Apple CEO Tim Cook (middle) talking alongside Indonesian Minister of Communication and Information Budi Arie Setiadi (proper) and Indonesian Minister of Industry Agus Gumiwang Kartasasmita throughout a press convention after assembly with Indonesia’s President Joko Widodo on the Merdeka Palace in Jakarta on April 17, 2024.
Bay Ismoyo | Afp | Getty Images
Indonesia’s efforts to draw capital from Apple and different tech corporations by native funding and manufacturing necessities are usually not sufficient to yield long-term features and should backfire, economists warn.
Because of Indonesia’s long-standing local content policies, or “TKDN,” Apple has been unable to promote its newest iPhone mannequin within the nation till it invests or sources extra parts domestically.
On Dec. 3, Indonesia’s deputy business minister told reporters that the nation plans to extend the native content material requirement for smartphone investments.
The plans come after the federal government turned down a $100 million Apple proposal geared toward paving the way in which for iPhone 16 gross sales. Instead, the federal government is now asking Apple to speculate $1 billion in cellphone element manufacturing within the nation.
The content material necessities, which apply to varied industries starting from photo voltaic panels to electrical autos, goal to guard native industries and create a value-added provide chain in Indonesia.
Their potential ramp-up comes at a time when Indonesia is competing with different growing Southeast Asian international locations, corresponding to Vietnam, to draw funding and provide chains diverted from China.
However, though the content material coverage has attracted commitments from some producers prior to now, economists say it’s nonetheless misguided and ignores most of the deeper causes Indonesia has didn’t entice tech provide chains.
“I name it pseudo-protectionism. It’s much less about defending the home market from imported merchandise and extra about attempting to scare international direct funding into the nation,” stated Bhima Yudhistira Adhinegara, government director of the Center of Economic and Law Studies (CELIOS), an Indonesian suppose tank.
“They suppose in the event that they scare massive firms like Apple, they may make investments extra into Indonesia,” he added.
What’s at stake?
An Apple analyst previously told CNBC that Indonesia could be a promising progress alternative for the Cupertino-based firm if it is ready to get a foothold out there.
Until just lately, Apple had gained goodwill out there by constructing “Apple Developer Academies” within the nation, the place college students are educated in expertise corresponding to software program growth.
During a go to to Indonesia in April, Apple CEO Tim Cook introduced that the corporate would open a fourth academy in Bali.
However, the federal government is now in search of extra of Apple’s provide chain and needs extra amenities concerned within the precise manufacturing of merchandise.
Officials have additionally said that the worth of Apple’s beforehand proposed investments is decrease than that of its Indonesian gross sales, arguing that smartphone corporations like China’s Xiaomi and South Korea’s Samsung have invested extra.
On Indonesia’s aspect of the bargaining desk, it has the most important shopper base in Southeast Asia and the fourth-largest inhabitants on the planet.
Still, Indonesia is a small abroad gross sales marketplace for Apple, with few customers rich sufficient to purchase a cutting-edge iPhone, economists stated. The firm’s market capitalization alone is larger than Indonesia’s gross home product.
On that word, Apple could also be extra thinking about utilizing Indonesia as a gateway to the regional market, stated Arianto Patunru, board member on the Center for Indonesian Policy Studies.
He added that international tech provide chains corresponding to Apple’s contain slicing up the value-added, so every nation would possibly solely contribute a small quantity.
Indonesia’s content material coverage requires 40% of smartphones and tablets to be domestically made.
Will Indonesia’s ‘scare ways’ backfire?
Most economists who spoke to CNBC stated they didn’t imagine that content material insurance policies would work to draw corporations like Apple and would as a substitute have the alternative impact.
“Local content material necessities haven’t been profitable in attracting FDI to Indonesia. Quite the opposite,” stated Patunru, suggesting they contributed to corporations like Foxconn‘s and Tesla‘s withdrawal of plans within the nation lately.
Instead, Indonesia’s makes an attempt to make use of “scare ways” in direction of corporations like Apple “might backfire,” in response to CELIOS’ Adhinegara.
“I feel it’s extremely unhealthy for the funding local weather in Indonesia and creates uncertainty on regulation,” Adhinegara stated, noting that always laws look like enforced on a case-to-case foundation.
Yessi Vadila, a commerce specialist on the Economic Research Institute for ASEAN and East Asia, stated that native content material necessities in Indonesia have traditionally been tied to elevated prices, decreased export competitiveness, and productiveness losses whereas providing little influence on progress or employment.
Other economists famous that the native content material insurance policies have racked up some surface-level successes prior to now, although they stated they’d not be sufficient on their very own to draw extra investments from corporations like Apple.
“I might say they’ve been profitable in attempting to construct some factories and amenities,” stated Indonesian economist Krisna Gupta, noting that different smartphone makers, corresponding to Samsung, have had to invest out there due to laws.
In addition to its native content material necessities, Indonesia has additionally carried out different protectionist insurance policies, together with tariffs, to drive larger investments into the nation. Last yr, a brand new legislation banned TikTookay’s commerce app till the corporate invested by an area companion.
Holistic strategy wanted
Still, whereas Gupta stated the technique might discover some success within the quick to medium time period, it will likely be met with issues within the longer run except the federal government can be in a position to improve productiveness and the general enterprise local weather.
“Indonesia might want to step up their recreation throughout the board,” Gupta stated, noting that corporations contemplate a spread of things, together with legislation enforcement, stability of commerce coverage, and the labor market.
“They cannot simply say, we’ve an enormous market; you could need to be right here, so please make investments extra,” he added.
To appeal to extra FDI, the nation should prioritize constructing aggressive infrastructure, constructing human capital, and providing funding incentives, in response to CELIOS’ Adhinegara.
Economists who spoke to CNBC pointed to Vietnam as a rustic that has managed to draw extra tech investments regardless of not having as giant of an area shopper market as Indonesia.
Instead of strict native content material necessities, Vietnam has efficiently leveraged funding incentives, constant insurance policies and robust infrastructure relative to its regional friends, they stated.
The nation has additionally has managed to arrange a free trade agreement with Europe, whereas Indonesia remains to be attempting to succeed in phrases on a deal. Vietnam has additionally been one of many fundamental beneficiaries of shifting provide chains from China amid rising U.S.-China commerce tensions.
According to Adhinegara, Indonesia might quickly be introduced with a chief alternative to draw diverted manufacturing, with Donald Trump set to return to the White House.
The president-elect has proposed huge escalations of tariffs on China, which may set off one other commerce conflict and shake up Asian provide chains.
However, except the Indonesian authorities understands why corporations like Apple have chosen Vietnam over it prior to now, they might miss out as soon as once more, stated Adhinegara.
While Indonesia’s international direct funding has been rising through the years, its FDI as a share of GDP has solely decreased over the previous 20 years, in response to data from the World Bank.
