Indonesia to enhance trade relations for textile machinery with India

Indonesia to enhance trade relations for textile machinery with India

In order to maintain the competitiveness of the country’s textile and textile products (TPT) in the global market, API, the Indonesian Textile Association has requested the local players in the industry to regularly upgrade their production facilities

Most of the textile makers in the country presently are relied on old textile machineries and were getting more reluctant to invest more in the backdrop of weakening global demand, said API chairman, Ade Sudrajat.

Ade recommended the government facilitate collaboration between local businesses and textile machinery manufacturers in India, deemed as one of leading nations in the industry, to deal with the issue.

“Indonesia and India can deepen their cooperation, by, for example, providing credit facilities for the purchase of textile machinery,” Ade said recently, after attending an event in Bandung to introduce the 10th India International Textile Machinery Exhibition (India ITME-2016).

India currently had at least 1000 manufacturers of spinning and dyeing machinery, Ade said. There are 45 million workers in the textile industry alone in India, a home to around 1.2 billion people.Indonesia

Indonesian textile exports have failed to make significant progress over the last five years partly due to declining orders from the country’s main trading partners, including Japan and the US. Data from the Central Statistics Agency (BPS) show that the amount of textile exports remained stagnant at around USD13 billion since 2011.

Another reason to choose India as a trading partner, Ade continued, was because the price of textile machinery was as cheap as China-made ones.

Indonesia wants to enter the top five ranking of the world’s largest textile (and textile products) exporters in the next couple of years. Currently, Indonesia is ranked tenth (controlling a global market share of 1.8 percent) far behind China that remains the clear world leader in terms of textile and garment production as well as export. Indonesia’s Industry Ministry is in the middle of preparing several incentives that should bring Indonesia in the top five, including tax incentives and lower gas prices for export-oriented textile companies.

Airlangga Hartarto, Indonesian Industry Minister, said Indonesia needs to become the dominant player at home first (currently the domestic market is dominated by cheap textile imports from China, a trend that worsened after the implementation of the ASEAN China Free Trade Agreement [ACFTA] in January 2010), followed by expansion on an international scale by raising Indonesia’s textile exports. The world’s major textile consumers are the European Union, United States, China and Japan.

Indonesia 2In 2015 the value of Indonesia’s textile exports reached USD 12.3 billion, contributing 1.21 % to the nation’s GDP, the gross domestic product (GDP). This labor-intensive industry provides employment to some three million Indonesians. Hartarto added that the Industry Ministry is making efforts to develop vocational schools to create adequate human resources (equipped with international standards). Considering that the ministry aims to see a 5-6 % (y/y) growth pace in the textile industry in the years ahead, it will require an additional 600000 workers, each year.

Incentives to Boost the Textile Industry of Indonesia

Key to grow into the ranks of global textile leaders is efficiency, Hartarto said. Raw materials used in the textile manufacturing process are currently imported from abroad, implying higher production costs, especially in times of rupiah depreciation. By scrapping the value-added tax (VAT) on raw materials, Hartarto wants local textile manufacturers to start sourcing raw materials at home instead of looking beyond borders.

Meanwhile, lower gas prices will also ease production costs in the textile industry. In one of the economic policy packages that have been released by the Indonesian government, lower gas prices were promised to several labor-intensive industries. However, these industries are still waiting for the government to take action. Recently an official at the Industry Ministry said these industries will be able to enjoy lower gas prices starting from the second half of August 2016. Indonesian Textile Association (API) Chairman Ade Sudrajat says it is important that the government will lower gas prices immediately in order to make the nation’s textile industry more competitive.

Indonesia-European Union Comprehensive Economic Partnership Agreement

Another important decision that would boost Indonesia’s textile exports is the signing of a free trade agreement with the European Union (Indonesia-EU comprehensive economic partnership agreement, or CEPA). Currently, it is difficult for Indonesia to compete with Vietnam on markets in Europe and in the USA because Indonesia is not engaged in free trade partnerships with these regions. Therefore, Indonesian textile exports to Europe are subject to import duties in the range of 11-30%, while Vietnam can export its textile products to the European Union without import duties. This makes Vietnam’s products much more competitive.

However, the signing of free trade deals between Indonesia and other regions in the world still require time, particularly as there exists opposition both in parliament and society against participating in such agreements (on claims that Indonesian industries are not competitive enough to compete with foreign counterparts and therefore the nation merely becomes an importer after a deal, particularly considering that Indonesia has a huge market, with some 255 million inhabitants).

Sudrajat added that Indonesia needs to pay more attention to the inflow of illegal textiles.

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