While the domestic market remained sluggish, exports of Indonesia's footwear and shoe products show a more positive development. The Indonesian Footwear Association (Aprisindo) estimates that the nation's footwear exports rose 6.8 percent (y/y) to USD $4.7 billion in 2015. Based on the latest data from Indonesia's Trade Ministry, Indonesian footwear/shoe exports reached USD $3.66 billion in the January-October 2015 period, up 10 percent from exports in the same period one year earlier. Eddy Widjanarko, Chairman of the Aprisindo, added that exports have risen both in terms of value and volume.
Indonesian footwear exports have performed well in 2015 thanks to the weakening rupiah rate. During 2015 the Indonesian rupiah depreciated about 10 percent against the greenback, implying that Indonesian exports become more attractive on the global market. Moreover, local shoe manufacturers also raised prices of their output as production costs have risen due to higher minimum wages and more costly imports of raw materials (mainly leather and rubber) due to the fragile rupiah.
Aprisindo Chairman Widjanarko expects Indonesia's footwear exports to accelerate further in 2016. "A 10 percentage point growth (year-on-year) in shoe exports should be possible provided that the rupiah remains stable."
Adis Dimension Footwear, a West Java-based export-oriented sporting goods company (part of Nike Inc), also stated that it expects good export growth performance of its shoe segment, particularly sports shoes. The company expects Indonesia's shoe export to break the USD $5 billion (per year) level within the next five years. The company added that the recent economic stimulus packages that have been unveiled by the Indonesian government support competitiveness of Indonesian industries and this will also strengthen the footwear industry.
Economic Stimulus Packages of the Indonesian Government:
|• Boost industrial competitiveness through deregulation
• Curtail red tape
• Enhance law enforcement & business certainty
|• Interest rate tax cuts for exporters
• Speed up investment licensing for investment in industrial estates
• Relaxation import taxes on capital goods in industrial estates & aviation
|• Cut energy tariffs for labor-intensive industries
|• Fixed formula to determine increases in labor wages
• Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
|• Tax incentive for asset revaluation
• Scrap double taxation on real estate investment trusts
• Deregulation in Islamic banking
|• Tax incentives for investment in special economic zones
|• Waive income tax for workers in the nation's labor-intensive industries
• Free leasehold certificates for street vendors operating in 34 state-owned designated areas
|• Scrap income tax for 21 categories of airplane spare parts
• Incentives for the development of oil refineries by the private sector
• One-map policy to harmonize the utilization of land
Adis Dimension Footwear currently has a production capacity of 20 million pairs of shoes per year. However, as exports are projected to grow, the company plans to construct a new shoe plant in West Java. The new plant will require an investment of about USD $55 million, financed through the company's internal cash reserves and bank loans. The new plant is expected to have an annual production capacity of 12 million pairs of shoes.
Overview Indonesia's Footwear Industry
Indonesia is among the world top six of largest footwear exporters and therefore this sector is an important asset to Indonesia's manufacturing industry (generating foreign exchange earnings and providing employment to many people). Big global players, such as Nike Inc and several companies from China and South Korea, have production facilities in Indonesia as the country's labour costs are low. However, these minimum wages have been growing rapidly in recent years, weakening appeal of investment in the shoe industry.
Another problem is that Indonesia needs to import several raw materials (leather and rubber) for the production of shoes. Despite being a major rubber producer Indonesia still needs to import rubber materials for the manufacturing of shoes as the country lacks domestic processing facilities.
Indonesian Footwear/Shoe Exports 2010-2015:
Source: Indonesian Trade Ministry