Home > News > Lack of incentives stalls investment in textile

Lack of incentives stalls investment in textile

source: china textile 2010-08-30  

This is the last of four stories on Indonesia as an emerging hotspot for foreign direct investment.

Poor infrastructure and a lack of government incentives make Indonesia less appealing to foreign textile manufacturers, the Indonesia Textile Association (API) says.

API deputy chairman Ade Sudrajat said Saturday that several entrepreneurs from Singapore and China had actually expressed interest in relocating their factories to Indonesia, but the government could not ensure basic infrastructure such as electricity, gas supply and roads.

“Several businessmen, particularly from Singapore, who own factories in China and Korea, had expressed serious intentions of relocating their factories to Indonesia, but the talks always stalled on infrastructure issues,” he told The Jakarta Post.

Potential investors also thought twice about investing because the government did not offer interesting incentives, he added.

Ade said Indonesia was currently not an attractive destination for investments in the textile and textile products industry. Vietnam was more appealing because that country consistently implemented a one-stop service and its industrial areas were well managed, he continued.

“The Vietnam government directly operates its country’s industrial areas. These zones have advanced environmental management systems, road access and energy supply,” Ade said, adding that in Indonesia, the factories were sporadically spread out and only few were located in proper industrial areas, which were all owned by the private sector.

Most factories here did not employ advanced environmental management systems due to infrastructure constraints and this made growth in the textile and textile products industry unhealthy, he added.

Indonesia urgently needs more investments to absorb the growing number of workers. The Central Statistics Agency (BPS) said that in February, Indonesia’s workforce is estimated at 171.02 million people, up from 168.26 million last year. However, only 92 percent (116 million) of these workers were
employed.

“We prefer investments in garments rather than textiles because the garment industry employs more workers and it takes a shorter time to set up the factories,” Ade said.

Currently, the textile and textile products industry employs more than 1.34 million workers.

The industry has shown steady growth in recent years. The Industry Ministry said that between 2000 and 2009, Indonesia’s textile and textile products exports grew 11.59 percent or 3.41 percent per year on average. In the last 10 years, the trade surplus remained above US$5 billion and even hit $5.09 billion in 2009.

The ministry says that in the first half of this year, the industry’s made up 17.4 percent of total exports with a total value of $4.95 billion, up from 8.7 percent in the same period last year. Since 2005, the US, South Korea, and Turkey remain the most important export markets for Indonesia. The ministry expects that this year, the total export value for the sector would be more than $10 billion.

Since 2005, the export value for textile and textile products commodities has grown consistently, from $8.6 billion in 2005, $9.45 billion in 2006, $9.81 billion in 2007, $10.41 billion in 2008 and dipped slightly to $9.26 billion in 2009 due to the global economic downturn.

To boost investments, Industry Ministry Director General for Metal, Machinery, Textile and Miscellaneous Industries Ansari Bukhari said the government had offered several incentives for investors such as exempting import duties on raw materials for two years and for machine imports.

“We also provide funds for machinery revitalization in the form of bank interest subsidies. This year, the allocation was Rp 175 billion,” he said. He added that through the subsidy, it was expected the financial sector would be incentivized to invest up to Rp 2 trillion.