Jakarta. Indonesia is facing calls not to rush with its plan to set up a multi-billion-dollar state textile firm, with businesses saying that it would be better for the government to establish a fund dedicated to beef up the industry.

The government has floated a plan to establish a state-owned textile company, which will receive a $6 billion financial backing from the sovereign fund Danantara. The Indonesian Garment and Textile Association (AGTI) called this proposed company a reflection of the government’s commitment to strengthen the industry.

“The plan needs a thorough review because this [textile] industry is highly competitive, based on cost efficiencies, and requires speed to adapt to global markets,” AGTI chairwoman Anne Patricia Sutanto said.

According to AGTI, it would be much better for Danantara to establish an industrial textile fund, with the funding focusing on strengthening the existing industry. This includes upgrades to the production equipment and technologies, which can slash costs and improve quality. 

The government should also pay more attention to the dyeing and finishing sector, which requires significant investment and is highly sensitive to environmental issues. Anne proposed the establishment of an integrated textile zone that has access to wastewater treatment facilities, as well as renewable energy and water supply. The industry is now facing demands to shift to clean energy to meet global standards. AGTI encouraged fiscal and logistical streamlining through the optimization of bonded zones so that the domestic industry can compete on equal footing with competitors. 

“We highlight the need to strengthen our human capital. This is a shared commitment,” Anne said.

AGTI encouraged fiscal and logistical streamlining through the optimization of bonded zones so that the domestic industry can compete on equal footing with competitors. 

Think-tanks like Core Indonesia and Indef also believe that it would be better for the government to think twice about the $6 billion state textile company. Core Indonesia Executive Director Mohammad Faisal admitted that the rationale for establishing a state-owned company to create jobs needs to be tested against the current real conditions of the textile industry. He went on to say how many textile companies had ceased operations due to various problems. Without a complete understanding of the causes of these closures, the establishment of a state-owned company risks facing similar problems.

"The government should first untangle the tangled threads of the national textile industry, from high production costs to weak market access," said Faisal.

He highlighted the many unsynchronized policies, which have tightened competition within the domestic textile industry. A new player in the market will only intensify the competition. Businesses also have to cope with rising production costs, be it in terms of energy, raw materials, and logistics. 

"The private textile industry is already struggling, with many suffering losses. If a state-owned company enters [the market] as a competitor, the domestic market share for the private sector will only shrink even further,” he said.

INDEF Executive Director Esther Sri Astuti also made a similar comment.

"There's no need to add more state-owned companies. State-owned companies are entering a sector that should be run by the private sector. Isn't this accelerating the demise of our textile industry? Is Indonesia moving towards state capitalism?" she asked.

According to Esther, incentives such as subsidies for raw material prices and logistics costs are sufficient for the textile sector. The government needs to establish regulations to encourage the creation of a textile industry ecosystem from upstream to downstream, along with its supporting industries. 

"The government should create regulations or act as a catalyst, not as a player in the textile industry," Esther said.

Danantara’s boss, Rosan Roeslani, had told the press that the fund was still reviewing the plan. However, any investment decision that Danantara makes has undergone a thorough feasibility study.

“There are certain parameters that an investment has to meet, including the job creation. We [Danantara] are actually open to investments whose return may be lower than what our parameters expect, but can create many jobs. The textile industry has huge potential as a job maker,” Rosan said in Jakarta.