I

ndonesian textile businesses are pessimistic about garment exports as well as domestic sales in 2018, despite an expected global economic recovery and local political events.

Overseas shipments of textiles and textile products, including garments, will stagnate this year, after climbing 5 percent year-on-year (yoy) to US$12.4 billion in 2017, according to a projection from the Indonesian Textile Association (API).

The business group attributes this to stiff competition, particularly from Vietnam, which is set to export to the European Union without paying any import duties under a free-trade agreement (FTA) between the two parties set to take effect soon. The 28-member bloc is Indonesia’s second-biggest export market.

“The EU still imposes an 11 percent duty on us, while Vietnam will get zero duty, so the competition is obviously very tight,” API chairman Ade Sudrajat told The Jakarta Post recently.

About 70 percent of Indonesian textile exports are garments, most of which is sold to the United States, followed by the EU, Japan, South Korea and the Middle East.

The business group, however, projects that sales in other foreign markets will pick up steadily, thanks to rising worldwide demand.

To catch up with Vietnam, Indonesia is negotiating a Comprehensive Economic Partnership Agreement (CEPA) with the EU, which is expected to be signed in 2019 and implemented in 2021. The Industry Ministry has requested lower duties for textiles and textile products, as well as footwear in the deal.

Ade added that to export textile and textile products to new markets and emerging economies, Indonesia would need to reduce domestic production costs, such as spending on gas, electricity and wages.

“Our markets are developed countries with a high purchasing power. If we wish to export more to developing countries, we need to cut our production costs to make cheaper products,” he said.

Industrial firms in Indonesia, for instance, must pay 12 US cents for one kilowatt-hour (kWh) of electricity, more than their competitors in Vietnam at 7 cents or in Bangladesh at 5 cents.

University of Indonesia (UI) economist Fithra Faisal Hastiadi said the outlook for overall exports in 2018 was good amid a projected rebound in global demand.

The World Trade Organization (WTO) has estimated that global trade will increase by 2.1 to 4 percent this year, exceeding the 1.8 to 3.6 percent projected for 2017.

However, overseas sales could stagnate if manufacturers failed to restructure production costs and renew old equipment.

“Exports could climb in line with better economic conditions in our trading partners, but they could also stagnate if production costs can’t be pushed down, or if there is no revitalization of machinery,” he told the Post.

Fithra pointed out two major problems faced by the domestic textile industry, namely limited capital on the part of investors, which hampered their expansion, and a lack of skilled manpower for the advanced textile industry — despite the high labor costs.

The API expects domestic garment sales of Rp 90 trillion ($6.6 billion) this year, similar to last year’s result. The 2017 figure was 10 percent lower than that for 2016.

Under the very best scenario, sales might surge by 5 to 6 percent in 2018, in line with the projected economic growth, Adi of the API said.

Although domestic household spending would improve in 2018, spending on clothing might not rise considerably, as people were shifting consumption habits from the purchasing of goods to leisure activities and dining, he added.