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Interview with Mr Arryanto Sagala

Mr Arryanto Sagala
Mr Arryanto Sagala
Director of Textiles
The Ministry of Industry -The Republic of Indonesia
The Ministry of Industry -The Republic of Indonesia

With GDP of US$932.1 billion (2008) and economy rank 15, Indonesia is a founding member of ASEAN and a member of the G-20 major economies. In GDP by sector, Industry accounted major share of 48.1%. The goods exported by the country include oil and gas, electrical appliances, plywood, rubber, and textiles. Indonesian textile industry, as is the case in many developing countries, has already a long standing tradition and is among the pioneering sector in industrial manufacturing. It consists of a number of sub-sectors like weaving, knitting, finishing, batik printing, spinning and man-made fibre production. Usually the industry started with the production of consumer end products like textile fabrics and knitted goods, and also garments and household textile products. Ministry of Industry- The Republic of Indonesia, is the policy maker government body in the welfare of textiles, and other industries at Indonesia. Mr Arryanto Sagala, a graduate in Planology, is the Director of Textiles, The Ministry of Industry - The Republic of Indonesia. Mr Sagala has accomplished several training courses viz. Industrial Estate Development; Industrial Expansion Program from EEC-IDA Ireland; Environment Protection & Technology from ICETT-AOTS Japan; Smelting Industry Processing from Naoshima, Mitsubishi - Japan; Planning, Development & Management of Industrial Park & EPZ-Taipei ICDF & SinoTech Engineering ROC. He attended Comparative Study for Textiles Development at Beijing as well as Technical Upgrading Fund Scheme of India in the year 2006, and had also been in the International Seminar for Textile Development in China. In 1982, he joined Ministry of Industry as the Head of Industrial Estate Development Section of Bureau of Planning. For the span 1994 to 2005, he headed Regional Development & Environment Division of R&D Center on Resources- Industrial Zone and Environment at Ministry. In 2005, he was appointed as the Director of Textiles. His responsibilities include giving advice and making regulation concepts in the welfare of Textiles Industry. In his second appearance on Face2Face, Mr Arryanto Sagala speaks with our Sr Editor & Correspondent- Ms Madhu Soni, about to date Indonesian Textile industry; its strength as well as areas of improvement.

Face2Face is glad to get opportunity of one more talk with you, Mr Sagala! Textile industry has always been pivotal sector for economy of Indonesia. How is its performance nowadays?

The current performance of Indonesia Textile Industry, in brief, can be depicted as following:

The export has increased steadily, amounted to 18.5% on the average for the period of 1984 to 2000. However, affected by the global change, for the last 5 years it tends to slow down. In 2005 Indonesian export for textiles & garments reached USD 8.6 billion, and until 2009 showed USD 9.26 in exports, an increase of 2.09% annually. Though the figure may seem not so impressing, but one thing marking the achievement so far is the ability to keep the trade balance of textile & garment to be positive, i.e. the export surplus always hovering over than USD 5 billion.

Some factors can be mentioned to be responsible for the slowdown of export performance; the emerging of new competing countries such as Vietnam and Bangladesh, the downturn of global economy reaching the peak in 2009, all these pushed the export to decrease inasmuch as 8.70 % than that of in the previous year. In addition, the enactment of AC-FTA in 2010 will bring new challenge for our textile industry.

 

So, which strengths can help this industry to fetch the growth?

The current strengths of Indonesian textile industry including the following aspects:

1. Textile industry has long been developed, and currently encompassing from the initial up stream industry (man made fiber either polyester or viscose rayon) to the most downstream industry such as garment and other textile goods;

2. Though Indonesia lack cotton as main raw material for spinning, still the Indonesian spinners is noted world wide. With around 8 million spindles, Indonesia is able to export high counts-high quality yarns, whilst catering domestic need as well

3. Products quality is noted world wide.

4. As market, the populous country is providing huge market for textiles, and some measures are being taken to ensure that the whole potential market will be supplied firstly by local producers.

And, areas of improvements that your Ministry is currently working on?

In order to maintain and improve our current performance, presently, our Ministry is working on the following issues:

1. To alleviate problem in obsolete textile machinery, the Government is encouraging industry to take action in modernization and replacement of machines & equipments by providing government assistance through Textile Restructuring Program.

2. We are also consistently encouraging the industry to carry out energy conservation and other measures to ensure the industry consuming energy thriftily.

3. We are developing technology by enhancing co-operation with developed country such as Japan for instance, by adopting eco-friendly technology in dyeing process.

4. Development of human resources through higher education in textile technology.

5. Intensifying inter-linkage among the industry, from fiber to textile goods and other sectors of economy, by adopting cluster approach in developing textile industry.

Is handicrafts and cottage industry also included in the agenda?

Handicrafts and cottage industries are among other area of development for textile & textiles goods. We encourage the industry to develop local indigenous proprietary, local wisdom such as production system not in-house but spreading in small industry villages, adopting OVOP principle (one village one product), et cetera.

