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Today's Headlines Footwear
When – at the start of January 2022 – we heard Firman Bakri, Executive Director of the Indonesian Footwear Association (Asosiasi Persepatuan Indonesia, Aprisindo), say that Indonesia’s footwear exports are expected to hit an all-time high in full-year 2021, it caught us by surprise.
Growth of Indonesian footwear exports is expected to remain below 10 percent year-on-year (y/y) in 2018. Sigit Murwito, Executive Director of the Indonesian Footwear Association (Aprisindo), expects Indonesia's footwear export growth to be in the range of 6-7 percent (y/y) in 2018.
Ngakan Timur Antara, Head of the Agency for Industrial Research and Development (in Indonesian: Badan Penelitian dan Pengembangan Industri, or BPPI), said Indonesia occupies the fifth position in terms of the world's largest leather and footwear (shoe) exporters.
Indonesian footwear manufacturers urge the government to remove leather from the quarantine requirement in order to improve the competitiveness of the Indonesian footwear industry. Indonesia's footwear industry imports about 70 percent of its leather consumption (while Indonesia exports most - if not all - of its domestically-made premium leather).
Players in Indonesia's footwear industry are concerned about the sharp growth of imports of footwear (shoe) products into Indonesia, by far outpacing growth of footwear exports. Data released by the Indonesian Footwear Association (Aprisindo) show footwear imports into Indonesia rose 17 percent year-on-year (y/y) in 2016, while over the past two years exports of footwear products were recorded in the range of 3 - 4 percent (y/y).
Sales of footwear products (shoes) in Indonesia fell 10 percent year-on-year in the first quarter of 2017. This bleak performance is attributed to Indonesians' weak (consumer) purchasing power. Meanwhile, domestic footwear manufacturers only saw modestly rising demand from abroad compared to one year ago. Therefore, Indonesia's footwear exports have remained rather stagnant.
Indonesia's exports of footwear to the United States (USA) are expected to reach the value of USD $1.5 billion in 2017, up 12 percent year-on-year (y/y) from USD $1.34 billion last year. This increase is expected to come on the back of US President Donald Trump's eagerness to limit imports from China by introducing higher tariffs. This policy should now open up opportunities for Indonesian footwear exporters.
The government of Indonesia offers a new incentive to entrepreneurs in Indonesia's footwear and textile (and textile products) sectors who employ at least 2,000 workers and export 50 percent of their total sales. Authorities give a 50 percent discount on income tax to those workers that earn a maximum IDR 50 million (approx. USD $3,850) per year. Both Indonesia's footwear and textile sectors have been plagued in recent years by slowing economic growth, the weak rupiah and rising minimum wages.
Between 10 and 15 new footwear factories will become operational in Indonesia this year. The majority of these new plants, which require a combined investment value of USD $1.5 billion, involve foreign investors from China, South Korea, and Taiwan. Harijanto, Advisory Council Head of the Indonesian Footwear Association (Aprisindo), said these factories will have a large production capacity at an average of between 10 - 15 million pairs of shoes per year and are all export-oriented. Moreover, the plants will provide employment opportunities to some 100,000 local workers.
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.
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In the first month of 2022, we detected some positive signs, both abroad and at home (in Indonesia) as there is growing evidence that the Omicron variant is encouraging strong herd immunity around the world, while not making too many people ill to the extent that they require hospitalization.
Exports of shoes (footwear) from Indonesia could reach USD $8 billion per year in the foreseeable future, from USD $4.5 billion currently. Eddy Widjanarko, Chairman of the Indonesian Footwear Association (Aprisindo), said local footwear factories in Indonesia are currently only operating at a utilization rate of between 50 and 60 percent, implying a significant portion of local production capacity in the shoe industry remains unused. Widjanarko is convinced earnings from Indonesia's shoe exports can double by raising production while still relying on the nation's traditional shoe markets: Europe and the USA.
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