The government encourages the increase of productivity and competitiveness of the textile industry by providing investment incentives to stimulate the use of more modern and environmentally friendly equipment.
As one of the top five contributors to GDP in the manufacturing sector, the textile industry has long been playing an important role in promoting the Indonesian economy. In the third quarter of 2019, it recorded a growth of 15.08% 鈥� the highest among other manufacturing sectors. Last year, this industry generated foreign exchange with an export value of US$13.02 billion and absorbed a workforce of 3.65 million people. In this regard, it is not surprising that the textile industry is regarded as a strategic sector in the Making Indonesia 4.0 roadmap.
The Need for Textile Machinery Revitalization
Indonesia鈥檚 textile industry began modernizing a century ago and reached its peak in the 1980s. However, until the 2000s, the machines used in this old industry have barely been revitalized. Only in 2007 did the Indonesian government 鈥� through the Ministry of Industry 鈥� start to tackle this structural issue by launching the Indonesian Textile Restructuring Program. Up until 2015, it has provided financial assistance of 25% of the price for the purchase of domestic machines and 10% for imported machines. As a result, the industry received an additional machinery investment of Rp13.82 trillion. The program has also triggered local banks to ease the loans for small- and medium-sized textile companies. Consequently, production capacity increased by 21.75 percent and production realization increased by 21.22 percent.
Despite these favorable advancements, the use of old machines with low productivity remains a challenge, at least if the government wants to meet the high demand for textile products domestically and internationally. In fact, around 70% of machines used in the industry are old and have a 50% less productivity rate, as stated by the Indonesian Textile Association (API) in 2019.
The textile industry is indeed very dependent on sophisticated equipment and machinery. Concerning this, the Ministry of Industry, in 2019, promised to accommodate textile machinery importation. In continuation of the previous program, the Ministry of Industry allocated a total of Rp3 billion for the revitalization of the fabric refinement and printing industry in September 2021. Most recently, the government has prepared another Rp8.5 billion in financial assistance, and around 250 companies have participated in the socialization. Ultimately, the program is expected to support the technological advancement of Making Indonesia 4.0, focusing on artificial intelligence, the internet of things, augmented reality/virtual reality, advanced robotics, 3D printing, and machine-to-machine communication.
Opportunities and Goals
The landscape of Indonesia鈥檚 textile industry presents golden opportunities for investors, particularly in the supply of sophisticated machinery and production equipment, as well as capacity building. Its business climate is even more lucrative due to the rising purchasing power of the population and the proliferating e-commerce platforms.
Such a positive consumer behavior to follow lifestyle trends would stimulate high demand for functional textiles used in apparel, automotive, fitness, sports, and military goods. This is exactly the segment that Indonesia strategically targets. The recently-established Industrial Services and Solution Center (ISSC) facility at the Center for Standardization and Textile Industry Services (BBSPJIT) is at the forefront of its development. It provides information services, testing, calibration, product and quality system certification, technical training and consulting, formulating standards in the textile sector, and providing inclusive and professional assistance to the textile industry.
This integrated infrastructure will not only help meet domestic demand but also increase the competitiveness of the textile industry in the global market, especially in the EU 鈥� one of Indonesia鈥檚 main export destinations. Knowing that Indonesia is negotiating with the EU to reach the Indonesian-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA), the Indonesian textile industry also sees an opportunity to draw level with Vietnam and Bangladesh 鈥� the two countries that already have free trade agreements with the EU.
In the meantime, the Indonesian government continuously strives to build a textile industry ecosystem that is productive, connected, and sustainable. By 2030, the country expects to become one of the big five global textile manufacturers and the world鈥檚 top ten economies in the era of Industry 4.0.