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Indonesia's Textile Exports Grow

Indonesia's textile product exports experienced a fairly high upward trend. The government is preparing various incentives to maintain the economy in this sector.

The Coordinating Minister for Maritime Affairs and Investment (Menko Marinves) Luhut B Pandjaitan, at the New Balance Material Summit in Jakarta, on Tuesday 9 May 2023 said, after the Covid-19 pandemic, both exports and imports of Indonesian textile products experienced a fairly high trend of increasing . For this reason, the government has prepared various incentives to maintain the economy in the textile sector and its products.

Coordinating Minister Luhut assessed that current investment and economic development is not only limited to the downstream sector. Instead, it also penetrated into the textile industry. According to him, this development will provide profitable market potential for the textile industry in Indonesia.

In addition, national economic growth has now been above 5 percent for six consecutive months. Along with the increase in economic growth, Coordinating Minister Luhut also believes that the purchasing power of the people and the middle class segment will also grow significantly. This condition will encourage increased sales of textile products in the country.

“In addition, the ongoing investment policy reforms have attracted a lot of new investment into the country. The Indonesian government will continue to carry out reforms in these aspects, "concluded the Coordinating Minister Luhut.

Previously, the government also tried to anticipate disruptions in the textile industry due to a decline in export orders. The number of export orders for textile products from America and Europe has plummeted due to the global recession. This condition has even caused a number of companies to carry out mass layoffs (PHK).

President Joko Widodo finally instructed that exports of textile products be diverted to the domestic market. At the same time, the domestic market is being flooded with imported used clothes, especially from China. Therefore, the government finally decided to ban the sale of imported second-hand clothes.

Based on data from the Central Statistics Agency (BPS), in 2022 the volume of Indonesian textile exports will indeed weaken. During the January-September 2022 period, the export volume of the national textile industry only reached 1.19 million tons, a decrease of 14.52% compared to January-September 2021 (year on year/yoy).

Despite facing severe challenges and the threat of a recession, the Indonesian economy is able to grow positively by 5.31% (yoy) in 2022. One of the sectors that has become a catalyst in boosting the performance of the national economy is the Textile and Textile Products (TPT) and Footwear industry.

In 2022, the performance of the TPT trade balance will experience a surplus of USD3.71 billion or an increase of 3.34% compared to the previous period. Likewise with footwear, which experienced a surplus of USD1.03 billion or an increase of 41% compared to the previous period. The United States and Europe are still the main export destination countries for these two industries.

Indonesia itself has the potential to become a major market, production base, and export center for the world's TPT and footwear industries, with many advantages. Indonesia is a country with the 16th largest economy in the world, has a very small chance of a recession of 3% in 2023, has a very large domestic market with a population of 273 million, a significantly increased demographic bonus, and political conditions and a relatively stable economy.

The growth of the processing industry sector in the last few months of 2022 shows positive signals. This condition is reflected in the trend of the level of expansion in the value of the Industrial Confidence Index (IKI), which has increased since its launch in November 2022 and the S&P Global Manufacturing Purchasing Manager's Index (PMI) which has shown expansion since last September. This is also in line with the GDP growth of the processing industry which reached 4.83% in the third quarter of 2022.

In early 2023, the performance of the processing industry shows expansion. The IKI value in January 2023 showed 51.54, a sharp increase compared to the IKI in December 2022 which was 50.9. As many as 71.4% of companies stated that the general condition of business activities was stable and improving in January 2023.

IKI is an indicator of the degree of confidence or level of optimism in the processing industry regarding economic conditions. IKI describes the condition of the processing industry and the prospects for business conditions in the next six months in Indonesia.

Based on IKI data in January 2023, the increase in IKI was contributed by 12 expanding industrial sub-sectors, with a contribution of 80.1% to the formation of the national manufacturing industry GDP in quarter III-2022. The beverage and pharmaceutical industries, chemical medicinal products and traditional medicines, which previously experienced contractions, are showing expansion in January. On the other hand, repair and installation services for machinery and equipment this month contracted.

Of the 23 processing industry sub-sectors, there are 17 sub-sectors that have a positive trend or experience an increase in the IKI value. The three subsectors that experienced the highest increase were the other transportation equipment industry, the motor vehicle, trailer and semi-trailer industry, and the printing and recording media reproduction industry. New orders for the motor vehicle, trailer and semi-trailer industry, received a greater contribution from domestic orders of 77%.

An increase in the IKI value in January 2023 occurred in all the variables that make up the IKI. Processing industry confidence increased due to an increase in new orders (index value of 51.14), increased production (index value of 50.35), and a decrease in product inventory volume (index value of 54.34).

The increase in the IKI value in January 2023 which was quite high came from changes in the IKI variable for new orders with an increase of 1.07 from 50.07 in December 2022. It is suspected that many industries have renewed their contracts, so that many industries have received new orders. The second largest increase in the index value occurred in the production component, which was 0.32.

On this occasion, a spokesperson for the Ministry of Industry, Febri Hendri Antoni Arif, stated that expectations for the condition of business activities in the next six months are still optimistic. In addition, the trend of companies responding pessimistically is decreasing.

"Even so, the textile and apparel industry is still at a contractionary level even though the IKI trend value is increasing. The Ministry of Industry is pushing for government spending on the textile sector, in addition to preparing to meet Eid demand. In addition, the Ministry of Industry is also trying to find alternative markets to encourage exports of the textile and apparel industry," said Febri.

Author: Eri Surtrisno
Editor: Ratna Nuraini/Elvira Inda Sari

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