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Textile and Garment Sector Still Struggling in Indonesia

Indonesia’s rupiah may be outperforming most major currencies so far this year, but the ripple effect of China’s devalued yuan is still being felt by the archipelago’s textile and garment sector.

That’s according to Ade Sudrajat, chairman of the Indonesian Textile Association (API), who told the Nikkei Asian Review that the subsequent fall in the currency’s external value last year weighed on businesses buying raw materials in dollars and selling to the domestic market in rupiah, noting, “This is the handicap on our industry right now.”

While Indonesia’s economic growth reached 5.04% in the fourth quarter of 2015, full-year growth was a six-year low of 4.76% as exports fell by 14.6% year-over-year to $150.3 billion.

Meanwhile, government data showed that garment shipments dropped by almost 11 percent last year. In fact, Indonesia fell to fourth place as a source of U.S. apparel imports (behind China, Vietnam and Bangladesh) in the first 11 months of 2015 with just 5.8% of the year-to-date total, while Vietnam and Bangladesh grew their shares to 12.4% and 6.3% respectively.

Annual minimum wage hikes in West Java and Jakarta have also made it difficult for Indonesia to compete with its Southeast Asian neighbors. Last September, Sudrajat said that the jobs of around 36,000 textile and garment employees were under threat from weak sales, adding to the 45,000 workers who the Confederation of All Indonesia Workers’ Union (KSPSI) said had already been let go from factories—and the recently agreed Trans-Pacific Partnership (TPP) could further squeeze manufacturers’ margins when preferential tariffs kick in.

“We will lose our competitive advantage,” Sudrajat told Nikkei, reiterating Indonesia’s intent to join TPP, as well as to negotiate a separate free-trade treaty with the European Union.

Until that comes to fruition, the ministry of industry plans to focus on greater onshore warehousing of cotton, while the economy ministry will modify policies to suit special economic zones, introduce tax holidays and incentives to buy new machinery and cut nighttime electricity costs.