The fibre, textile and garment (FTG) sector is one of Indonesia’s oldest and most strategically significant industries. It employs an estimated 11% of the total industrial labour force or 1.34 million people in 2,853 companies and accounted for 8.9% of total exports in 2010. Historically, Indonesian textiles have fared well in international export markets by meeting high quality standards; particularly in developed markets such as the USA. Local producers have become suppliers for some of the world’s largest apparel brands as well as for industrial fabrics. After a sharp curb in demand for exports during the economic crisis, FTG production and exports began to bounce back at the end of 2009, only to meet a new challenge in the form of the ASEAN China Free Trade Agreement (ACFTA) in January 2010. After an initial shock caused by floods of cheap Chinese made fabrics and garments, manufacturers are once again finding their feet with both domestic and global textile consumption increasing. What lies ahead for the industry depends on how manufacturers position themselves to offer value added products as well as the pace of reform in regulations for investment and infrastructure.
With a ready supply of petrochemical derivatives such as purified terephthalic acid (PTA), Indonesia’s synthetic fibre producers are well positioned to serve the global textile industry’s appetite for materials such a polyester and rayon. As cotton prices nearly doubled over the course of 2010 hitting a 15 year high, garment producers around the world have shifted to using polyester and cotton blended yarns as synthetic fibre prices increased less drastically by 43-77%. Global consumption of synthetic staple fibres rose by 6% in 2010 while synthetic filament fibres rose by 8% (European Manmade Fibres Association). Indonesian garment producers have followed the same trend; the Indonesia Synthetic Fibre Association states that domestic consumption of synthetic fibres reached 115 thousand MET in Q1 2011; a 4.5% year on year increase. Total sales reached 525 thousand MET in 2010 with industry capacity at 90% and projections are set at 545 thousand MET for 2011. Fibre products make up a substantial part of total sector exports at 16% of the total for 2010. From the 2009 figures, the proportion of exported rayon fibres grew by 46.7% and other yarn by 29.3%. The continuing trends in commodity prices will most likely see Indonesia’s synthetic fibre export value further increase in 2011.
From the perspective of exports, Indonesia is in an ideal position to meet market demands given low wages in comparison to China as well as being politically stable. Chinese textiles have been subject to a gradual decline in exports to markets such as the US and Europe from 2010 as the country has become mired in trade disputes. As these markets look for alternative sources, Indonesia is seeing a revival in exports but figures are not rising as fast as they are for countries such as Vietnam and Bangladesh. Indonesia’s main weakness in expanding export market share in apparel is its relative slowness when it comes to adapting to new styles in the fashion industry. This is exacerbated by the poor transportation infrastructure which makes shipping times unreliable and the lengthy customs process involved that puts import clearance at an average of 27 days and exports at 20 days according to the World Bank Doing Business Report 2011. Such conditions are therefore unattractive to the fast paced movements in the fashion apparel industry.
Total export sales of the sector rose to $11.32 billion USD in 2010, up from $9.34 billion in 2009. Exports are targeted to increase over 2011 to $15 billion USD as buyers seek cheaper alternatives to China. In 2010, 37.6% of garment exports went to the USA and 19.4% to the European Union, however such figures account for only 5.54% and 2.36% of total destination imports respectively. In addition the natural disasters that struck Japan at the beginning of 2011 hit exports as Japan is one of Indonesia’s main textile markets. The announcement by Turkey that it will begin imposing an import tax as of July 2011 on finished garments and certain woven fabrics is also a potential dampener for target export figures. Textile exports to ASEAN countries grew at an average of 12% annually for the past two years. It will be this market, as well as raising the export share in advanced industrial markets such as the EU and USA, that are really the priority for 2011, according the National Textile Association.
As an investment destination for textile producers, Indonesia holds a number of significant advantages. Low labour costs, political stability, availability of raw materials and cheap industrial land are attracting investors who are seeking cheaper alternatives to China’s rising wages: the average textile worker wage in China has risen to $247 USD a month, in comparison to $140 in Indonesia. It faces stiff competition from the likes of Vietnam and Cambodia who share many of the same attributes by being positioned within the ASEAN, but it appears that Indonesia is making headway in the competition. At the beginning of 2011, the Indonesian Textile Association announced the relocation of 15 Chinese textile firms to the country with up to 100 companies expected to follow suit. Infrastructure issues, human resources and lack of energy supply are subjects that are still under discussion before the announced moves can come into fruition.
Global Business Guide Indonesia - 2012
Contribution to GDP: 18% (2015)
Sector Growth: 5.5% (yoy, 2015)
Number Employed in the Sector: 16 million (2016)
Highest Minimum Wage by Province: 3,350,000 IDR/month (DKI Jakarta)
Lowest Minimum Wage by Province: 1,631,245 IDR/month (West Nusa Tenggara)
Main Areas: Automotive, Electronics, Textile & Garment, Footwear, Food & Beverages, Metal Products, Chemicals.
Main Export Markets: USA, Japan, China, Turkey, South Korea, Germany, Singapore, Thailand, Philippines, Saudi Arabia, Malaysia.
Overview of the Manufacturing Sector
Challenges in Indonesia’s FTG Industry
Overview of the Pharmaceutical Sector
Opportunities in the Pharmaceutical Sector
Automotive Industry: Driving Manufacturing
Overview of the Food & Beverage Sector
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