As per Statistica Indonesia(BPS), the pandemic has aggravated issues related to competitiveness in the Indonesian textile and garment industry which contracted by 14.23 % year on year (YoY) in the second quarter of this year as domestic and global demand slowed, compared to an annualized growth rate of 20.71 % in the corresponding period in 2019.
The textile industry contracted more than the manufacturing industry, which shrank by 6.19 % YoY in the second quarter of this year. Redma Gita Wirawasta, Researcher, Indonesian Textile Institute (Indotex) believes the country’s textile industry to be less competitive than those of other nations primarily because of high energy and logistics costs, low productivity, multilayered value-added tax regime from the upstream to the downstream and low-tech machinery.
According to Faisal Basri, Economist, Institute for Development of Economics and Finance (INDEF), continued use of outdated machinery corresponded with the investment data, which showed that the majority of investment funds had been channelled towards developing new buildings and not to upgrading machinery and equipment
Investment in machinery and equipment fell by 12.87 % YoY in the second quarter as the pandemic caused the Indonesian economy to contract for the first time since the 1998 Asian financial crisis. The economy contracted by 5.32 % in the second quarter as household consumption and investment declined in the fallout from the COVID-19 crisis.
In addition, the health crisis also caused household spending on clothing, footwear and garment maintenance services to decline at an annual rate of 5.31 %.