Indonesia protectionist policy to attract misguided investment: Economists

Economists warn that Indonesia’s efforts to attract capital from Apple and other technology companies through local investment and manufacturing requirements are not enough to achieve long-term gains and may backfire.

Because of Indonesia a long time ago Local content policies, or “TKDN”, apple It has been unable to sell the latest iPhone model in the country until it invests or sources more components locally.

On December 3, Indonesian Deputy Minister of Industry He told reporters The country plans to increase local content requirements for smartphone investments.

Plans come after the government He 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 1 billion dollars In the production of cell phone components in the country.

The content requirements, which apply to various industries ranging from solar panels to electric vehicles, aim to protect local industries and create a value-added supply chain in Indonesia.

Its potential intensification comes at a time when Indonesia is competing with other developing countries in Southeast Asia, such as… VietnamTo attract investment and supply chains Redirected from China.

However, although the content policy has attracted commitments from some manufacturers in the past, economists say it remains misguided and ignores many of the deeper reasons for Indonesia’s failure to attract technology supply chains.

“I call it false protectionism,” said Bhima Yudhisthira Adingara, executive director of the Center for Economic and Legal Studies. “It is less about protecting the domestic market from imported products and more about trying to intimidate foreign direct investment in the country.” , an Indonesian research center.

“They think that if they scare away big companies like Apple, they will invest more in Indonesia,” he added.

Apple analyst he previously told CNBC Indonesia will be a promising growth opportunity for the Cupertino-based company if it can gain a foothold in the market.

Until recently, Apple had gained a good reputation 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 do just that Open the fourth Academy in Bali.

However, the government is now seeking more from Apple’s supply chain, and wants more facilities involved in the actual manufacturing of the products.

Officials have also He said The value of investments previously proposed by Apple is less than the value of its sales in Indonesia, under the pretext that smartphone companies such as the Chinese company Xiaomi and the South Korean Samsung invested more.

On the Indonesian side of the negotiating table, it has the largest consumer base in Southeast Asia and the fourth-largest population in the world.

However, Indonesia remains a small overseas sales market for Apple, with few consumers wealthy enough to buy a high-end iPhone, economists say. The company’s market capitalization alone is larger than Indonesia’s GDP.

In this regard, Apple may be more interested in using Indonesia as a gateway to the regional market, said Aryanto Patunro, a board member of the Center for Indonesian Policy Studies.

He added that global technology supply chains like Apple’s involve a split in value addition, so each country may only contribute a small amount.

Indonesia’s content policy requires that 40% of smartphones and tablets be manufactured locally.

“Local content requirements have not been successful in attracting foreign direct investment to Indonesia. Quite the opposite,” Patunro said, noting that they have contributed to companies such as Foxconn‘sand TeslaWithdrawal of plans in the country in recent years.

Instead, Indonesia’s attempts to use “scare tactics” toward companies like Apple “may backfire,” according to CELIOS’s Adingara.

“I think this is very bad for the investment climate in Indonesia and creates uncertainty about regulation,” Adingara said, noting that often regulations are applied on a case-by-case basis.

Indonesia’s local content requirements have historically been associated with increased costs, reduced export competitiveness, and productivity losses while having little impact on growth or employment, said Yesi Vadela, a trade specialist at the ASEAN and East Asia Economic Research Institute.

Other economists noted that local content policies have had some superficial successes in the past, though they said they would not be enough on their own 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 manufacturers, such as Samsung, have succeeded in doing so. It was for investment In the market due to regulations.

In addition to local content requirements, Indonesia has also implemented other protectionist policies, including tariffs, to attract more investment into the country. Last year, a new law banned TikTok’s commercial app until the company invested through a local partner.

The country also managed to create Free Trade Agreement With Europe, while Indonesia is still trying to reach terms On a deal. Vietnam has also been a major beneficiary of a shift in supply chains from China amid rising trade tensions between the US and China.

According to Adingara, Indonesia may soon have a great opportunity to attract manufacturing industries, with Donald Trump preparing to return to the White House.

The president-elect has proposed a major escalation of tariffs on China, which could lead to another trade war and shake up Asian supply chains.

However, Adinigara said that unless the Indonesian government understands why companies like Apple have chosen Vietnam over them in the past, they may miss out again.

While foreign direct investment in Indonesia has been increasing over the years, foreign direct investment as a share of GDP has only decreased over the past two decades, according to a report. Data From the World Bank.