The World Bank’s Indonesia Economic Prospects projected the country’s GDP growth to average 5.1 per cent per year from 2024 to 2026.
Indonesia’s GDP is projected to grow by 5.1 per cent annually from 2024-2026.
Despite strong textile export demand in Q1 2024, the industry faced layoffs, factory closures, and competition from Chinese imports.
The government responded with tariffs to protect domestic manufacturing. Indonesia also applied for CPTPP membership to boost exports.
In its first quarter, Indonesia’s economic growth improved to 5.11 per cent – highest in the first quarter from 2019 to 2024, from 5.04 per cent in the last quarter of 2023. The performance of the textile & clothing industry grew positively by 2.64 per cent during the quarter due to strong foreign and domestic demand. While the foreign demand experienced an increase in volume of 7.34 per cent y-o-y, for textile products, the export of textile and textile products reached $2.95 billion in the first quarter of 2024. For apparel, the increase was 3.08 per cent. Based on the Bank Indonesia’s Prompt Manufacturing Index (PMI-BI), the textile and apparel industry increased and expanded with an index of 57.40 per cent. Investment in the sector also rose with a notable increase in foreign interest, particularly in Central Java province. The investment in the sector was $917.11 million in 2022, which increased to $1.04 billion in 2023, and reached $257.24 million in the first quarter of 2024 by which the contribution of foreign investment increased by 70.2 per cent y-o-y.
In the second quarter, the economic growth was recorded at 5.05 per cent, compared to Q2 2023, and 5.08 per cent in the first half of 2024.
2024 at a glance
In 2024, Indonesia’s textile industry had a challenging year. The industry encountered a series of layoffs, factory shut downs, falling exports and a strong competition from Chinese imports. On one side, the global economic slowdown softened the demand for clothing and other textile products, and on the other side, a flood of cheap imports entering the country impacted the business of Indonesian manufacturers.
The layoffs impacted even industry giant Sritex which had to lay off a third of its workforce. There were around 14,000 layoffs across just 10 companies in the first six months of the year. Particularly in Pekalongan, a historic centre of textile production known for its intricate batik fabrics, the city’s once-bustling factories either ran at reduced capacity or closed down altogether, piling up the layoffs. Reports inform that since 2019, thirty-six medium- to large-scale textile companies have shut down, while 31 others have downsized their operations. This trend is said to have exacerbated by free-trade area policies and bilateral agreements with other textile-producing nations.
With infrastructure and logistics costs in Indonesia remaining problematic, many global garment brand factories relocated to Vietnam, Bangladesh and even Ethiopia. Inconsistent government support for the manufacturing sector, high interest rates, low purchasing power among consumers, and a weakening Indonesian rupiah, which made imported raw materials more expensive, remained other factors that impacted Indonesian textile industry.
Layoffs
Indonesia’s TPT (Tekstil dan Produk Tekstil, i.e. textile and textile products) sector witnessed a drop in jobs in 2024. The workforce dropped around 3 per cent, from 3.98 million in 2023 to 3.87 million in 2024. According to the Indonesian Filament Yarn and Fibre Producers Association (APSyFI) around 30 textile factories shut down in Bandung and Surakarta which caused close to 11,000 layoffs between January and May. The corresponding figure in 2023 was 7,200. Between January and early June, there were nearly 50,000 layoffs in the TPT sector, reported the Confederation of Indonesian Workers. The most impacted areas in terms of layoffs were West and Central Java which are considered home to the largest concentration of factories in the sector. However, many companies did not disclose their layoffs to safeguard their relationships with banks and buyers.
Weak regulation
In October, Indonesian Textile Association (API) estimated job loss to an additional 30,000 workers in the textile and garment industry by the end of 2024, bringing the total number of layoffs during the year to 70,000. These layoffs were seen as the result of rampant import of finished goods in the country due to weak law of Ministry of Trade Regulation (Permendag) No. 8/2024 concerning Import Policies and Regulations. API also urged the government’s transparency in data sharing on the finished goods imported to the country so that the competition could be known on monthly basis. In addition, the association asked the Kemenperin (Ministry of Industry) and Kemendag (Ministry of Trade) to immediately approve the imposition of anti-dumping duties (BMAD) and safeguard duties on a number of commodities. The core demand was to revoke Permendag No. 8/2024, especially the article that allows the import of finished products.
