Signal of Industrial Weakening Behind Declining Import Performance

Sluggish global and domestic demand has forced the manufacturing industry to put the brakes on production. Imports of raw and auxiliary materials have also decreased for months. This condition needs to be anticipated so that it does not continue for too long.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI. The original article can be found in Sinyal Pelemahan Industri di Balik Turunnya Kinerja Impor

KOMPAS/TOTOK WIJAYANTO (TOK)

The landscape of the Tanjung Priok Container Port in Jakarta on Thursday (20/7/2023). The Central Statistics Agency announced that Indonesia's trade balance throughout the first semester of 2023 was indeed a surplus of USD 19.93 billion, but the condition actually decreased by 20.24 percent compared to the same period last year.

JAKARTA, KOMPAS — Imports of raw and auxiliary materials have declined over the last eight months, signaling a weakening manufacturing industry amid sluggish export markets and stagnant domestic demand. If it continues, this condition could suppress industrial productivity and bring the threat of a wave of layoffs in labor-intensive sectors.

According to data from the Central Bureau of Statistics (BPS), the decline in import performance of raw materials and aids has occurred for at least the past eight months. In the period of January-August 2023, the value of imported raw materials and aids reached 107.31 billion US dollars, a decrease of 13.14 percent compared to the previous year's condition (January-August 2022), which was 123.55 billion US dollars.

The import of raw materials and auxiliary materials in August 2023 also slowed down on a monthly basis, declining by 4.13 percent compared to July 2023 and contracting deeper on an annual basis by 20.39 percent compared to August 2022. Cumulatively, the decrease in the import of raw materials and auxiliary materials has been consecutive since February 2023.

Also read: Industrial Players Worried About Falling Imports of Raw Materials

Executive Director of the Center of Reform on Economics (CORE) Indonesia, Mohammad Faisal, assessed on Monday (18/9/2023) that the decline in raw material imports for the past few months is an indication of production activities that have been halted and a sluggish performance of the manufacturing industry.

The domestic processing industry still heavily relies on raw material supplies from abroad. When demand drops, producers hold back their production, which is reflected in the downward trend of imported raw materials and aides.

KOMPAS/TOTOK WIJAYANTO (TOK)

The process of unloading raw sugar imported from Thailand using the Pac Alcamar ship at Tanjung Priok Port, Jakarta, took place on Thursday (11/5/2023). In 2023, Indonesia will import sugar totaling 4.641 million tons.

According to him, the situation is greatly influenced by the export market which is currently sluggish due to the weakening of the economies of Indonesia's main trading partners, such as China and the United States. "Export demand is not yet too strong so producers are holding back production and not purchasing raw materials in large quantities," he said.

Meanwhile, as export markets slow down, domestic demand is also considered not strong enough to support production and industrial performance. Although household consumption and domestic demand are still growing positively, their growth is relatively slow.

This can be seen from the Real Sales Index (IPR) by Bank Indonesia, which predicts that the performance of retail sales in August 2023 will only grow slightly by 0.5 percent on a monthly basis. Previously, in July 2023, the IPR even contracted by 8.8 percent on a monthly basis.

"Our domestic demand may not have decreased, which is still better than the global condition, but the increase is very slow. It is stuttering, cannot be said to have contracted, but calling it an increase would also be slow," said Faisal.

On the other hand, when the export market weakens, the processing industry also faces additional pressure from the flooding of imported consumer goods. BPS noted that, unlike the decline in raw material imports, in August 2023, the import of consumer goods rose by 15.47 percent annually, 2.19 percent monthly, and 7.66 percent cumulatively from January-August 2023.

KOMPAS/AGUS SUSANTO

The activity of garment workers sewing clothes at GGS Fashion in the Small Industrial Settlement (PIK) Pulogadung, Penggilingan, Cakung, East Jakarta, on Thursday (3/11/2022). Small and medium-sized garment businesses in the area have experienced a decrease in orders in the last three months.

Additional pressure will be greatly felt by a number of industries that have been fiercely competing with the influx of imported goods to fill the domestic market, such as the textile and textile product industry (TPT).

General Chair of the Indonesian Employers' Association (Apindo) Shinta W Kamdani assessed that the decline in imports of raw materials was also influenced by regulations that did not support easy imports even though these imports were needed by business actors. "There are efforts and interests on the government's side to maintain import restrictions due to various considerations," he said.

Also read: RI's Import Exports Slump in Mid-2023

According to Shinta, the decrease in imported raw materials is not solely due to the declining performance of the manufacturing sector, but rather a form of adjusting supply and production with market demand conditions in order to reduce business burdens.

Although domestic demand is still maintained, revenue from the domestic market cannot compensate for the increase in import burdens, which, as a matter of fact, must be paid in foreign currency. "Indeed, our manufacturing export demand growth is very weak, so it cannot boost productive imports, such as raw material and capital imports," said Shinta.

Pessimistic

The slowdown signal in the manufacturing industry is also evident through the August 2023 Industrial Confidence Index (IKI) which reached 53.22 points, slowing down by 0.09 points compared to July 2023. Although still in the expansion zone, the number of business players who stated that their business conditions have decreased increased by 1.7 percent, while those who answered that their business conditions have improved only increased by 0.8 percent.

Along with that, the level of pessimism among industry players also increased from 8.72 percent to 9.19 percent, and the level of optimism decreased from 66.21 percent to 65.98 percent.

Spokesperson for the Ministry of Industry (Kemenperin) Febri Hendri said, in general, industrial confidence in various subsectors is actually still stable. However, the slowdown in the industry confidence index needs to be monitored so that it is not sustainable.

The Ministry of Industry notes that several sub-sectors have experienced the highest decline in confidence indices, including the printing industry (-5.12), the food industry (-4.42), electrical equipment (-4.31), and the textile industry (-4.04). The decline is still dominated by sluggish domestic and foreign orders.

"However, the majority remain optimistic, expressing confidence that the market conditions will improve and trust in the government's policies. Additionally, the level of pessimism among business actors has also consistently been below 10 percent over the past five periods," said Febri in his statement."

KOMPAS/TOTOK WIJAYANTO (TOK)

Cars ready for export are parked at the Tanjung Priok Car Terminal, Jakarta, on Thursday (4/5/2023). The Association of Indonesian Automotive Industries (Gaikindo) reported that car sales in the first quarter of 2023 reached 271,168 units or increased by 13.7 percent compared to the same period last year.

Anticipated

Faisal regards the decline in raw material imports and the slowdown in manufacturing performance as something that needs to be anticipated. If this continues until the end of the year, it could erode productivity in the manufacturing sector, which could have an impact on the decline of economic growth this year.

The dwindling profit margin in the industry due to delayed production and orders can also impact workforce efficiency and potentially lead to further waves of layoffs in labor-intensive export-oriented sectors.

"The industry must shift its export market and diversify its market. The government also needs to consider incentives for labor-intensive sectors that have been struggling, such as the textile, garment, and footwear industry, so that their production costs can be reduced and avoid future waves of layoffs," he said.

Also read: Manufacturing Industry Performance Slows Down

Head of the Fiscal Policy Agency Ministry of Finance Febrio Kacaribu said that the decline in export performance was not only experienced by Indonesia, but also many countries due to weakening global economic activity. Going forward, the performance of export-import is estimated to remain positive even though it is slowing down in line with the world economic slowdown.

"The government will continue to take anticipative measures by improving the competitiveness of national export products, diversifying major trading partners, and encouraging the sustainability of natural resource downstreaming," said Febrio.