THE INDONESIAN TEXTILE AND CLOTHING OUTLOOK

INDONESIAN TEXTILE ASSOCIATION ASOSIASI PERTEKSTILAN INDONESIA THE INDONESIAN TEXTILE AND CLOTHING OUTLOOK Prospect & Challenge on Global Competition Era Indonesian Textile Association Adhigraha Bldg. 16 th fl. Jl. Jend. Gatot Subroto, Kav. 56 Jakarta 12950 Indonesia Ph. 62-21 5272171, Fax. 62-21 5272166 E-mail : sekretariat@bpnapi.org callcenter@bpnapi.org

Influencing on Indonesian Macro Economy Textile & Clothing on Macro Economy Textile & Clothing GDP Contribution 2006 Net Exports : US$ 6.93 bn Dom. Sales : US$ 2.42 bn Investment (n/a) : - - Total : US$ 9.35 bn GDP 2006 : US$ 279.97 bn 10.00 8.00 6.00 4.00 2.00 0.00 Indonesian Textile & Clothing Trade Balance (US$ Billion) 6.88 1.82 5.06 7.03 1.67 5.36 7.64 1.72 5.92 8.6 1.61 6.99 9.47 2.54 2002 2003 2004 2005 2006 6.93 Total Export Total Import Balance Other 97% Textile Contribution on GDP 2006 Textile & Clothing 3%... The biggest net exporter, which is influencing to GDP Indonesian Surplus Balance/ Netto Share 2005 (Total US$ 27.95 Bill) Textile & Clothing 25.01% Mining 26.55% Other 3.43% Oil & Gas 6.33% Wood & Wood Product 19.21% Electronic 19.46% Source : BPS, BI, Ministry of Industry compiled

Influencing on Indonesian Macro Economy Textile & Clothing on Macro Economy Absorbing the largest workers in the industrial and manufacturing sector Men Power Direct (Large Scale Industry) Direct (Small Industry) Indirect *) Total Textile & Textile Product Men Power 2002 1,182,212 635,210 3,634,844 5,452,266 2003 1,182,871 584,786 3,535,314 5,302,971 2004 1,184,079 668,372 3,704,902 5,557,353 2005 1,176,183 665,337 3,683,040 5,524,560 TEXTILE INDUSTRY'S SHARE TO INDONESIA MANPOWER 94.95 mill Retail, Restaurant & Hotel 20% Other 18% Industry & Manufacture 12% Mining 1% Contruction 5% Source : BPS, Compiled by API Agriculture 44% 15.8% Textile & Clothing (1,841,520)

Indonesian Textile & Clothing Profile Distribution of Textile & Clothing Company By Region 2005 Industry Profile Yogyakarta 1% Centra Java 14% East Java 6% Bali 3% Sumatera 2% Jakarta 17% We have integrated structure of industry, from up stream to down stream Fiber Making Spinning Weaving/Knitting Dyeing/Printing & Finishing Garment West Java 57% INDONESIAN TEXTILE & APPAREL HIGHLIGHT (TOTAL) Description Unit Year 2002 2003 2004 2005 2006 Number Of Company Unit 2,646 2,654 2.661 n/a n/a Capital Investment Billion Rp 132,101 132,355 132,362 n/a n/a Man Power People 1,182,212 1,182.871 1,184,079 n/a n/a Export Value Million US$ 6,888 7,033 7,647 8,603 9,470 Volume 000 Ton 1,758 1,773 1,626 1,794 n/a Import Value Million US$ 1,824 1,673 1,720 1,606 2,540 Volume 000 Ton 1,048 962 880 851 n/a Net Export Value Million US$ 5,064 5,360 5,929 6,997 6,930 Volume 000 Ton 710 811 764 943 n/a Source : BPS, Ministry of Industry, API Compiled

