The novel coronavirus pandemic has aggravated issues related to competitiveness in the Indonesian textile industry, as people are buying fewer clothes due to falling incomes. The textile and garment industry contracted by 14.23 percent year on year (YoY) in the second quarter of this year as domestic and global demand slowed, compared to an annualized growth rate of 20.71 percent in the corresponding period in 2019, according to Statistics Indonesia (BPS).

The textile industry contracted more than the manufacturing industry, which shrank by 6.19 percent YoY in the second quarter of this year.

According to researcher Redman Gita Wirawasta at the Indonesian Textile Institute (Inditex), the country’s textile industry is less competitive than those of other nations primarily because of high energy and logistics costs, low productivity, multilayered value-added tax regime from the upstream to the downstream and low-tech machinery, an Indonesian newspaper reported. Wirawasta was addressing a webinar recently.

The continued use of outdated machinery corresponded with the investment data, which showed that the majority of investment funds had been channeled toward developing new buildings and not to upgrading machinery and equipment, economist Faisal Basri of the Institute for Development of Economics and Finance (INDEF) said during the virtual discussion.

Machinery and equipment investment fell by 12.87 percent YoY in the second quarter as the pandemic caused the Indonesian economy to contract for the first time since the 1998 Asian financial crisis. The economy contracted by 5.32 percent in the second quarter as household consumption and investment declined in the fallout from the COVID-19 crisis.

In addition to the shrinking investment, the health crisis also caused household spending on clothing, footwear, and garment maintenance services to decline at an annual rate of 5.31 percent. It is the third deepest annualized decline in spending, after restaurants and hotels, and transportation and communications.