Indonesia's textile exports rose around five per cent on a year-on-year (y/y) basis in 2017. This is a great performance because the country's textile exports had been rather stagnant in the 2012-16 period and global textile demand declined this year, says Ade Sudrajat, Chairman of API.
Another important factor is, generally, Indonesia's competitiveness has improved in the textile industry, hence it can offer its textile products at more attractive prices globally. Several years ago various textile factories were moved from West Java and Banten to Central Java because minimum wages rose too steeply in West Java and Banten. Central Java, on the other hand, still offers a relatively cheap production environment.
Meanwhile, the stable economy of Indonesia has attracted more investment in Indonesia's textile sector. According to data from Indonesia's Investment Coordinating Board (BKPM), a total of IDR 10.24 trillion (approx. USD $759 million) was invested in Indonesia's textile industry in the January-September 2017 period, much higher than the IDR 7.54 trillion that was invested in the same period one year earlier.
The world's top economy remains the biggest market for Indonesian textiles. About 36 per cent of Indonesian textile shipments go to the US. A concern for Indonesia's textile industry is that competition from Vietnam is rising. Problematically, and unlike Vietnam, Indonesia does not have a free trade agreement with the European Union. Therefore, Indonesian textile exports to Europe are subject to import duties in the range of 5-20 per cent, while Vietnam can export its textile products to this region without import duties.
Sudrajat urges the government to focus on bilateral talks with the EU in order to improve the competitiveness of Indonesian textile products further. Indonesian Industry Minister Airlangga Hartarto says the government is currently trying to arrange zero import duties for textile shipments to the US and Australia, while it is also studying the plan to seek a free trade agreement with the EU.