Indonesian Textile & Clothing Profile Market Profile Indonesia Textile & Clothing Export to US (US$ million) 3,930 3,081 2,620 2,376 1,976 Destination Countries of Indonesian Export 2006 US$ 9,47 billion Row 35% US 41% Increasing in US, stagnant in EU and Japan & unstable in domestic market 2002 2003 2004 2005 2006(est) Japan 5% EU 19% Indonesia Textile & Clothing Export to EU (US$ million) 1,558 1,586 2,232 1,698 1,750 344 Indonesia Textile & Clothing Export to Japan (US$ million) 426 480 474 478 3,201 Indonesia Textile & Clothing Domestic Sales (US$ million) 2,952 3,487 1,605 2,427 2002 2003 2004 2005 2006(est) 2002 2003 2004 2005 2006(est) 2002 2003 2004 2005 2006(est) Source : BPS, Major Shipper, Eurotex, Japan Statistic, Ministry of Trade, API Compiled

Consumption will continuing increase... Future Market Trend And in 2010. 4.60 4.40 4.20 4.00 3.80 3.60 3.40 4 Indonesian Textile & Clothing Consumption percapita (kg) 3.9 4 3.8 4.1 4.2 4.3 4.4 (Prediction) 2002 2003 2004 2005 2006 2007 2008 2009 2010 4.5 Domestic Market : Total Population : 240 million Per Capita Consmp : 4.5 kg Dom. Market Demand : 1.08 million ton World Market : World Population : 6.8 billion Consmp/capita : 10 kg World Demand : 68 million ton Follow by world trade, will be growing too. 70 68 66 64 62 60 58 62.4 World Textile & Clothing Consumption (mill tons) 63.1 63.9 64.5 65.2 65.9 66.6 67.3 (Prediction) 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source : Textile Intelligence, BPS, API Compiled 68 700 600 500 400 300 200 100 0 World Trade in Textile & Clothing (US$ Billion) 2002 2003 2004 2005 2006 2007 2008 2009 2010 Textile 453 502 (Prediction) Apparel 649

Future Market Trend US Textile & Clothing Import Trend ( bill sme) EU Textile & Clothing Import Trend (mill ton) 90 80 70 60 50 40 32.8 32.8 38.2 42.2 46.9 50.8 52.2 61.5 67.6 74.3 81.7 22 21 20 19 18 17.6 18.5 18.1 19.9 20.9 19.3 18.3 19 19.8 20.3 20.5 30 20 10 0 (Prediction) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 17 16 15 (Prediction) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3.5 3 2.5 2 1.5 1 0.5 0 Japan Textile & Clothing Import Trend (mill ton) 2.37 2.36 2.3 2.45 2.52 2.53 2.6 2.68 (Prediction) 2.76 2.84 2.92 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Import demand in US & EU market, will increase following by Japan Source : NCTO-US, Textile Intelligence, Euromonitor, JCFA-Japan, compiled

In mid term (2010) our target are Annual Export Growth : 12% ( US$ 14 Billion) Annual Net Export Growth : 11% Annual Work Absorb Growth : 15% Domestic Market Share : 85% World Trade Market Share : 4% INDONESIAN TEXTILE & TEXTILE PRODUCT TARGET ON 2010 FROM 2003 SUB-SECTOR MEN POWER INCREASE PRODUCTION CAPACITY INCREASE EXPORT TARGET Fiber 20,000 711,000 ton - Spinning 72,000 864,682 ton 3 Billion Weaving & Knitting, Finishing 160,000 (gray) 775,505 ton (finish) 971,380 ton 3 Billion Garment 217,000 359,678 ton 8 Billion TOTAL 469,000-14 Billion More important for National Economic Development. and.. Keeping on being the main player in the world

Business Climate Situation International Market Issues : Growing international competition (Falling international price-hitting profit) Trade Block for preferential tariff (side effect of stagnation on WTO negotiation) Non-tariff Barrier (Safeguard, Dumping, social/environment compliance, etc.) Domestic Business Climate : Business climate still not improve yet Effect of changing system from centralistic to decentralization Effect of changing system from authoritarian system to Democratic. We re still on transition period, it create many problem that reduce our competitiveness

What Should We Do??? Restructuring Expansion Increasing Productivity Adaptable to Market Structure Change INCREASING COMPETITIVENESS REVITALIZE COUNTRY COMPETITIVENESS

