Textile Industry and Textile Products: History, Portrait, Challenges and Policies

BULETIN TEKSTIL.COM/ Jakarta -One of Indonesia’s oldest commercial sectors is the textile and textile product (TPT) industry. The original goals of this industry’s construction were import substitution and domestic demand fulfillment.

The textile sector has historically experienced a boom as a major national export. Nonetheless, there are ups and downs in this industry’s progress over time.

Most recently, the textile industry saw substantial growth contraction as a result of the Covid-19 epidemic in 2020. Not only does this result in a reduction in the usefulness of industrial production, but it also lowers foreign exchange received from exports and reduces the number of workers as a result of layoffs.

Other than that, there are still a number of obstacles that this industry must overcome in order to grow, including regional issues, international rivalry, and legal constraints.

The Indonesian textile industry’s past

The Indonesian people are well-versed in simple textile operations. During the royal era, textiles were mostly noted for their weaving and batik techniques, especially in confined spaces. During that period, weaving and batik emerged in the context of palaces, primarily serving aesthetic and cultural functions.

Textile operations are becoming more and more important in its development. Clothes goods are becoming a source of income for the community, in addition to being needed for clothing needs in constrained spaces and for arts and culture.

It is documented in history that Indonesian textiles originated from domestic businesses circa 1929. During that period, Daalennoord’s 1926 creation, the Textile Inrichting Bandung (TIB) Gethouw tools, or what were known as Non-Machine Looms (ATBM), were used for weaving and knitting. They were textile-based items. traditional clothing items such shawls, stagen (belts), lurik, long gowns, and sarongs.

However, after Majalaya, West Java, obtained electricity in 1935, machine looms (ATM) started to replace handlooms. The first ATM was utilized there in 1939. Since then, the use of ATM has allowed the Indonesian textile sector to start integrating into the modern era.

In the 1960s, the textile business really started to take off. At that point, the Indonesian government started to establish Similar Company Organizations (OPS), like Batik OPS, Knitting OPS, Machine Weaving OPS, and Hand Weaving OPS, in accordance with the current economic climate. Coordinated by the Association of Textile Similar Companies (GPS), the OPS is conducted. Appointing and deciding who is nominated to the GPS Textile Management is the Minister of People’s Industry.

Following their merger in the middle of the 1965s, OPS and GPS became OPS Textile, which was divided into various divisions according on type or subsector, including spinning, weaving, knitting, and finishing.

Subsequently, in the vicinity of 1970, a number of establishments were made, including Perteksi, the Printer’s Club (subsequently renamed the Textile Club), government-owned enterprises (Clothing Industry, West Java Pinda Clothing, Central Java Pinda Clothing, East Java Pinda Clothing), and nonprofits (GKBI, Inkopteksi). These associations convened a congress on June 17, 1974, and came to a consensus on creating the Indonesian Textile Association (API).

A significant turning point in the resurgence of Indonesia’s textile industry occurred during the 1970s, when Japanese investment entered the upstream industrial subsector. From 1970 to 1985, the Indonesian textile industry grew steadily, although it could only provide the middle-low market section of the domestic market (import substitution).

The business environment has improved since 1986, with effective government rules that are centered on non-oil and gas exports, which has allowed the Indonesian textile sector to flourish quickly. In order to join the high-fashion export market, the textile sector must achieve strict quality standards.

The Indonesian textile sector was a key contributor to the nation’s non-oil and gas sector foreign exchange earnings between 1986 and 1997, and its export performance at that time made it a strategic industry. During this time, apparel that was already made was the most popular export.

However, the national TPT’s performance declined until 2002 as a result of the multifaceted crisis that occurred in 1998. In order to address this problem, corporate players and the government began to improve once more through a variety of adjustments, normalization, and even expansion. But as it happens, there are a lot of barriers to overcome, including the business environment and supportive elements like funding and infrastructure, which can be quite tough.

The government launched a machinery reform program in 2007 to support the textile industry, and it is still in place today. The goal of this machine restructuring program is to increase the quality and output of National TPT while also promoting efficiency as a means of fostering competition.

