Indonesia Hopes Textile Export Salves Economic Wounds
August 14, 2002
Recovery Depends on Political Stability and Increased Overseas Investments
Jakarta, Indonesia — The economic crisis that hit Asia in 1997 caused Indonesia to hemorrhage up to $30 billion. However, five years later, as positive economic indicators emerge, the textiles industry has new opportunities.
Despite the still sluggish economy, the Jakarta office property market is holding steady with a slightly increased occupancy of 82 percent, and demand is growing.
To help with recovery, the IMF is working on the details of a conditional loan of $5 billion to the country — Jakarta has $170 billion debt — which cannot be used for financing the state budget. Other market reform stipulations are being drafted form currently, including divestiture of holdings by banks and a government commitment in fiscal policy to keep the state budget deficit within 2.5 percent of the gross domestic product.
According to a survey conducted by Jakarta-based Koll IPAC Research, the base rent for buildings remained stable last year, while monthly rental and service charges rose between 5-11 percent and apartment sale prices recorded a 20.7 percent increase. In another dynamic, returning expatriates boosted apartment sales by 20 percent — the first increase in that area in 4 years — and rental of fully furnished and serviced apartments has reached almost 100 percent. This, however, doesn't spell a total recovery or mean Indonesia's financial woes are over.
Infrastructure projects, tourism, hospitality-related industry, oil exploration, and the textile industry were all borrowing at high interest rates before the crisis, and government investment in projects and businesses was hit hard. Within Indonesia, manufacturing costs — particularly power and labor — are shooting upward as state subsidies are withdrawn. During the crisis, the Indonesian Rupiah, which was 2,000 against the dollar, fell to 15,000 against the dollar. At the moment, it is wobbling at a less volatile 8,000-8,500.
The Rupiah's recent appreciation, however, does not help to keep industries in the nation competitive, but instead defeats its current edge in pricing, said one manufacturer. It makes Indonesian exports a little less attractive to overseas buyers so that now Indonesia, who has exported textile products worth $8 billion a year, is under pressure from China both within and without. Joseph Koshan, president of manufacturers PT Sinar Austral and Bandung, exporters of home furnishings who sell 60 percent of production in domestic market and balance to overseas, said: "This is more so, keeping in mind the prices from China, which are sweeping into our domestic markets, let alone competing in overseas markets."
According to Vijay Assomull of Assomull Co., selling agents in Jakarta, stocked amounts at the retail level are a cause for worry. Worried top end retailers have begun to stock cheaper furnishings.
Although Indonesia is the fourth most populated country in the world, its buying power is limited. New orders for European furnishings are becoming increasingly difficult. Indications from the importers and retailers clearly point to a trend of importing cheaper goods from Turkey and China. Even though minimum orders are between 300-500 meters, the total value remains the same compared to imports from the west; importers just need to find more storage facilities.
Buying power may be limited, but consumers are buying textiles. In the upholstery segment, chenille leads with a 60 percent market share, followed by satin-based curtain fabrics. Polyester, blends and viscose are selling more.Taffetas are making a beginning in the Indonesian marketplace, but traditional jacquard and silk are both limited to exclusive clients at the top end. The advantage of importing from the west is in ordering short runs and new collections and designs of high quality. The imports from Europe and America of home furnishings are estimated between $13-15 million.
Since the meltdown, leading Indonesian manufacturers like Bandung and Ateja have focused on export and found success. Ateja even considers the crisis a blessing in disguise.
"We were satisfied in the domestic market but today our company's export is larger and important," said Arifin Ateja, director. "The product mix now constitutes 30 percent automotive fabrics, 50 percent home furnishings and the balance from mattress ticking."
The first quarter of this year showed a slight pickup in both exports and imports, indicating that the economy is recovering. But political stability, which is key to the well-being of the nation's businesses, leaves much to be desired. Political shadiness has dampened investment sentiments in all sectors. Corrupt legal systems and a lack of clear rules and clear accountability plague the country's economy.
These dynamics also discourage foreign investors, who are still nursing wounds from meltdown and who haven't seen sufficient improvement, from making crucial investments. International investors want a level playing field where laws are enforced and business contracts are honored.
