Indonesia鈥檚 ratification of the 15-nation trade pact will have a massive impact on the country鈥檚 textile industry. Local textile and textile product makers must be prepared to adapt to global demands in order to stay competitive.
The textile industry is an important economic sector for Indonesia. According to data from the Ministry of Industry, textiles and textile products generated foreign exchange with an export value of US$13.02 billion and absorbed a workforce of 3.65 million people at the end of 2021. As of July 2022, the industry recorded an export value of $6.08 billion, or 5.51% of the country鈥檚 total exports. The ministry expects textile exports to reach $14 billion by the end of this year.
These numbers place Indonesia one of the world鈥檚 top ten exporters of textile and textile products, alongside countries like China (the world鈥檚 top textile producer with around half of the global share of textile output), India, the United States, Brazil, and Thailand. Among Indonesia鈥檚 main appeals are the generally cost-effective labor that the country provides, as well as its large domestic market.
However, Indonesia鈥檚 textile industry is also known to be lacking in terms of machinery. 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.
Which is why the ratification of the Regional Comprehensive Economic Partnership (RCEP) is so important for the textile industry. Formalized just last month by the Indonesian Parliament, the trade pact would allow Indonesia to increase its exports to the 15 member nations of the deal, which include the 10-nation members of ASEAN, as well as to some of the world鈥檚 major economies such as Japan and South Korea.
More importantly, the trade pact is a significant opportunity for Indonesia to improve its domestic textile industry by way of generating more trade and investment with non-members of the RCEP. According to Sheng Lu, Associate Professor of fashion and apparel studies at the University of Delaware, RCEP members together exported $374 billion worth of textiles and apparels in 2019 (50% of the world鈥檚 share) and imported $139 billion (20% of the world鈥檚 share). In terms of export destinations, the US imports nearly 60% of its apparel from RCEP members, while EU nations import 32% in that same year, or up 28.1% from 2005.
In acknowledging the challenges and opportunities, the Indonesian government has taken efforts to ensure the competitiveness of its domestic textile players. For example, in September 2021, the Ministry of Industry allocated a total of Rp 3 billion for the revitalization of the fabric refinement and printing industry. Most recently, the government prepared another Rp 8.5 billion in financial assistance, out of which around 250 companies participated in the socialization of the assistance.
The current landscape of the Indonesian textile industry could be highly lucrative for foreign investors, particularly among suppliers of sophisticated machinery and production equipment, as well as capacity builders. Other positive trends for investors are the country鈥檚 improving business climate following the issuance of the Omnibus Law on Job Creation, which introduces some significant reforms on investments and labor laws, as well as the rising purchasing power of the population and the proliferation of e-commerce platforms.
To further discuss the matter, EKONID will host a German textile machinery manufacturers Symposium and Business Matchmaking event. To be held from October 10 to 14 October 2022 in Bandung and Solo, Indonesia, the German textile machinery Symposium and Business Matchmaking features a wide variety of textile machinery products, from spinning, knitting, weaving, dye-ing, finishing, and braiding.
The leading German players in the textile machinery industry will be presenting their products and technologies in Indonesia. EKONID will also facilitate one-on-one B2B matchmaking and opportunities for networking. This event will provide Indonesian textile companies with the opportunity to source the latest innovative products from Germany.