Shoe Industry Indonesia: Earnings from Exports to Double?
Exports of shoes (footwear) from Indonesia could reach USD $8 billion per year in the foreseeable future, from USD $4.5 billion currently. Eddy Widjanarko, Chairman of the Indonesian Footwear Association (Aprisindo), said local footwear factories in Indonesia are currently only operating at a utilization rate of between 50 and 60 percent, implying a significant portion of local production capacity in the shoe industry remains unused. Widjanarko is convinced earnings from Indonesia's shoe exports can double by raising production while still relying on the nation's traditional shoe markets: Europe and the USA.
Over the past years several factors have impacted negatively on the footwear industry of Indonesia. The prolonged global economic slowdown led to declining demand for shoes from the top markets (Europe and USA). Secondly, Myanmar and Vietnam are tough competitors for Indonesia, a country that is known for its bleak competitiveness. Particularly Myanmar's authorities have been eager to boost the domestic footwear industry and that is also why this country manages to attract foreign investment in the domestic footwear industry. For example minimum wages in Myanmar have not increased significantly as they did in Indonesia during the past five years.
Therefore, Widjanarko emphasizes that the Indonesian government should also support and enhance the competitiveness of the footwear industry, especially for export purposes.
A stable political and economic situation is one of the basic ingredients to safeguard a strong footwear industry. While the macroeconomy of Indonesia has been strong so far in 2016 with accelerating GDP growth, low inflation, and an appreciating rupiah (although the Donald Trump victory in the US presidential election has put pressure on the Indonesian rupiah), political stability is being undermined by rising ethnic and religious tensions in Indonesia ahead of Jakarta's gubernatorial election. Without political stability and strong macroeconomic fundamentals investors will be less eager to invest.
But provided the global economy improves, no new regulations are implemented in Indonesia's footwear industry, and there is not the constant threat of new and massive demonstrations, then Widjanarko sees Indonesia's shoe exports rising to USD $8 billion in the next three or four years.
In 2016 Indonesia's shoe exports are estimated to reach USD $4.75 billion, up from USD $4.5 billion in 2015 but below the initial target of USD $5 billion at the year-start. These weaker-than-estimated footwear exports are primarily attributed to the bleak global economy.
Read more: Footwear Industry Indonesia: Exports Surge, Domestic Sales Weak
About 31 percent of Indonesia's total footwear exports are shipped to the USA, followed by European Union (EU) with 27 percent of the total. The remainder of Indonesia's shoe exports go to Asia, Middle East and Africa.
Earlier, Indonesian Industry Minister Airlangga Hartanto named the footwear industry one of Indonesia's priority sectors being an important sector for job creation and foreign exchange earnings.
Indonesia is ranked among the world's top six of largest footwear exporters and therefore this sector is an important asset to Indonesia's manufacturing industry (generating solid foreign exchange earnings and providing employment to part of the population). Big global players, such as Nike Inc as well as several companies from China and South Korea, all have production facilities in Indonesia as the country's labor costs are relatively low (but have risen sharply in recent years).
Another problem is that Indonesia needs to import several raw materials (leather and rubber) for the production of shoes. Despite being a major rubber producer Indonesia still needs to import rubber for the manufacturing of shoes as the country lacks domestic processing facilities.
Indonesian Footwear/Shoe Exports 2010-2016:
| Year | Shoe Export |
YoY Growth |
| 2016¹ | $4.8 billion | +5.6% |
| 2015 | $4.5 billion | +2.3% |
| 2014 | $4.4 billion | +13% |
| 2013 | $3.9 billion | +11% |
| 2012 | $3.5 billion | +6% |
| 2011 | $3.3 billion | +32% |
| 2010 | $2.5 billion | - |
¹ forecast
Source: Indonesian Trade Ministry