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Latest Reports Vietnam
The Indonesian government is preparing a number of diplomatic moves related to the issuance of Prime Minister of Vietnam Decision No. 116/2017/ND-CP on Overseas Vehicle Type Approval (VTA). This regulation, which came into effect in Vietnam in January 2018, potentially eliminates about USD $85 million of Indonesia's foreign exchange earnings in the automotive industry up to March 2018.
Players in Indonesia's footwear industry are concerned about the sharp growth of imports of footwear (shoe) products into Indonesia, by far outpacing growth of footwear exports. Data released by the Indonesian Footwear Association (Aprisindo) show footwear imports into Indonesia rose 17 percent year-on-year (y/y) in 2016, while over the past two years exports of footwear products were recorded in the range of 3 - 4 percent (y/y).
The value of export products originating from Indonesia's furniture and handicraft industry fell 16 percent year-on-year (y/y) to USD $1.6 billion in 2016 from USD $1.9 billion in the preceding year. The decline is attributed to the departure of several big furniture factories from Indonesia to Vietnam due to Indonesia's high logistics costs, higher minimum wages and Indonesian workers' low productivity. One example is America-based furniture manufacturer Maitland Smith.
Indonesia has the biggest motorcycle market within the ASEAN region. It is estimated that Indonesia accounts for 70 percent of total motorcycle sales in ASEAN. This implies that the slowdown in Indonesia's motorcycle sales has a big impact on overall sales in the region. Based on data from the ASEAN Automotive Federation (AAF), total motorcycle sales in ASEAN in the first ten months of 2016 fell 1.2 percent to 7.91 million from sales in the same period one year earlier.
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.
As agreed last month, this November Indonesia will start importing about 1.5 million tons of rice from Vietnam. Earlier this year, Indonesia had already imported 60,000 tons of rice to stabilize rice prices as a spike in rice prices, which the government blamed on mark-ups by market traders, caused concern. Rice is the main staple food for the Indonesian population, implying that the poorer segments of society spend a relatively large portion of their disposable incomes on rice. This means that rice inflation can cause a surge in poverty.
Traders expect that Indonesia’s coffee production will be negatively affected by the El Nino weather phenomenon. Due to concern about Indonesia’s 2016/2017 season robusta output, European roasters are reportedly set to raise robusta imports from Vietnam, the world’s top robusta grower, or low-quality arabica from Brazil, the world’s top arabica grower.
AkzoNobel, the Dutch multinational that is primarily engaged in the fields of decorative paints, performance coatings and specialty chemicals, stated that it has shifted its focus from China to Southeast Asia, particularly Indonesia and Vietnam. Ton Buchner, Chief Executive Officer of AkzoNobel, said growth in China has lost its decade-long momentum and thus AkzoNobel will reduce investment realization in China and instead focus on new growth markets in Southeast Asia.
Indonesian coffee shipments to Europe have risen on the back of the weak rupiah and larger coffee harvest. Robusta bean exports from the island of Sumatra grew 22.1 percent year-on-year in June 2015. Meanwhile, European traders expect these strong shipments to continue into July. The Indonesian rupiah is the worst-performing emerging currency in Asia tracked by Bloomberg, weakening about 7.2 percent against the US dollar so far this year. The positive side of a weak currency is that the country's exports become more attractive.
In the past couple of weeks unusually dry weather in several parts of Southeast Asia has led to expectation that harvests of agricultural commodities in the region will be disappointing. More and more weather forecasters are convinced that the El Nino weather phenomenon (i.e. periodical warm ocean water temperatures off the western coast of South America that can cause climatic changes across the Pacific Ocean) is to return this year causing droughts in the key agricultural-producing countries.
Latest Columns Vietnam
Indonesia may file a complaint at the World Trade Organization (WTO) over Vietnam's recent decision to tighten regulations related to car imports. Through Decree No. 116/2017/ND-CP on Overseas Vehicle Type Approval (VTA) (which has been in effect since 1 January 2018), Vietnam requires car exporters to obtain VTA certification first (from authorities in the exporting nation) before being allowed to export cars into Vietnam. This VTA details incoming vehicles' quality, safety and environmental protection.
Investment in Indonesia's furniture and handicraft industries is expected to slow in 2016 due to subdued global demand and the lower competitiveness of these industries in Indonesia. Local furniture companies are moving away to Vietnam due to issues related to logistics costs, minimum wages and workers' productivity. For example, Taiwan-based Woodworth Wooden Industries Indonesia, the first Taiwanese furniture company that entered Indonesia (with a USD $40 million investment), decided to exit Indonesia, leaving 200 workers unemployed.
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