Illegal imports
Indonesia’s textile industry had a serious concern with illegal imports entering the country. APSyFI raised its concern on critical condition of domestic textile industry in mid-July. This was in regard to the release of 26,000 containers that reportedly contained illegal imports and were stuck at the port, despite thousands of employees being laid off and factories shutting down. The industry body alleged that the information regarding the contents of the containers was never made public. Even the ministers handling the trade and industry portfolios were found unaware of what were in the containers.
Increase in import tariffs
In order to arrest the potential crisis that illegal imports could lead to, the Indonesian government proactively introduced protectionist measures which included tariffs on imports and an increased scrutiny of the illegal imports. The Trade Ministry announced plans to impose tariffs in June, which could go as high as 200 per cent on a variety of Chinese imports, targeting items such as clothing, steel and textiles. The government believed that these items were being sold below their production costs, thereby, undermining the ability of domestic producers to compete. The trade war between China and the US had resulted in a surplus of goods that was causing the influx of Chinese products. The government planned a crackdown on illegal imports of cheap goods and deployed more personnel to enforce the new tariffs.
Furthermore, in August, Indonesia extended safeguard tariffs on imports of textiles, carpets and other fabric coverings for three more years. This was done to protect and improve the competitiveness of the domestic textile industry. This came amidst the TPT sector’s struggle to return to pre-pandemic levels due to declining demands, both in domestic and export markets, as well as increased competition that included influx of Chinese textiles. The regulations to protect the sector were formulated after taking inputs from stakeholders, including relevant ministries, industry associations and trading partners, in line with World Trade Organisation guidelines.
Chinese imports
China continued dominating imports to Indonesia in 2024. Its textile exports to Indonesia amounted to $2,153.895 million in the first seven months of 2024, which was slightly higher than $2,091.847 million during the same period last year. From January to July, Chinese fabric exports to Indonesia accounted for 82.01 per cent of the total textile shipments, valued at $1,766.431 million; yarn exports were valued at $326.016 million accounting for 15.14 per cent of total textile exports to Indonesia; and fibre exports stood at $61.448 million contributing 2.85 per cent share to the total. China’s man-made textile products, dominating with a 65.87 per cent share to total textile exports, were valued at $1,418.672 million. The shipments of cotton textile products during this period were valued at $462.072 million, accounting for 21.45 per cent of total exports. Flax textile product exports were valued at $42.705 million (1.98 per cent share), wool/animal hair products at $26.966 million (1.25 per cent share), silk products at $4.414 million (0.20 per cent share), and other types of fibre at $199.062 million (9.22 per cent share).
Trade
In the first quarter of 2024, Indonesia imported apparel worth $119.185 million and fabric amounting to $961.317 million, compared to apparel imports of $127.373 million and fabric imports of $980.565 million in the same period last year. This was when the government had planned to impose safeguard duties of 100 to 200 per cent on various products including clothing.
Indonesian apparel exports had peaked in 2022 when it achieved the figure of $9,580.622 million before declining to $8,001.823 million in 2023. By the end of first quarter of 2024, the apparel exports had achieved an amount of $2,029.396 million. For the same period from January to March, the fabric exports were recorded at $213.545 million which reflected a steep shortfall from $870.114 million in 2023, also down from $915.553 million in 2022.
CPTPP membership
With a target of 10 per cent increase in value of exports, Indonesia applied for membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in September. The application letter was submitted to New Zealand which is currently the depositary of CPTPP. The CPTPP now comprises 11 countries: Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. In addition to Indonesia, seven countries have proposed to become CPTPP members. Indonesia expects to tap the Latin American market through the CPTPP.
Fibre2Fashion News Desk (SB – WE)
