Dzulfiqar Fathur Rahman, Jakarta – The COVID-19 pandemic has aggravated the prevalent issues of competitiveness that have been battering the Indonesian textile industry, as people are buying fewer clothes due to declining incomes.
Researcher Redma Gita Wirawasta at the Indonesian Textile Institute (Indotex) said that Indonesia's textile industry was less competitive than other countries' primarily because of high energy and logistics costs, low productivity, the multilayered value-added tax regime from the upstream to the downstream and low-tech machinery.
"These competitiveness issues have been around for a long time. [We don't have] enough competitiveness to boost exports," she said at a virtual discussion on Wednesday.
Redma added that the global market share of Indonesian textile products fell slightly to 1.58 percent in 2018 from 1.66 percent in 2009, citing data from the World Trade Organization (WTO). Over the same period, the textile products of neighboring Vietnam and Bangladesh expanded respectively to 4.59 percent and 4.72 percent.
Indonesia's textile and garment industry contracted 14.23 percent year-on-year (yoy) in the second quarter as domestic and global demand slowed, compared to an annualized growth rate of 20.71 percent in the corresponding period in 2019, according to Statistics Indonesia (BPS). The textile industry contracted more deeply than the manufacturing industry, which shrank 6.19 percent yoy in the second quarter this year.
Director general Dody Widodo for resilience, zoning and international industry access at the Industry Ministry said at the same discussion that the textile industry had failed to improve its competitiveness because businesses did not update their machinery and equipment in the previous decade. "Because the machines are old, productivity remains low," he said.
The continued use of outdated machinery corresponded with the investment data, which showed that the majority of investment funds had been channeled toward developing new buildings and not to upgrading machinery and equipment, economist Faisal Basri of the Institute for Development of Economics and Finance (Indef) said at the discussion.
Machinery and equipment investment fell 12.87 percent yoy in the second quarter of the year as the pandemic caused the Indonesian economy to contract for the first time since the 1998 Asian financial crisis. The economy contracted 5.32 percent in the second quarter as household consumption and investment declined in the fallout from the COVID-19 health emergency.
In addition to shrinking investment, the health crisis also caused household spending on clothing, footwear and garment maintenance services to decline at an annual rate of 5.31 percent. It is the third deepest annualized decline in spending, after restaurants and hotels, and transportation and communications.
"From the demand side, household spending is declining not only because of falling incomes, but also because of behavioral changes," noted Faisal. "Budgeting for savings and investments is rising. People [are preferring] to save because the government is incapable of managing the virus."
Economists and epidemiologists have slammed the government response to the COVID-19 health emergency as untimely and lacking focus.
Meanwhile, the government had shifted its focus to recovering the economy even as infections continued to surge without any signs of slowing down, founder and executive director Hendri Saparini of the Center of Reform on Economics (CORE) Indonesia said separately on Aug. 21.
Official data show that Indonesia had racked up more than 157,800 confirmed cases and 6,858 deaths as of Wednesday afternoon.