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Moderate target set for chemical, textile
The government has set a target for chemical, textile and miscellaneous sectors to grow by around 3 to 4 percent this year, rather moderate growth following their relatively slow progress in the past few years
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he government has set a target for chemical, textile and miscellaneous sectors to grow by around 3 to 4 percent this year, rather moderate growth following their relatively slow progress in the past few years.
Considered as a kind of high-value added manufacturing, those three sectors grew by only 2.91 percent and 1.76 percent in 2017 and 2016, respectively, according to Industry Ministry data.
They contributed Rp 616.9 trillion (US$45.4 billion), or equal to 4.54 percent, to the GDP last year.
In order to reach the goal, the ministry has calculated that the sectors should pocket at least
Rp 117 trillion in investment. It is a 24.4 percent increase from the Rp 94 trillion worth of investment last year estimated to pour into textiles, petrochemicals, pharmaceuticals, cosmetics and others.
The investment was essential to strengthen the sectors’ upstream side as the country needed to reduce dependence on imported raw materials and create supply for domestic demand of petrochemicals, said Industry Minister Airlangga Hartarto.
Airlangga cited data showing that Indonesia imported raw materials and intermediate products for chemical, textile and miscellaneous sectors worth Rp 275 trillion in 2017.
“One of the investment opportunities is in import substitution,” he said in a breakfast meeting attended by government officials and businesspeople on Monday, arguing that the government had offered investors tax incentives with certain requirements.
However, a representative from the Cosmetics Companies Association (PPAKI) present at the meeting demanded that the government reduce requirements for tax incentives, which were still enjoyed largely by multinational companies, as they had more capital, leaving domestic investors with little chance.
The representative pointed out that there was a tax incentive for those investing Rp 1 trillion, but should export 50 percent of the total production, something that local investors saw as impossible to compete with given multinationals’ established brands in the international market.
Despite Indonesia’s complicated bureaucracy, several big companies have been attracted to invest in the country’s petrochemical industry. One of them is publicly listed Chandra Asri Petrochemical, which expects to complete the construction of its second facility worth $5 billion in Cilegon, Banten, by 2021 in order to produce another 1 million tons of ethylene, a material needed to produce plastics.
Achmad Sigit Dwiwahjono, the ministry’s director general for chemical, textile and miscellaneous sectors, said the upstream side of local petrochemical sector had almost no sufficient investment as the country had yet to import around 5 million tons of substance to produce plastics and other products.
“We’re only able to produce 1 million tons [of the material], whereas our demand is 6 million tons,” he said, adding that there would be huge opportunity losses in five to 10 years if domestic production remained the same, while average demand grew at around 7 percent to 8 percent.
Chemicals and their products were among the subsectors of chemical, textile and miscellaneous that contributed the most to GDP last year at 1.25 percent, followed by garments, nonmetal mining as well as rubbers and plastics at 0.8 percent, 0.66 percent and 0.63 percent, respectively.
The ministry and its counterparts are expected to come up with a comprehensive plan this quarter on efforts to cut requirements for investors in the chemical, textile and miscellaneous sectors.
Meanwhile, Deputy Energy and Mineral Resources Minister Arcandra Tahar, who was present at the meeting, acknowledged complaints on the high price of gas, which is part of raw material for the petrochemical industry, saying it was a result of business contracts made in the past between gas producers, like Pertamina and Conoco Philipps, with distributors like PGN and Pertagas.
He said the government was trying to ensure that new gas contracts would be made on more beneficiary terms, while cutting nontax state revenue from gas transactions to let selected sectors enjoy lower gas prices in stages.
