On April 17, Apple CEO Tim Cook (center) met with Indonesian Minister of Communications and Information Budi Ali Seti at a press conference after meeting with Indonesian President Joko Widodo at the Independence Palace in Jakarta. Yadi (right) delivered a speech together with Indonesian Industry Minister Agus Gumiwan Katasasmita.
Ismoyo Bay | AFP | Getty Images
Economists warn that Indonesia’s efforts to attract capital from Apple and other technology companies through local investment and manufacturing requirements will not be enough to generate long-term gains and could backfire.
Because Indonesia has long Local content policy, or “TKDN”, apple The company has been unable to sell its latest iPhone models in the country until it invests locally or buys more parts.
On December 3, Deputy Minister of Industry of Indonesia tell reporters The country plans to increase local content requirements for smartphone investments.
The plans come after the government announced turned down $100 million Apple’s proposal aims to pave the way for iPhone 16 sales. Instead, the government is now asking Apple to invest US$1 billion Domestic mobile phone parts production.
These content requirements apply to various industries from solar panels to electric vehicles and are intended to protect local industry and create value-added supply chains in Indonesia.
Their potential growth comes as Indonesia competes with other Southeast Asian developing countries such as Vietnam to attract investment and supply chains diverted from China.
But while the content policy has attracted commitments from some manufacturers in the past, economists say it remains misleading and ignores many of the deeper reasons why Indonesia has failed to attract tech supply chains.
“I call it pseudo-protectionism,” said Bhima Yudhistira Adhinegara, CEO of the Center for Economic and Legal Studies (CELIOS). “It is not so much about protecting the domestic market from imported products as it is about scaring foreign direct investment into the country. ”, an Indonesian think tank.
“They think if they scare big companies like Apple, they will invest more in Indonesia,” he added.
What’s the danger?
Until recently, Apple gained favor with the market by establishing the Apple Developer Academy in China, where students receive training in software development and other skills.
Apple CEO Tim Cook announced during a visit to Indonesia in April that the company would Open the fourth Academy in Bali.
However, the government is now seeking more of Apple’s supply chain and wants more facilities involved in the actual manufacturing of the products.
Official also explain Apple had previously proposed investments worth less than its sales in Indonesia, arguing that smartphone companies such as China’s Xiaomi and South Korea’s Samsung would invest more.
At the negotiating table, Indonesia has the largest consumer base in Southeast Asia and the fourth largest population in the world.
Economists say Indonesia remains a small overseas sales market for Apple, with few consumers having enough money to buy the most advanced iPhone. The company’s market capitalization alone is larger than Indonesia’s gross domestic product.
Arianto Patunru, a board member of the Indonesia Policy Research Center, said that at this point, Apple may be more interested in using Indonesia as a gateway into regional markets.
He added that global technology supply chains like Apple’s involve fragmentation of added value, so each country may only contribute a small amount.
Indonesia’s content policy requires 40% of smartphones and tablets to be manufactured locally.
Will Indonesia’s “scare tactics” backfire?
Most economists interviewed by CNBC said they did not believe content policies would attract companies like Apple and would have the opposite effect.
“Local content requirements have not succeeded in attracting foreign direct investment into Indonesia. Quite the contrary,” Patunru said. He said the requirements have contributed to companies such as these Foxconn‘sand Teslaplans that have been withdrawn in the country in recent years.
Conversely, CELIOS’s Adhinegara said Indonesia’s attempts to use “scare tactics” against companies like Apple “could backfire”.
“I think this is very detrimental to Indonesia’s investment environment and creates regulatory uncertainty,” Adinegala said, noting that regulation is often implemented on a case-by-case basis.
Yessi Vadila, a trade expert at the ASEAN and East Asia Economic Research Institute, said Indonesia’s local content requirements have historically been associated with increased costs, reduced export competitiveness and lost productivity, with little impact on growth or employment.
Other economists note that local content policies have had some superficial success in the past, but they say they are not enough on their own to attract more investment from companies like Apple.
“I would say they have been successful in trying to build some factories and facilities,” said Indonesian economist Krisna Gupta, noting that other smartphone makers such as Samsung have Must invest Entering the market because of regulation.
In addition to local content requirements, Indonesia has implemented other protectionist policies such as tariffs to drive more investment into the country. Last year, a new law banned TikTok’s business apps until the company invested through a local partner.
A holistic approach is needed
Still, while Gupta said the strategy may have some success in the short to medium term, in the long term it will run into problems unless the government can also improve productivity and the overall business environment.
“Indonesia needs to strengthen competition across the board,” Gupta said, noting that companies will consider a range of factors, including law enforcement, the stability of trade policies and the labor market.
“They can’t just say, we have a big market; you definitely want to come here, so please invest more,” he added.
CELIOS’s Adhinegara said that to attract more foreign direct investment, the country must prioritize building competitive infrastructure, developing human capital and providing investment incentives.
Economists interviewed by CNBC pointed out that Vietnam is a country that has successfully attracted more technology investment, although the local consumer market is not as large as Indonesia.
Compared with regional peers, Vietnam does not have strict local content requirements but has successfully leveraged investment incentives, consistent policies and strong infrastructure, they said.
The country has also successfully established a free trade agreement with Europe, while Indonesia is still trying to reach a deal reach an agreement. Vietnam is also one of the main beneficiaries of supply chain shifts away from China amid heightened trade tensions between the United States and China.
With Donald Trump set to return to the White House, Indonesia may soon face a great opportunity to attract manufacturing relocation, Adinegala said.
The president-elect has proposed sharply increasing tariffs on China, which could spark another trade war and shake up Asian supply chains.
However, Adinegala said that unless the Indonesian government understands why companies like Apple chose Vietnam over Vietnam in the past, they may miss the opportunity again.
According to statistics, although Indonesia’s foreign direct investment has been growing for many years, its foreign direct investment as a share of gross domestic product has only declined over the past two decades. data From the World Bank.
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