Apple CEO Tim Cook dinner (middle) talking alongside Indonesian Minister of Communication and Data Budi Arie Setiadi (proper) and Indonesian Minister of Business 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 Photographs
Indonesia’s efforts to draw capital from Apple and different tech firms by way of native funding and manufacturing necessities usually are not sufficient to yield long-term positive factors and should backfire, economists warn.
Due to 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 elements domestically.
On Dec. 3, Indonesia’s deputy trade 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 aimed toward paving the way in which for iPhone 16 gross sales. As an alternative, the federal government is now asking Apple to take a position $1 billion in cellphone part manufacturing within the nation.
The content material necessities, which apply to numerous 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 creating Southeast Asian international locations, equivalent to Vietnam, to draw funding and provide chains diverted from China.
Nevertheless, though the content material coverage has attracted commitments from some producers up to now, economists say it’s nonetheless misguided and ignores lots of the deeper causes Indonesia has didn’t entice tech provide chains.
“I name it pseudo-protectionism. It is much less about defending the home market from imported merchandise and extra about making an attempt to scare overseas direct funding into the nation,” stated Bhima Yudhistira Adhinegara, govt director of the Heart of Financial and Legislation Research (CELIOS), an Indonesian assume tank.
“They assume in the event that they scare large firms like Apple, they may make investments extra into Indonesia,” he added.
What’s at stake?
An Apple analyst previously told CNBC that Indonesia can be a promising development alternative for the Cupertino-based firm if it is ready to get a foothold out there.
Till not too long ago, Apple had gained goodwill out there by constructing “Apple Developer Academies” within the nation, the place college students are skilled in abilities equivalent to software program growth.
Throughout a go to to Indonesia in April, Apple CEO Tim Cook dinner introduced that the corporate would open a fourth academy in Bali.
Nevertheless, the federal government is now searching for extra of Apple’s provide chain and desires extra services concerned within the precise manufacturing of merchandise.
Officers have additionally said that the worth of Apple’s beforehand proposed investments is decrease than that of its Indonesian gross sales, arguing that smartphone firms 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 client base in Southeast Asia and the fourth-largest inhabitants on this planet.
Nonetheless, Indonesia is a small abroad gross sales marketplace for Apple, with few shoppers rich sufficient to purchase a cutting-edge iPhone, economists stated. The corporate’s market capitalization alone is greater than Indonesia’s gross home product.
On that be aware, Apple could also be extra eager about utilizing Indonesia as a gateway to the regional market, stated Arianto Patunru, board member on the Heart for Indonesian Coverage Research.
He added that international tech provide chains equivalent 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 firms like Apple and would as an alternative have the other impact.
“Native content material necessities haven’t been profitable in attracting FDI to Indonesia. Fairly the opposite,” stated Patunru, suggesting they contributed to firms like Foxconn‘s and Tesla‘s withdrawal of plans within the nation in recent times.
As an alternative, Indonesia’s makes an attempt to make use of “scare ways” in direction of firms like Apple “might backfire,” based on CELIOS’ Adhinegara.
“I feel it is very unhealthy for the funding local weather in Indonesia and creates uncertainty on regulation,” Adhinegara stated, noting that usually rules look like enforced on a case-to-case foundation.
Yessi Vadila, a commerce specialist on the Financial Analysis 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 affect on development or employment.
Different economists famous that the native content material insurance policies have racked up some surface-level successes up to now, although they stated they’d not be sufficient on their very own to draw extra investments from firms like Apple.
“I’d say they’ve been profitable in making an attempt to construct some factories and services,” stated Indonesian economist Krisna Gupta, noting that different smartphone makers, equivalent to Samsung, have had to invest out there due to rules.
Along with its native content material necessities, Indonesia has additionally carried out different protectionist insurance policies, together with tariffs, to drive higher investments into the nation. Final yr, a brand new legislation banned TikTok’s commerce app till the corporate invested by way of a neighborhood companion.
Holistic strategy wanted
Nonetheless, whereas Gupta stated the technique might discover some success within the brief to medium time period, it is going to be met with issues within the longer run until the federal government can be capable of improve productiveness and the general enterprise local weather.
“Indonesia might want to step up their sport throughout the board,” Gupta stated, noting that firms take into account a spread of things, together with legislation enforcement, stability of commerce coverage, and the labor market.
“They can not simply say, we have now an enormous market; you will need to need to be right here, so please make investments extra,” he added.
To draw extra FDI, the nation should prioritize constructing aggressive infrastructure, constructing human capital, and providing funding incentives, based on 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 a neighborhood client market as Indonesia.
As an alternative 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 continues to be making an attempt to succeed in phrases on a deal. Vietnam has additionally been one of many foremost beneficiaries of shifting provide chains from China amid rising U.S.-China commerce tensions.
In response to Adhinegara, Indonesia might quickly be offered with a first-rate alternative to draw diverted manufacturing, with Donald Trump set to return to the White Home.
The president-elect has proposed large escalations of tariffs on China, which may set off one other commerce conflict and shake up Asian provide chains.
Nevertheless, until the Indonesian authorities understands why firms like Apple have chosen Vietnam over it up to now, they may miss out as soon as once more, stated Adhinegara.
Whereas Indonesia’s overseas direct funding has been rising through the years, its FDI as a share of GDP has solely decreased over the previous twenty years, based on data from the World Financial institution.