Increasing Competitiveness Agenda Machinery Restructuring & Expansion Increasing Prod. Capacity Internal Improvement (labor mechanism, energy differentiate etc. Support System Financial support, friendly business policy & trade agreement. Keeping our Comparative Advantage in labor cost, energy cost and domestic market. Increasing Productivity (Private Sector Domain) Business Friendly Environment (Government Domain) THE TOTAL CONCEPT Competitiveness Increase More earn foreign exchange (US$ 14 billion) More absorb employment (total 7,3 million people)

Increasing Competitiveness Agenda 1. Fiscal & Monetary Policy to Support Investment Climate SPINNING MACHINERY AGE SHARE 2005 10-20 year 60% <10 year 5% >20 year 35% WEAVING MACHINERY AGE SHARE 2005 Old machinery need to modernize and expansion also. Stagnation on new investment in textile & clothing sector cause by unsynchronized policy between fiscal authority with monetary authority. This condition effect on domestic capital market not to support new investment in real sector 10-20 year 26% <10 year 8% >20 year 66% Benchmark Average Applied Interest Rate Indonesia : 18% Vietnam : 7% Mexico : 8% India : 10,5% Pakistan : 11% Bangladesh : 12% Source : Central Bank every country Policy synchronization between fiscal authority (Ministry of Finance) with monetary authority )Bank Indonesia) still on going to support new investment in real sector.

Increasing Competitiveness Agenda 2. Increasing on Energy Supply Competitiveness Energy supply from PLN (state own for electricity supply) is not sufficient to fulfill energy demand and the price is not too competitive also. Benchmark Average Applied Electricity Rate For Industry 2005 (cent/kwh) Indonesia : 8 China : 7,6 Bangladesh : 3 Mesir : 3 Pakistan : 6,6 Vietnam : 7 Source : World Bank, ASEAN Sec, API Compiled. PLN still on going to increasing capacity with energy resource from coal and natural gas.

Increasing Competitiveness Agenda 3. Increasing on Labor Competitiveness Labor system cannot encourage improvement of labor productivity. Unfriendly business policy on labor systems cannot increasing competitiveness. Average Cost for Labor 2007 (US$/hour) Indonesia : 0,76 China : 0,55 Vietnam : 0,35 India : 0,60 Pakistan : 0,40 Bangladesh : 0,35 Labor Productivity Rank 2005 Thailand : 27 Malaysia : 28 Korea : 29 Revision on UU No.13/2001 China specially : 31 on minimum Filipina : 49wages, Indonesia employees : 59 contract, overtime system Source : Min. and Of Labor separation compiled from any pay other source still on going. It still discuss between government, parliament, business association, labor association etc.

Increasing Competitiveness Agenda 4. Infrastructure Support (Port) High-cost economy in Indonesian port, because costlier and take more longer process of in comparison with other country. Terminal Handling Charge Rate (US$) Negara 2004 2005 20 feet 40 feet 20 feet 40 feet Indonesia 150 240 97 150 Singapore 110 160 110 160 Philippine 78 N/a 78 N/a Malaysia 76 N/a 76 N/a Thailand 40 N/a 40 N/a Improvement on port management systems (cheaper price and shorter time process) still on going. Also to built an efficient transportation system from port to industrial area.

Increasing Competitiveness Agenda 5. Increasing Competitiveness in International Market Although increasing on export trend, but our world share in trade decrease from 3% in 2004 to 2% in 2006. Some of our competitors get the preferential treatment in the traditional market. It need G to G negotiation to increase our competitiveness by preferential treatment or with FTA or GSP. - To increase competitiveness on international market our government still lobbying the traditional market to get preferential treatment in with GSP and FTA agreement also. - Discussion with ministry of trade to make the ITPC office (International Trade and Promotion center) in the importing countries as marketing agent for textiles and clothing industry.

It s s all our agenda.. to increase our competitiveness and to support national economic agenda.... Thank You. INDONESIAN TEXTILE ASSOCIATION ASOSIASI PERTEKSTILAN INDONESIA