An Overview of the American Textile Industry

One of the primary sectors of the US manufacturing economy is the textile industry. According to data from the Central Statistics Agency (BPS), the textile and apparel industry’s gross domestic product (GDP) at constant prices (ADHK) was IDR 127.43 trillion in 2021.

Comparing this value to the IDR 132.85 trillion of the previous year (yoy), it decreased by 4.08 percent. The effects of the Covid-19 epidemic have caused this contraction, which is the second in as many years. The industrial GDP drop did, however, fare better than the 8.88 percent contraction in 2020.

The upstream, intermediate, and downstream sectors all contribute to the national textile industry. With an annual production capacity of 3.31 million tons, 33 industries service the upstream industry. Then, 294 industries with a 3.97 million tons annual output capacity for spinning support it in the intermediate sector (midterm).

With 131 thousand small and medium-sized businesses and 1,540 large-scale firms, the weaving, dying, printing, and finishing sectors also assist the textile industry (IKM). The annual manufacturing capacity comes to 3.13 million tons.

A total of 407,000 SMEs and 2,995 large-scale businesses comprise the downstream industry, which produces clothing. 2.18 million tons can be produced annually overall. There are more textile manufacturers, totaling 765 industries with an annual production capacity of 0.68 million tons.

Over its evolution, the domestic textile industry’s installed capacity (utilization) has had ups and downs. Due to the Large-Scale Social Restrictions (PSBB) policy and the drop in people’s purchasing power, the textile industry has seen a 30 percent decrease in factory utilization since the second quarter of 2020, signaling the start of the Covid-19 pandemic’s effects.

Subsequently, the textile industry started to utilize more, reaching 50% and 70% of the total in the third quarter of 2020. From the start of the first quarter of 2021 to the end of the fourth quarter, 2021, the textile industry’s utilization is improving, having reached 80%. The percentage of domestic market-focused TPT players that are used has also increased, from about 10-15% at the beginning of the epidemic to 70%.

In terms of labor, BPS data demonstrates that, despite the Covid-19 pandemic, labor absorption in the textile industry is rising yearly. There were 1.7 million workers in the textile industry in 2018 and 2.8 million in 2019. 3.9 million more people were employed in the textile industry in 2020, despite the pandemic’s negative effects.

Regarding investment, an internal study conducted by the Indonesian Textile Association (API) revealed that 97 textile companies nationwide made investments of around Rp or 526.69 million US dollars. 7.3 trillion.

Ninety-six businesses have investments totaling 979.59 million US dollars, or about Rp, planned between 2022 and 2023. 13.7 trilion. The TPT invested IDR 5 trillion as of September 2021, a 12 percent increase.

In addition to satisfying domestic demand for clothing, the textile industry—particularly that of ready-made apparel—focuses on exports. Indonesia’s textile exports have grown at a varying rate over the past ten years.

The value of Indonesian textile and textile product (TPT) exports is still declining, according to data from the Ministry of Industry (Kemenperin). Textile exports were valued at 13 billion US dollars in 2018, but by 2019 they had dropped to about 12 billion US dollars. During the Covid-19 epidemic, Indonesia’s textile and apparel exports increased from 5.85 billion US dollars in 2020 to 6.9 million US dollars in 2021, a 17.74 percent increase.

Following China, Japan, South Korea (South Korea), Germany, and South Korea, the United States will continue to hold the largest market share for the country’s textile and apparel exports in 2021, accounting for 3.87 billion US dollars, or roughly 56.13 percent of total exports. Clothing accounts for the majority of textile exports, totaling 7 billion US dollars in 2020 compared to just 3.58 billion US dollars for other textile items.

Obstacles in the Textile Industry

The textile sector in Indonesia still faces a number of obstacles, including the lack of concerted attempts to stop the flow of imports from nations like Bangladesh and Vietnam that are becoming more efficient. The textile industry’s basic electricity tariff (TDL) is comparatively high. Annual salary rises in the shadow of worker demonstrations.

Many textile businesses in the area still rely on antiquated spinning machines, which makes the production process wasteful and ineffective. The causes of low productivity are machinery, technology, and the caliber and competency of human resources.

excessively high interest rates on credit. For SMEs, there are still a lot of requirements in the bank credit application process. There is still need for improvement in public infrastructure. Even if imported items are of poorer quality, the public’s mentality favors and trusts them.

