Economic View: Ravi Shankar
How can Indonesia compete in the upstream and downstream segments of the textile industry?
RAVI SHANKAR: Indonesia's upstream segment manufactures significant quantities of two raw materials: polyester and rayon. The two major fibres consumed in the textile industry are polyester and cotton, the latter of which is not currently being produced in Indonesia. Polyester production began in 1980, so we have a sizeable industry in Indonesia, but in the last 20 years capacity has mostly been developed in larger countries such as India and China.
Polyester has made a lot of inroads through new regulations and with a much diversified range of applications. What has driven the growth of polyester is that it is recyclable and man-made, taking into account the lack of flexibility with natural fibres.
The tremendous capacity commissioned in both India and China has created a lot of excess. We also know that since 2014 growth in developing countries has slowed, while consumption in more advanced nations is no longer increasing at the same pace it was a few years back. This has put pressure on the rayon, cotton and polyester industries. Indonesia has been quite accessible; however, our markets need to be more open to free trade, otherwise Indonesia will be affected.
How can Indonesia remain competitive in the global value chain?
SHANKAR: In most countries, when a government sees a local industry struggling, it reacts immediately and takes measures to protect the industry. The authorities of most countries prevent unlawful practices that allow prices to be lower than the cost of production. For example, India and Turkey put in place safeguards to protect their textile sectors.
Textile exports have stagnated in Indonesia; we have grown an average of 3-4% year-on-year. The situation was different 12 years ago. Indonesia has missed opportunities to emerge next to China in this part of the world as a major textile force. There were countries in our region, such as Vietnam and Bangladesh, that did not have the infrastructure to grow by 15%, yet customers are flocking to these countries.
When we look at polyester refining, petrochemical industries need to further integrate with the value chain. We need a bigger push from the government to develop the petrochemical industry, which will in turn boost the upstream segment. Our competitiveness depends on the reliability of power that is available to us; we need zero blackouts. Our fabrics become expensive when we have power outages. Utility companies need to support the textile industry, and textile firms should not have to create their own power infrastructure. What is really lacking is a comprehensive 25-year roadmap and textile policies that reassure industry players and eliminate doubts about pursuing expansion or making purchases.
How are trade regimes affecting the Indonesian textile and garment industries?
SHANKAR: Although our response and delivery times are getting quicker, especially when it comes to fulfilling export orders, we are not going to be ready for any free trade agreement. Currently, we don’t have a sustainable growth model that understands what retail customers need. Indonesia is also last on sourcing lists because buyers don’t know what Indonesia is aiming for.
The long-term sustainable strategy for the textile industry is to be creative, which is achieved by looking at fashion trends and predicting global demand. Once the supply chain is set up, interdependence is higher. The challenge is to develop human resources and provide our own power.
Access to a reliable power source will allow upstream firms to focus on the core of their businesses, which will in turn provide much better results. Quality of power and infrastructure are key factors for the upstream segment, which understands from the downstream segment that value addition is key.