Jakarta Post, Indonesia
Mustaqim Adamrah , THE JAKARTA POST , JAKARTA
Reports on real sectors globally hit by the economic crisis appear everyday in the mass media. It is clear some industrial sectors could do badly this year. The steel sector faces global over-production and there are serious dangers of dumping of low cost imported steel.
Similarly demand for textiles and shoes is badly affected by recession in the United States and Europe, whilst low cost producers in Asia are still anxious to move their products. Despite plans for Indonesian exporters to shift from traditional to non-traditional export destinations, this will take time to organize.
To get an idea on how low some industrial sectors in Indonesia will go during the downturn The Jakarta Post interviewed the Industry Ministry’s director general for metal, machinery, textile and miscellaneous industries, Ansari Bukhari; Here are the excerpts:
Question: Which industries overseen by your directorate general are hardest hit by the global economic crisis?
Answer: Steel and textiles, as well as footwear. These are the industries we predict will be the hardest hit by the impact of the global economic crisis.
In the steel industry, the issue relates to the competition between domestic steel products and imported ones. Imported steel prices are so low that, according to our measures, they are no longer normal (market transactions).
Many theories explain the reasons behind this.
One of them is overproduction, resulting from unbalanced supply and demand. Steel demand declines as activities in the global market lessen, while production capacity remains the same.
A rather more extreme theory says there are many “floating cargos”.
That means many goods are already on their way to markets, mainly to the United States and Europe, but the buyers there make sudden cancellations, although they have already paid a 30 percent down payment.
These buyers prefer losing 30 percent down payment to accepting their orders and then having to pay the rest.
On the other hand, producers can resell the canceled cargos at cheaper prices without having to suffer losses because they have received a 30 percent down payment.
This is hitting our world markets.
For textiles, including garments, fiber and yarn, this can happen to our exports.
We export 75 percent of total textiles production. Of the exported textiles, more than half goes to the United States and Europe – two regions severely hit by recession. As a result, our main markets are falling.
The same situation goes for the footwear industry.
What is the worst thing that can happen to these industries?
Manpower is the toughest issue that concerns us most.
In terms of production and labor force, the textile industry is the biggest and the steel industry comes second.
The crisis may mean companies shut down. When they do not operate, they do not generate money, thus, they cannot buy raw materials, cannot produce and cannot pay salaries.
This would result in dismissals.
Dismissals would create a huge social impact, not only on the dismissed workers themselves, but also on their families and on other associated multiplier economic activities.
The national steel industry may employ less then 100,000 workers. But in the textile and footwear industries, there are almost 2 million workers (at risk).
Another thing that worries us is that the steel industry is among our strategic industries, which have taken us quite a long time to develop.
What has the government done and what does it still need to do in dealing with the impact of the global economic downturn?
First, the government is making attempts to protect our domestic market through Trade Ministry regulations, so that our market is mainly supplied by our domestic industries.
A Trade Ministry regulation No. 56/2014 — an amendment to regulation No. 44/2014 — controls imports of, among others, textiles and footwear at a limited number of ports.
We are considering proposing similar treatment for imported steel. This is being discussed internally within the directorate general as well as in the Trade Ministry.
Another idea is that we are working on expanding the coverage of the Indonesian National Standards (SNI), to protect our market from the penetration of poor-quality products sold at very cheap prices.
Our second challenge is how our industries can continue exports.
We are pushing for continuous promotion of our domestic products in the global market, that is to penetrate new markets, so that we can maintain the real sector.
We are also pushing government institutions to use domestic products.
A presidential instruction, which is now under preparation, will stipulate that government institutions must use local products for their procurement of inputs.
The government’s latest idea is actually a stimulus package concept. We have yet to reach a decision on what form or how it will be implemented.
We previously suggested that the stimulus package be in terms of waived value added tax on raw materials, but this may not be approved due to implementation problems.
Then, we suggested that the stimulus be in the form of trade financing for manufacturers to get loans from banks to boost working capital.
Our suggestion is also that we help provide collateral for borrowers as a stimulus.
This concept is still at the early stage and is being discussed by the Office of the Coordinating Minister for the Economy. Discussions on the stimulus package are ongoing and unlikely to be fully concluded by the end of the month.