In addition to internal obstacles, the Indonesian textile sector also faces a number of international ones. Free trade, or the Free Trade Agreement (FTA), is one of them. The reliance of local industry on diverse imported machinery and raw materials presents the next problem, necessitating the investigation of numerous strategies.

Then, there is a chance that currency fluctuations will result in a decrease or increase in the value of exports. Exporters’ profits may decrease if the rupiah strengthens excessively, or vice versa.

A financial crisis in a country or region that is an export destination may also lower demand for goods in both the affected countries and the regions that are directly impacted. Furthermore, because it is intimately tied to the struggle over TPT product prices in other nations, the question of competitiveness is a worldwide concern.

The Textile and Apparel Industry still faces a number of issues, despite the fact that a good deal of them have been remedied with the government’s release of numerous Economic Policy Packages.

First, cotton will pay 10% VAT. Since July 22, 2014, cotton has been subject to Value Added Tax (VAT) at the rate of ten percent, replacing its previous status as non-taxable products. Since the imported cotton hasn’t been treated, no value has been added. The price of the raw material, cotton, has grown as a result of the 10% VAT, making the production prices of yarn, fabric, and ready-made garments no longer competitive enough.

Second, there is no free trade agreement (FTA) in place with Turkey, the European Union, or any other nation that holds a sizable portion of the global market. This includes the United States. This lowers these nations’ competitiveness by making import tariffs to them comparatively higher than those of nations that have signed free trade agreements.

Third, due to cooperation with Europe and the US in the form of bilateral agreements, free trade agreements (FTAs), trans-Pacific partnerships (TPPs), customs unions, and Taiwan, Thailand, Bangladesh, and Taiwan, TPT producers from these countries enjoy low import duty facilities and must compete with Indonesian TPT products in the European and US markets.

The fourth set of issues includes energy, financing, competitiveness, productivity, employment, and regulatory issues.

Aside from that, the textile sector continues to confront a variety of other difficulties, including elevated coal costs, a lack of available containers, and high shipping costs.

Rules and guidelines pertaining to textiles

According to the Making Indonesia 4.0 Roadmap, one of the five processing industry sectors that will be prioritized for development towards the industrial era 4.0 is the textile industry. By 2030, national textile and clothing producers should rank among the top five globally.

The textile industry must undergo a revolution in order to meet this goal, making the most of digital technologies like automation, 3D printing, and the Internet of Things (IOT). This transition has the potential to create a textile industry cluster that is integrated with industry 4.0, or technology-driven industries, and to boost production and quality in an effective manner.

Additionally, several associated institutions have released a variety of supporting regulations in order to further this purpose. Three Minister of Finance Regulations (PMK) were simultaneously released on November 9, 2019, by the Ministry of Finance (Kemenkeu). For a number of imported textile commodities and textile goods, these three rules set import duty policies for trade safeguards (safeguard) or temporary safeguard measures (BMTPS).

PMK 161/PMK.010/2019 comprises the first regulation, which imposes BMTPS on thread items (apart from sewing thread) derived from synthetic and artificial fibers. The importation of these products is subject to a threshold of IDR 1,405 per kilogram.

Second, PMK 162/PMK.010/2019, which includes the BMTPS imposition on fabric product imports, is subject to BMTPS, with IDR 1,310 – IDR 9,521 per meter as the provisions.

Thirdly, PMK 163/PMK.010/2019 outlines the application of BMTPS to the importation of furniture items (i.e., bed nets, curtains, and inner blinds) at a rate of IDR 41,083 per kilogram.

Related organizations are acting in a similar manner to the Ministry of Finance. Regarding Customs Procedures in the Export Sector, the Directorate of Customs and Excise published Regulation Number Per-07/BC/2019.

Regarding provisions for the import of textiles and textile products (TPT), the Ministry of Trade (Kemendag) updated Minister of Trade Regulation (Permendag) Number 64 of 2017 to become Minister of Trade Regulation Number 77 of 2019.

Since the previous Minister of Trade Regulation was thought to have numerous loopholes, which caused the domestic sector to be inundated with TPT imports, the imports of textiles and textile products (TPT) were revised.

(Red B-Teks/Ly)


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