In the grander scheme of things, the manufacturing industry is gearing up for changes that will come in 2005, as only competitive pricing and quality can lead to orders. To stay in business, companies must make new investments to increase productivity, reduce delivery times and to maintain a steady flow of fresh, original designs. F&FI
Jakarta, Indonesia — The economic crisis that hit Asia in 1997 caused Indonesia to hemorrhage up to $30 billion. However, five years later, as positive economic indicators emerge, the textiles industry has new opportunities.
Despite the still sluggish economy, the Jakarta office property market is holding steady with a slightly increased occupancy of 82 percent, and demand is growing.
To help with recovery, the IMF is working on the details of a conditional loan of $5 billion to the country — Jakarta has $170 billion debt — which cannot be used for financing the state budget. Other market reform stipulations are being drafted form currently, including divestiture of holdings by banks and a government commitment in fiscal policy to keep the state budget deficit within 2.5 percent of the gross domestic product.
According to a survey conducted by Jakarta-based Koll IPAC Research, the base rent for buildings remained stable last year, while monthly rental and service charges rose between 5-11 percent and apartment sale prices recorded a 20.7 percent increase. In another dynamic, returning expatriates boosted apartment sales by 20 percent — the first increase in that area in 4 years — and rental of fully furnished and serviced apartments has reached almost 100 percent. This, however, doesn't spell a total recovery or mean Indonesia's financial woes are over.
Infrastructure projects, tourism, hospitality-related industry, oil exploration, and the textile industry were all borrowing at high interest rates before the crisis, and government investment in projects and businesses was hit hard. Within Indonesia, manufacturing costs — particularly power and labor — are shooting upward as state subsidies are withdrawn. During the crisis, the Indonesian Rupiah, which was 2,000 against the dollar, fell to 15,000 against the dollar. At the moment, it is wobbling at a less volatile 8,000-8,500.
The Rupiah's recent appreciation, however, does not help to keep industries in the nation competitive, but instead defeats its current edge in pricing, said one manufacturer. It makes Indonesian exports a little less attractive to overseas buyers so that now Indonesia, who has exported textile products worth $8 billion a year, is under pressure from China both within and without. Joseph Koshan, president of manufacturers PT Sinar Austral and Bandung, exporters of home furnishings who sell 60 percent of production in domestic market and balance to overseas, said: "This is more so, keeping in mind the prices from China, which are sweeping into our domestic markets, let alone competing in overseas markets."
According to Vijay Assomull of Assomull Co., selling agents in Jakarta, stocked amounts at the retail level are a cause for worry. Worried top end retailers have begun to stock cheaper furnishings.
Although Indonesia is the fourth most populated country in the world, its buying power is limited. New orders for European furnishings are becoming increasingly difficult. Indications from the importers and retailers clearly point to a trend of importing cheaper goods from Turkey and China. Even though minimum orders are between 300-500 meters, the total value remains the same compared to imports from the west; importers just need to find more storage facilities.
Buying power may be limited, but consumers are buying textiles. In the upholstery segment, chenille leads with a 60 percent market share, followed by satin-based curtain fabrics. Polyester, blends and viscose are selling more.Taffetas are making a beginning in the Indonesian marketplace, but traditional jacquard and silk are both limited to exclusive clients at the top end. The advantage of importing from the west is in ordering short runs and new collections and designs of high quality. The imports from Europe and America of home furnishings are estimated between $13-15 million.
Since the meltdown, leading Indonesian manufacturers like Bandung and Ateja have focused on export and found success. Ateja even considers the crisis a blessing in disguise.
"We were satisfied in the domestic market but today our company's export is larger and important," said Arifin Ateja, director. "The product mix now constitutes 30 percent automotive fabrics, 50 percent home furnishings and the balance from mattress ticking."
The first quarter of this year showed a slight pickup in both exports and imports, indicating that the economy is recovering. But political stability, which is key to the well-being of the nation's businesses, leaves much to be desired. Political shadiness has dampened investment sentiments in all sectors. Corrupt legal systems and a lack of clear rules and clear accountability plague the country's economy.
These dynamics also discourage foreign investors, who are still nursing wounds from meltdown and who haven't seen sufficient improvement, from making crucial investments. International investors want a level playing field where laws are enforced and business contracts are honored.
In the grander scheme of things, the manufacturing industry is gearing up for changes that will come in 2005, as only competitive pricing and quality can lead to orders. To stay in business, companies must make new investments to increase productivity, reduce delivery times and to maintain a steady flow of fresh, original designs. F&FI