Apple’s $1 billion investment could be a short-lived victory for Indonesia

(Bloomberg) — Indonesia declared victory after Apple Inc offered to increase its investment in the country to $1 billion to get President Prabowo Subianto’s government to lift a ban on iPhone 16 sales. Victory may be short-lived.

As neighbors roll out the red carpet for investors relocating from China ahead of potential tariffs by Donald Trump, using protectionist tactics to get companies to build factories could end up hurting Southeast Asia’s largest economy, analysts say body is marginalized.

“Now is not the best time to be tough,” said Krishna Gupta, a senior fellow at the Indonesian Center for Policy Studies. “This can be a dangerous game.”

Indonesia has imposed so-called domestic content requirements, forcing Apple to increase its investment offer from $10 million to $1 billion within a month if it wants to be allowed to sell its flagship device in the country.

As part of Apple’s latest offer, one of its suppliers will set up a factory in Batam to produce AirTags and employ about 1,000 workers, Bloomberg reported.

David Sumual, chief economist at PT Bank Central Asia in Jakarta, said this was the government’s way of courting more foreign direct investment, especially for the 270 million-strong Indonesian economy, which has a “significant interest in maintaining access to the Indonesian market”. Population company.

“The policy could also hinder foreign direct investment, particularly in industries that rely on advanced technologies, by raising costs, introducing regulatory complexity and forcing localization in industries where domestic suppliers often lack the ability to meet global standards,” Sumur said.

Indonesia needs a manufacturing revival to create jobs and boost economic activity to achieve Prabowo’s target of 8% annual growth over the next five years. The country aims to achieve high-income economy status by 2045.

The plan has suffered setbacks. Several textile and shoe factories have closed this year, laying off thousands of workers, amid weak sales and mounting losses. A local pharmaceutical company also plans to cut its manufacturing plant in half over the next few years.

“We want to see fairness. You get benefits here, you invest here and create jobs,” Investment Minister Rosan Roeslani said earlier this month when discussing Apple’s latest offer. “The most important thing is that the global value chain has moved to us.”

Apple follows Samsung Electronics Co and Xiaomi Corp in spending billions of dollars building factories to meet local content regulations, although cost and supply chain challenges may hinder such investments.

The U.S. Chamber of Commerce said in a November report that the rules could lead to lower production levels. Companies are also often forced to source expensive or lower-quality materials, with advanced electronic components having limited local supply.

“The gap between the government’s demand for local production and the actual infrastructure to support high-tech standards creates barriers for foreign investors,” it said.

Indonesia’s content requirements could become an even bigger obstacle for foreign investors. Industry Minister Agus Gumiwang Kartasasmita said in November that the government wanted to increase the domestic content of all mobile phones and tablets sold domestically from 35%.

He said the ministry is also considering scrapping the investment route Apple has used in the past to fund developer academies. This leaves companies with only two options to meet domestic content rules: manufacture parts or applications in Indonesia.

That’s a hard sell when technology becomes more and more advanced. Previously, companies complied with content requirements through packaging and accessories such as charger cables and headphones, according to the U.S. Chamber of Commerce.

“With the shift to wireless technology, these components are now less important and Indonesia lacks the capacity to produce alternatives such as wireless earphones,” it said in the report.

Local content requirements cover a range of industries from automotive to medical equipment. Coupled with decades of problems such as red tape, high taxes and low labor productivity, Indonesia’s manufacturing growth has slowed.

In contrast, neighboring countries such as Vietnam and India are offering tax incentives, fast approvals and the freedom to source components from global supply chains, said Gupta of the Center for Indonesian Policy Studies.

That makes them attractive to companies looking to export production, he said, explaining why Apple can invest $15 billion in Vietnam even though its domestic market is smaller than Indonesia’s.

“Without that scale, it will be more difficult for companies to justify the significant fixed costs required to build a manufacturing facility here,” Gupta said.

In Vietnam’s northern Bac Giang province, home to several Apple suppliers, officials arranged buses for workers from villages to factories, cleared land for dormitories and helped mediate labor disputes. They even had overnight calls with Apple headquarters in Cupertino, California, to make sure everything was running smoothly.

“Some investors may prefer more liberalized markets such as Vietnam compared to Indonesia. This may lead them to reconsider investment decisions in favor of less restrictive countries.” Senior trade policy analyst at the Hinrich Foundation Jia Hui Tee said.

——With the assistance of Nguyen Dieu Tu Uyen.

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