Indonesia’s Textile Industry Keeps Declining, Will It Revive?

The Indonesian textile industry is an industry that plays an important role in the country’s economy. By becoming the 21st largest textile producer supplying the world market, Indonesia has experienced ups and downs in maintaining the stability of this commodity ecosystem. It was reported that the performance of the textile industry had slowed since the third quarter of 2022 until it became negative in 2023, due to global economic conditions and high Chinese stocks which caused legal and illegal imported goods to flood the domestic market. It is necessary to carry out utilization from upstream to downstream of the textile industry, followed by employee rationalization.

Even so, the trade balance is still considered stable so that export opportunities are assessed to be able to rise, and with the upcoming ASEAN Summit, it is expected to be able to improve trade policies that are still imperfect.

It is stated that in order to maximize the potential contribution of the textile industry towards the national economy, it is necessary to pay attention to:

1. Fairness Competition in the domestic market to increase production utilization and encourage investment through Trade Remedies, Handling Illegal Imports, Commodity Balance, Product Quality Standards (SNI), Domestic Content Level (TKDN)

2. Increasing Competitiveness and Strengthening Industrial Integration to penetrate the export market by making intensive use of domestic raw materials, R&D, green products and industries, labor productivity, and cost efficiency (energy and logistics)

There needs to be a conducive synergy between the upstream and downstream sectors in order to increase added value as to strengthen domestic textile commodities on the international scale.

So far, many issues have arises related to the performance of the textile industry, which is always declining, related to an efficiency strategy through layoffs, making actions unavoidable.

The decline in the textile industry was caused by the Covid-19 pandemic and the war between Russia and Ukraine which affected government dynamics and even globally, causing export demand and market expansion to decline. With the ongoing trade war between China and America, it is necessary to have communication between the government and business actors in order to improve the ecosystem of one of the biggest main economy. The slightest problem has the potential to injure the national economy as a whole because clothing is one of the basic needs.

However, Indonesia’s government also stated that there is optimism in recovering the condition of the textile industry in Indonesia as the political year entered, there would be potential for improvement.

Based on the statement by Deputy Chairman of the DPR Legislative Body, Drs. M. Nurdin, to improve the ecosystem of the Indonesian textile industry, there needs to be communication between stakeholders, including legislators, namely the DPR, DPD, or the Government, also expert groups consisting of experts and academics, business actors, public, and mass media.

The textile industry has an alarm that is quite urgent because it plays an important role in investment which can open up many jobs and absorb a lot of manpower, contribute significantly to state revenues and help move the wheels of the national economy.

Based on the facts in the field, many textile industry business actors are worried about regulatory policies related to textile commodities which are considered not to be firm. For now, the provisions of the laws and regulations governing the fulfillment of basic needs in the form of food and shelter already exist, but the provisions of the regulations that specifically regulate clothing do not yet exist. In response to this concern, the DPR’s legislative body is currently trying to monitor and review the law. The Government also stated that they were holding a Public Hearing Meeting (RPDU) with relevant stakeholders or stakeholders. They also said that they had made their 3rd working visit covering West Java, Central Java and South Sulawesi.

Textile industry players admit that they are very worried about many threats during and after the pandemic, namely foreign products, both legal and illegal flooding the market, disrupting business activities, while production costs, especially energy, are still high and have not yet supported the operational activities of industry players, plus after the pandemic, financial institutions, both banking and non-banking, have tightened their financial loans due to the existing situation and conditions.

According to Pak Nurdin, a strategy is needed to realize the resilience of the industrial and trade ecosystem through the following 6 efforts:

1. Provision of raw materials for the textile industry and trade, including developing the rayon fiber industry through adding and revitalizing Industrial Plantation Forest (HTI) land, managing the polyester fiber trade system properly, and freeing cotton fiber from quarantine obligations

2. Building a competitive export-import market system in Indonesia, through the establishment of a domestic market obligation policy to increase local contain of at least 70%, encouraging trade cooperation in a programmed and integrated manner, increasing and implementing international trade cooperation consequently both bilaterally, multilaterally and regionally, as well as preventing illegal actions and carrying out law enforcement by involving existing stakeholders .

3. Carry out the implementation of an integrated human resource supply system in the field of textile industry through the provision of ready-to-use manpower, the provision of adequate vocational/specific education facilities and infrastructure (buildings, teachers, curriculum, and financing).

4. Ease up the regulatory of the business, including obtaining permits, capital assistance, industrial technology or machinery assistance, full access to marketing, tax breaks, levies and/or excise duties

5. Access to energy and technology, including providing energy and technology facilities and infrastructure for the textile industry, setting low energy prices, and supporting technology transfer 4.0 in the industry

6. Realizing a sustainable and environmentally friendly towards textile industry by providing facilities or incentives to business actors who implement the “green and sustainability industry” concept in the textile sector, as well as helping business actors who have not been able to implement the “green and sustainability industry” concept by providing the opportunity to adapt and be carried out in certain zones.

Responding to this, a representative from Duniatex, one of the major textile company in Indonesia who is one of the major textile industry business actors, stated that the condition of the textile industry ecosystem is slowly improving. With the trade war between China and America, America is reluctant to buy from China so that Indonesia has the potential to experience an increase in demand for textiles as a form of shift in demand. Indeed, during a pandemic, the entire industry, not only textiles, experienced a quite drastic decline, but for now the textile industry will move in towards a more progressive direction.

Regarding the issue of illegal imports and even the thrifting phenomenon which is being widely discussed, Duniatex feels that this does not really affect the dynamics of their sales because the quality and filaments used are different so they cannot be categorized as competition.

It is hoped that in the future, Indonesia’s textile industry can revive so that it can become a surplus for the country’s foreign exchange earnings.

Sekarsari Sugihartono
Sekarsari Sugihartono
I am an international relations master's student at Gadjah Mada University. My interests are SDGs and International Trade Dispute.