Fewer demands for Indonesian textiles and the localized textile goods in the backdrop of tough competition from foreign goods, is a matter of concern for Indonesian industry today; this is what current updates mention. What is your take on this?

World demand for textile and textile goods in 2009 decreased, compare with the previous years due to economy down-turn globally. Financial crisis brought in impacts such as decreasing consumption demand. In turn, that will affect the production. However, we are optimistic that in this 2010 Indonesia will recover and export is projected to increase.

On other side, domestic market for more than 220 million people is very lucrative that needs to be kept safe for local producers. Comparing the current per capita consumption in textile, the figure somewhat is relatively low with other countries, with that providing room to grow enormous .

The government is successfully encouraging increased usage of domestic production through “P3DN Program”.

Further to this, banks are of opinion that textile production is a dying industry and lending loan to these producers is absolutely baseless. What is your message to these financers? How has your Ministry planned to safeguard these afflicted private firms in textile?

Pervasive opinions considering textile industry as a sunset industry is unavoidably misleading. It is true that among the portfolio of banking institutions, the growth of textile sector is not so rapid anymore as previously. But many prominent financial institutions in Indonesia still keep textile industry as their cash-cows.


Ministry of Industry is continuously taking active actions to eliminate this biased perception. We coordinate intensively with National Central Bank, as well as the whole banking institution to overcome the problems. We received the information from Central Bank that currently, the entire banking institutions do not perceive textile sectors as a sunset industry anymore. However they will evaluate and warn the misleading firms, individually.


As indicated by our data from Indonesian Textile Industry Restructuring Project, our data shows that approximately around 80% of Indonesian textile machinery is more than 20 years old. On the other side, domestic markets are flooded by imported textile goods with cheaper price, hampering the industry to grow in an appropriate manner.


Based on those factors, the Government of Indonesia since 2007 has launched Indonesian Textile Restructuring Program to help the industry alleviate some of their problems of out-of-date or obsolete machinery. The main objective is to assist Indonesian Textile Industry to modernize its machineries and equipments as well, by providing financial assistance to them.


Entire textile industry, i.e. from up-stream to downstream firms, can take benefit of this program. However, the firms should be essentially incorporated in Indonesia, having Government Permit as a textile industry, and should be installing new machinery with certain criteria such as main machinery or supporting equipments, power plant/material-handling equipments/cooling systems/waste treatment plants and all other kind of machinery & equipments – all must be able to improve or showing efficiency and increasing productivity of the industry.


The Program is divided into 2 schemes. The first is for the company who buy their newer machinery first (either by borrowing form bank, from supplier credits, or their own money); when they finished installing their own machinery, they are granted by the Government 10% reimbursement. The second is by facilitating a relatively soft loan to would-be applicants that intended solely to buy textile machinery (this scheme was discontinued in FY 2010). The selection of applicants is done through delicate process and involving third parties as verifier to guarantee accountability, non-discriminative treatment and other responsible matters.


During the 3 years implementation of the Program, we noted satisfying responses from all involved parties and stakeholders as well. The following are the achievements of the program:


• Promoting new investment in textile industry, reaching around Rp. 5 trillion.

• Creating job opportunity for around 46,000 new workers.

• Increasing production approximately 17 – 18%.

• Conserving energy in the tune of 6 – 18%.

• Increase in productivity around 7 – 17%.

• Facilitating and promoting bank loan to the industry.


Moreover, for last 4 years (the time since program was implemented), following figures can explain the noticeable role of banking instituitions in extending their credit lines to the textile sector:

(in IDR)
Source of FundsFY 2007FY 2008FY 2009TOTAL%-age
Sel-financing802.498.099.529753.655.254.426757.406.012.9402.313.559.366.89548,25%
Combination-395.943.648.903289.088.766.143685.032.415.04714,29%
Banks' Credit742.649.129.710654.572.900.314300.968.410.4321.698.190.440.45635,41%
Suppliers' Credit2.042.226.00018.310.686.5228.140.474.00028.493.386.5220,59%
Other Financial Institutions13.094.023.7005.356.878.74451.484.658.08269.935.560.5261,46%
Sub-Total1.560.283.478.9391.827.839.368.9091.407.088.321.5974.795.211.169.445100,00%

For increased power rates- electricity price hikes, Indonesian textile manufacturing sector is also raising brows to foresee its subsequent upheavals. What are your concerns on it?

Indeed that the electricity-power price hikes will bring substantial impact to the industry. As we know well, energy is a prime input in production, and in the current tight competition era, not all the price hikes can be transferred to the consumers. Therefore while the electric company is still doing some exercise on their final tariff, we are always encouraging the textile industry to implement energy conservation, and exploring to utilize more economically energy resources.

Considering such a scenario, how would you rate the success of ASEAN-China Free trade agreement (AC-FTA)?

The implementation of AC-FTA is unavoidable and must be accepted by the all stakeholders. We keep seeking constantly all measures to help industry winover the drawbacks from the offset of the agreement.

####### Click here to view Previous Face2Face with Ministry of Industry, Republic of Indonesia.
Published on: 02/08/2010

DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.

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