Apple CEO Tim Cook (center) with Indonesian Communications and Information Minister Budi Arie Setiadi (right) and Indonesian Industry Minister Agus Gumiwang Kartasasmita during a press conference after meeting with Indonesian President Joko Widodo at the Merdeka Palace in Jakarta, April 17, 2024.
Bay Ismoyo | Afp | Getty Images
Indonesia’s efforts to attract capital from Apple and other tech companies through local investment and manufacturing terms are insufficient to generate long-term gains and could backfire, economists warn.
Because it has been in Indonesia for a long time local content policies, or “TKDN”, the apple it could not sell its latest iPhone model in the country until it invested or supplied more components locally.
On December 3, Indonesia’s Deputy Minister of Industry he told reporters that the country plans to increase its demand for local content for mobile investments.
The plans come after the government He turned down $100 million Apple’s proposal aims to pave the way for the sale of the iPhone 16. Instead, the government is now asking Apple to invest 1 billion dollars in the country’s mobile phone component production.
The content requirements, which apply to various industries from solar panels to electric vehicles, aim to protect local industries and create a value-added supply chain in Indonesia.
Their potential rise comes at a time when Indonesia is competing with other developing Southeast Asian countries such as Vietnamto attract investment and supply chains Deviated from China.
However, while the content policy has attracted commitments from some manufacturers in the past, economists say it is still flawed and ignores many of the deeper reasons why Indonesia has not attracted technology supply chains.
“I call it pseudo-protectionism. It’s less about protecting the domestic market from imported products and more about trying to scare away foreign direct investment into the country,” said Bhima Yudhistira Adhinegara, executive director of the Center for Economic and Legal Studies (CELIOS). , an Indonesian think tank.
“They think that if they scare big corporations like Apple, they will invest more in Indonesia,” he added.
What’s at stake?
An Apple analyst he previously told CNBC Indonesia would be a promising growth opportunity for the Cupertino-based company if it is able to enter the market.
Until recently, Apple gained goodwill in the market by building “Apple Developer Academies” in the country, where students are trained in skills such as software development.
During a visit to Indonesia in April, Apple CEO Tim Cook announced that the company would open a fourth Academy of Bali
However, the government is looking further into Apple’s supply chain and wants more facilities involved in the actual manufacturing of the products.
So do the officials he said Apple’s previously proposed investment value is lower than the value of Indonesian sales, arguing that smartphone companies such as China’s Xiaomi and South Korea’s Samsung have invested more.
Across the bargaining table from Indonesia, it has the largest consumer base in Southeast Asia and the world’s fourth largest population.
Still, Indonesia is a small overseas sales market for Apple, with few consumers wealthy enough to buy a high-end iPhone, economists said. The company’s market capitalization is greater than Indonesia’s gross domestic product.
On that note, Apple may be more interested in using Indonesia as a gateway to the regional market, said Arianto Patunru, a board member at the Indonesian Center for Policy Studies.
He added that global technology supply chains like Apple’s lead to shrinking value added, so each country contributes only a small amount.
Indonesia’s content policy requires 40% of smartphones and tablets to be made locally.
Will Indonesia’s “terror tactics” backfire?
Most economists who spoke to CNBC said they did not believe the content policies would serve to attract companies like Apple and instead would have the opposite effect.
“Local content requirements have not been successful in attracting FDI to Indonesia. On the contrary,” Patunru said, suggesting it helped such companies. Foxconn‘s and TeslaIn recent years, the country has withdrawn plans.
Instead, Indonesia’s attempt to use “scare tactics” with companies like Apple “could backfire,” according to CELIOS’s Adhinegara.
“I think it’s very bad for the investment climate in Indonesia and it creates uncertainty in regulation,” Adhinegara said, noting that regulations are often enforced on a case-by-case basis.
Yessi Vadila, a trade specialist at the ASEAN and East Asia Economic Research Institute, said Indonesia’s local content requirements have historically been linked to rising costs, export competitiveness and productivity losses with little impact on growth or employment.
Other economists have noted that local content policies have had some superficial successes in the past, though they said they would not be enough to attract more investment from companies like Apple.
“I would say they have succeeded in trying to build some factories and facilities,” said Indonesian economist Krisna Gupta, noting that other smartphone makers, such as Samsung, have done so. he had to invest due to market regulations.
In addition to local content requirements, Indonesia has implemented other protectionist policies, including tariffs, to encourage greater investment in the country. Last year, a new law banned TikTok’s commercial application until the company invested through a local partner.
A holistic approach is needed
However, Gupta said that while the strategy may have some success in the short to medium term, it will face problems in the long term if the government is unable to boost productivity and the overall business climate.
“Indonesia will have to step up its game across the board,” Gupta said, adding that companies take into account a number of factors, including law enforcement, trade policy stability and the labor market.
“They can’t say we have a big market – you want to be here, so invest more,” he added.
To attract more FDI, the country must prioritize building competitive infrastructure, building human capital and providing investment incentives, according to CELIOS’s Adhinegara.
Economists who spoke to CNBC pointed to Vietnam as a country that has managed to attract more technology investment, despite not having as big a local consumer market as Indonesia.
Instead of strict local content requirements, Vietnam has successfully leveraged investment incentives, consistent policies and strong infrastructure relative to its regional peers, they said.
The country has even managed to establish one free trade agreement With Europe, Indonesia is still trying to reach terms in an agreement. Vietnam has also been one of the main beneficiaries of shifting supply chains away from China amid US-China trade tensions.
According to Adhinegara, Indonesia may soon have a unique opportunity to attract diversionary manufacturing, with Donald Trump returning to the White House.
The president-elect has proposed a massive tariff hike on China, which could spark another trade war and shake up Asian supply chains.
However, if the Indonesian government does not understand why companies like Apple have chosen Vietnam in the past, they may lose out again, Adhinegara said.
While Indonesia’s foreign direct investment has grown over the years, its FDI as a share of GDP has declined over the past two decades. the data From the World Bank.
