Indah Ayu Pujiastuti, Jakarta – Indonesia's textile industry is operating well below capacity, with utilization in the upstream sector at only around 45% and the midstream sector at about 60%, as manufacturers grapple with import competition and weak incentives to invest in new machinery.
The figures underscore the challenges facing one of Indonesia's major manufacturing industries, which employs more than 3.8 million workers across the textile and garment sectors.
Redma Gita Wirawasta, chairman of the Indonesian Fiber and Filament Yarn Producers Association (APSyFI), said the textile industry has a long production chain spanning the upstream sector of fiber and yarn, the midstream sector of fabric, and the downstream sector of finished garments. Strong integration among these segments, he said, is essential to maintaining efficiency and competitiveness.
However, Redma said the supply chain has been disrupted by an influx of imported products sold at what he described as unfairly low prices. The situation has reduced opportunities for domestic manufacturers to expand while discouraging investment.
"The main problem we face today is the disruption of industrial integration within the ecosystem because the government has allowed unfair competition by tolerating illegal imports and dumping," Redma told Investor Daily on Tuesday.
The industry's low capacity utilization has also undermined manufacturers' ability and willingness to invest in new machinery. Companies operating with aging equipment suffer from lower efficiency, making it more difficult for Indonesian textile products to compete with imports sold at prices that domestic producers consider unreasonably low.
This has created a vicious cycle for local manufacturers: limited investment keeps production costs high, while higher costs make it harder to compete on price and increase sales. Redma said stronger support for machinery upgrades would help manufacturers improve efficiency and competitiveness.
Redma said import controls based on the government's "technical consideration" mechanism have yet to provide an effective solution. Instead, he argued, the government should focus on creating a healthy domestic market that gives local manufacturers the certainty they need to increase production.
"The flood of dumped and illegal imports is the core issue, yet the government seems more inclined to seek incentive-based solutions rather than addressing the root cause," Redma said.
He welcomed the government's plan to strengthen the competitiveness of the national textile industry but called for consistent implementation, noting that improving industrial competitiveness has long been part of the government's policy agenda.
Industry Minister Agus Gumiwang Kartasasmita has said the textile and garment industry plays a highly strategic role in the economy, particularly because it employs more than 3.8 million workers. Its importance, he said, makes strengthening the industry's foundations essential.
The government has introduced a range of measures to support the sector, including investment incentives, machinery restructuring programs, labor-intensive industry credit, financing from the Indonesian Export Financing Agency (LPEI), and stronger trade safeguards.
Low utilization rates
Pressure on the textile and textile products (TPT) industry is reflected in its low factory utilization rates. Redma said upstream manufacturers are operating at only around 45% of capacity, while utilization in the midstream sector stands at approximately 60%.
The figures show that a substantial portion of Indonesia's textile production capacity remains idle, despite the industry's significant contribution to manufacturing and employment.
Beyond market pressures, textile manufacturers also face the challenge of modernizing production equipment. Some companies continue to rely on aging machinery, reducing efficiency and productivity.
The Industry Ministry previously introduced a machinery restructuring program to help manufacturers upgrade their technology. Redma, however, said its impact has been limited because funding has been significantly reduced.
"The budget for the machinery restructuring program has been reduced significantly, so naturally it hasn't had much impact," he said.
Persistent pressure from low-priced imports has also made business owners reluctant to commit significant capital to new equipment.
"With the market flooded by imports like this, there is little enthusiasm among entrepreneurs to purchase new machines," Redma said.
Moving up the value chain
Mohammad Faisal, executive director of the Center of Reform on Economics (CORE), said Indonesia's textile industry needs to focus increasingly on higher-value products rather than competing solely in mass-market segments dominated by countries with lower production costs.
Indonesia, he said, has considerable opportunities in specialized segments, particularly Muslim fashion, where the country has a comparative advantage that has yet to be fully exploited.
"We should look beyond mass-market products and consider niche markets, including Muslim fashion. Indonesia still holds an advantage in that area," Faisal said.
Indonesia has strong potential to become a major player in the global Muslim fashion industry, supported by its large domestic consumer base and growing creative ecosystem, he said.
That potential is also reflected in demand from tourists from neighboring countries such as Malaysia, who travel to Indonesia specifically to shop for Muslim fashion products, particularly in creative industry hubs such as Jakarta and Bandung.
"Many tourists regularly come to Indonesia in search of Muslim clothing. This demonstrates that we possess an advantage not shared by many other countries," Faisal said.
He said that advantage should be developed into a more aggressive export strategy, with Indonesian textile and garment producers targeting markets with large Muslim populations, including countries in the Middle East and North Africa.
Such a strategy would require manufacturers to focus on differentiated products tailored to specific markets, including in terms of design, quality and consumer preferences.
Faisal said the textile industry retains strong long-term prospects because global demand for clothing and other textile products is expected to increase alongside population and economic growth. Indonesia, however, needs to ensure that the industry does more than merely survive by moving up the value chain and producing higher-value goods.
A shift from mass-market products toward specialized segments such as Muslim fashion could help Indonesia strengthen its position in the global textile supply chain, he said.
Exports reach $4.85 billion
Despite the challenges at home, Indonesia's textile industry continues to have considerable export potential. Textile and garment exports reached $4.85 billion in the first half of 2026.
Agus said the figures demonstrate that Indonesian textile products remain competitive in international markets. However, the industry must continue transforming by improving innovation, efficiency, and sustainability.
Export opportunities are also expected to expand under the Indonesia-European Union Comprehensive Economic Partnership Agreement (IEU-CEPA), which is expected to provide Indonesian textile products with greater access to the European market.
Agus cautioned, however, that domestic manufacturers must be able to comply with increasingly demanding international standards, particularly those related to product quality and sustainability.
"The national textile industry must boost productivity, strengthen innovation, and meet various international standards to compete with other textile-producing nations," Agus said.
Redma said expanded market access must be matched by improvements in the industry's readiness to compete internationally. In addition to strengthening domestic supply-chain integration, manufacturers must meet increasingly stringent global sustainability requirements, including greater use of environmentally friendly energy sources.
"The IEU-CEPA is not yet in effect; hopefully, it will come into force next year. However, questions remain regarding our readiness, as we still face integration issues and continue to rely on fossil fuel energy sources," Redma said.