging but still fragile domestic market.

Indonesia’s much anticipated emergence as an apparel manufacturing power has been sometimes halted by its recurrent electricity shortages. Now a government plan to substantially raise electricity tariffs has many concerned about the fallout for its garment manufacturing industry. The Indonesian government hiked electricity tariffs by 15 percent in 2013, a source of tempestuous debate among the nation’s commercial leaders. The government has also withdrawn power subsidies from four economically key groups: medium-sized businesses, large businesses, large households and medium-sized government offices.

Some say tariff increases and the elimination of subsidies comes during a critical time of transition for Indonesia’s textile industry, which is simultaneously trying to assert itself as a viable manufacturing alternative to Bangladesh and China while also struggling with its own host of domestic challenges. 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.

Also, 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 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.

Indonesia continues to assert itself as a major force in the textile industry, with its exports likely to reach $13.3 billion in 2014, a 5 percent increase over 2013. 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.

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