On November 3, 2023, the Marketing Department of China National Textile and Apparel Council (CNTAC), and the Sub-Council of Textile Industry, China Council for the Promotion of International Trade (CCPIT TEX) jointly released the Outbound Investment and Cooperation Guide by Country for the Textile Industry (2023) at the 6th Belt and Road Textile Conference. This report introduces and analyzes the investment environment of 20 countries around the world. It provides information and guidance for textile enterprises to engage in “Belt and Road” cooperation.

Geography:

Located in Southeast Asia, Indonesia is the world’s largest island and archipelagic country, with a land area of 1.91 million square kilometers and a sea area of 3.16 million square kilometers (excluding the exclusive economic zone). It shares borders with Papua New Guinea, East Timor and Malaysia, and is separated from Thailand, Singapore, the Philippines and Australia by sea. The climate is warm and humid all year round, with an average temperature ranging from 25 to 27 degrees Celsius. Typically, there is a dry season from May to October and a rainy season from November to April annually.

Natural Resources:

Indonesia is rich in natural resources. It is rich in agricultural and forestry products such as palm oil and rubber, as well as in oil, natural gas and mineral resources such as coal, tin, bauxite, nickel, copper, gold and silver.

Infrastructure:

Indonesia’s sluggish infrastructure development is impeding its economic growth and the improvement of its investment environment. Indonesia is an archipelagic country with few direct borders with neighboring nations. External connectivity primarily relies on sea and air transportation, as well as other modes. The quality of the road network is not very advanced, but areas like Java, Sumatra, Sulawesi, Bali, and other regions have relatively better land transport infrastructure. The total length of the country’s railroad is 6,458 kilometers, and rail transportation is more developed in Java and Sumatra. There are 179 airports in Indonesia, of which 23 meet international standards. There are 1,241 seaports of various types, with Tanjung Priok Port in Jakarta being the largest international port in Indonesia, with an annual throughput of about 4.2 million TEUs. Electricity supply is still insufficient, with a total installed capacity of about 50 million kilowatts, and the national electricity penetration rate is less than 75 percent, with even the capital, Jakarta, occasionally experiencing rotating blackouts due to power shortages.

Macroeconomy:

Indonesia has become attractive for foreign direct investment (FDI) due to its young population, strong local demand, stable political environment, abundant natural resources, and effective macroeconomic strategies. The country has seen positive economic growth in recent years. In 2022, Indonesia’s GDP hit US$ 1.3 trillion, with a per capita GDP of US$ 4,783.9. According to the “World Investment Report 2023” released by the United Nations, Indonesia attracted foreign investment flows of US$ 21.97 billion in 2022, with an investment stock of US$ 262.92 billion.

Status of Textile Industry:

The textile and garment industry are one of Indonesia’s major economic sectors and the largest employer, providing jobs for over 2.7 million people. It is also currently the world’s eighth-largest exporter of apparel. Indonesia boasts the largest textile and apparel market in Southeast Asia, Tanah Abang, with an average daily transaction volume of up to US$ 340 million. In Indonesia’s textile industry chain, raw materials like cotton, caprolactam, adipic acid, and others are largely imported. Similarly, dissolving pulp, paraxylene, ethylene glycol, polypropylene, polyamide, and other raw materials for chemical fibers, as well as filaments and staples are somewhat reliant on imports. Furthermore, related products in the fields of weaving, nonwoven, and printing and dyeing also rely on imports to some extent.

International Trade:

Data from Indonesia’s National Statistics Agency reveals that the total textile and apparel exports in 2022 reached US$ 13.83 billion. Among them, textile exports accounted for US$ 4.25 billion, while apparel exports amounted to US$ 9.58 billion. These products were primarily shipped to the United States, Japan, South Korea, Germany, China, Bangladesh, India, and other countries. Notably, the United States stood out as the most significant export destination, representing around 41.6% of the total exports.

During the same period, Indonesia imported US$ 10.13 billion worth of textile and apparel. China was the primary country from which Indonesia imported textiles and apparel, accounting for 43.2% of the total imports, followed by South Korea, Vietnam, and the United States. The main export products are apparel (69%), chemical staples (15%), chemical filaments (6%), etc.; the main import products are cotton, cotton yarn and cotton woven fabrics (22%), knitted fabrics (19%), chemical filaments (19%) and chemical staples (11%).

Industrial Layout:

Central Java has transformed into an attractive location for labor-intensive industries like textiles and apparel industry. These industries are mainly concentrated in various areas such as Wijayakusuma Industrial Zone, Jatengland Industrial Park Sayung, Aviana Industrial Zone, Bukit Semarang Baru, Tanjung Emas Export Processing Zone, and Kendal Special Economic Zone. The top five destinations for Foreign Direct Investment (FDI) in the textile and garment industry are West Java, Central Java, East Java, Banten, and Jakarta. Among these, West Java and Central Java stand out as the most popular choices for foreign investment, with approximately 78% of textile companies and 94% of garment companies choosing to invest in production in these regions.

Foreign Trade Policy:

As the largest economy in ASEAN, Indonesia actively engages in bilateral economic partnerships, regional economic integration, and global multilateral trade negotiations. The country has signed Free Trade Agreements (FTAs) with 22 countries, allowing for preferential tariffs on traded goods with these countries. At the same time, Indonesia is included in the U.S. Generalized System of Preferences (GSP), allowing over 3,500 products to enter the U.S. market with zero or reduced import tariffs.

Summary and Suggestion for Investment

(1) Indonesia has a relatively young population structure, strong domestic demand, a stable political situation, rich natural resources, and good macroeconomic policies. However, the infrastructure development is not fully developed, transportation capacity is insufficient, power supply is unstable, and Internet coverage is not high. These factors, to a certain extent, restrict its economic growth and foreign investment confidence.

(2) Indonesia has signed multi-bilateral FTAs with 22 countries and has been included in the U.S. Generalized System of Preferences (GSP) at the same time. The trade environment is conducive to the growth of export-processing industries. Indonesia has implemented important laws and favorable policies, along with creating special economic zones to attract foreign investment. The overall investment environment is positive.

(3) Indonesia’s industrial chain development is unbalanced, with a predominant focus on garment processing. Cotton, synthetic fibers, and other raw materials heavily rely on imports, and the upstream sectors of the textile industry chain are comparatively fragile. It is urgent to improve the capacity for weaving, dyeing, and finishing processes.

Source: CHINA TEXTILE LEADER Express