The textile and textile products industry (which includes garments or clothes) is a very important one for the Indonesian economy because this industry ranks among the country’s biggest foreign exchange earners (thanks to strong exports), while also providing jobs to more than 3.7 million Indonesians, and contributing nearly seven percent to the country’s gross domestic product (GDP) – provided we only take non-oil and gas manufacturing into account – or around 1.25 percent of total GDP.

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Indonesian exports of textile and textile products could soar threefold if the government of Indonesia finally manages to sign a free trade deal with the European Union (EU). Achmad Sigit Dwiwahjono, Director General for Chemicals, Textiles and Miscellaneous industry at the Industry Ministry, said a major obstacle for Indonesian textile exports at the moment is the weak competitiveness of Indonesian textile companies as compared to their Vietnamese counterparts.

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The upstream textile industry of Indonesia urges the Fiscal Policy Office (in Indonesian: Badan Kebijakan Fiskal, or BKF) to exempt local raw materials - supplied by local manufacturers - from VAT. Redma Gita Wirawasta, Secretary General of the Indonesian Synthetic Fiber Producers Association (APSyFI), said he has discussed this proposal during several recent meetings with the BKF.

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A small 0.62 percent year-on-year (y/y) growth was detected in Indonesia's textile exports in the first half of 2017. This modest growth was supported by a 20.4 percent (y/y) rise in knitwear exports. Ade Sudrajat, Chairman of the Indonesian Textile Association (API), said Indonesia's downstream textile manufacturers were actually pleased with this result as it exceeds expectations amid bleak textile demand from various countries.

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The government of Indonesia offers a new incentive to entrepreneurs in Indonesia's footwear and textile (and textile products) sectors who employ at least 2,000 workers and export 50 percent of their total sales. Authorities give a 50 percent discount on income tax to those workers that earn a maximum IDR 50 million (approx. USD $3,850) per year. Both Indonesia's footwear and textile sectors have been plagued in recent years by slowing economic growth, the weak rupiah and rising minimum wages.

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Indonesia wants to enter the top five ranking of the world's largest textile (and textile products) exporters in the next couple of years. Currently, Indonesia is ranked tenth (controlling a global market share of 1.8 percent) far behind China that remains the clear world leader in terms of textile and garment production as well as export. Indonesia's Industry Ministry is in the middle of preparing several incentives that should bring Indonesia in the top five, including tax incentives and lower gas prices for export-oriented textile companies.

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Indonesia's textile and textile products industry remains under pressure this year. Exports of Indonesian textile and textile products are only expected to grow 1 percent to USD $12.3 billion in full-year 2016, below the 3 percent target that was set by the Indonesian Textile Association (API). API Chairman Ade Sudrajat said exports in the first quarter only reached USD $2.6 billion. Moreover, even on the domestic market Indonesia has trouble to compete with imports of cheap textile and textile products from Vietnam and China.

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Sri Rejeki Isman (Sritex), one of Indonesia's leading textile and garment manufacturers, plans to acquire a German military uniform manufacturer. Iwan Kurniawan Lukminto, Vice President Director of Sritex, said the acquisition of the German company should be completed in 2017. The aim of this acquisition is to enhance Sritex' business in the European Union. The German uniform manufacturer will be the "extended arm" of Sritex in Europe according to Lukminto's words. Currently, about 15 percent of Sritex' total export revenue is generated from shipments to Europe.

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According to Indonesia’s state news agency Antara, the United States (US) have become the largest export destination for Indonesian batik. Approximately 37 percent of Indonesia’s total batik export is shipped to the US, the world’s largest economy. Batik is a traditional textile produced by using a technique of wax-resist dyeing applied to cloth. Although several other countries also produce batik, the most well-known batik originates from the island of Java (batik was recognized as a World Cultural Heritage by the UNESCO in 2009).

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The FIFA World Cup 2014, the world’s most prestigious football tournament (currently taking place in Brazil), boosts the textile and textile products industry of Indonesia. Local Indonesian companies have had to deal with a large increase of orders, particularly for apparel products. In the first six months of 2014, Indonesian exports of apparel products are expected to rise 15 percent to USD $3.5 billion. Between 10 and 15 percent of this total value involves exports of football jerseys of those teams that compete in the FIFA World Cup.

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Indonesian exports of textile and textile products have already reached the value of USD $12.4 billion in 2017, exceeding the Indonesian Textile Association (API)'s target of USD $11.8 billion. The final (full-year) 2017 figure is expected to be higher as the last couple of weeks of 2017 are not included in the USD $12.4 billion. Robust textile demand from Southeast Asia and the Middle East was a decisive factor why the target was achieved.

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There emerged rising competition on the textile market in the Asia-Pacific after wage growth occurred in the textile industries of China and Bangladesh. This situation should be positive for Indonesian textile and garment manufacturer Sri Rejeki Isman (Sritex) because rising production costs of foreign competitors improve the competitiveness of Sritex products.

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