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In a decisive move shortly after assuming office, Indonesia’s newly inaugurated President, Prabowo Subianto, has delivered a stern warning to foreign technology giants aiming to tap into the vast market of the world’s fourth-most populous nation: either invest in local production or risk losing access to this lucrative market.
However, industry experts caution that this approach, initially successful in transforming Indonesia’s economy into a leading commodities powerhouse, could backfire, particularly for global entities like Apple and Google, amidst intensifying competition for foreign direct investment in the region.
This past week, Subianto’s administration implemented a controversial ban on the sale of Apple’s new iPhone 16 and Google’s Pixel phones, justifying the measure by highlighting the companies’ failure to adhere to the local content requirement of 40 per cent in utilizing domestically sourced raw materials.
Febri Hendri Antoni Arief, a spokesperson for the industry ministry, stated, “We’re encouraging the local content policy to create fairness for all investors, as well as to create added value domestically,” emphasizing the government’s intention to prioritize local production.
The bans, enacted only a week following Prabowo’s inauguration, serve as a clear indication that Southeast Asia’s largest economy is prepared to adopt more restrictive trade policies in its quest to attract foreign investments.
Critics argue these policies could undermine Indonesia’s attractiveness to investors, who already face challenges posed by bureaucratic hurdles and corruption, particularly when compared to more investment-friendly nations like Vietnam and Malaysia. This comes at a particularly ambitious time as Prabowo strives to elevate the nation’s economic growth to an impressive 8 per cent annually.
“Indonesia takes a hit in its competitiveness compared to other countries in Southeast Asia as a result of this kind of policy,” said Lydia Ruddy, managing director of the American Chamber of Commerce in Indonesia. “This becomes a real deterrent for foreign investors. If they cannot import the products or materials they need and they are not available on the local market yet, companies will look to other markets in the region,” she noted, expressing concerns about the local content thresholds.
Indonesia has a long-standing history of employing trade regulations to draw in foreign investment and bolster onshore manufacturing while simultaneously protecting its domestic industries. The local content requirement stands as one of the strongest tools in this strategy, compelling industries—from energy to agriculture machinery—to locally source a significant percentage of their goods. For power plants, this requirement can reach up to 70 per cent.
In a bid to foster foreign investment in the renewable energy sector, Indonesia relaxed the local content requirement for solar power projects this year. The former energy minister, Arifin Tasrif, acknowledged that the stringent requirements had inflated costs for foreign companies.
Indonesia’s protectionist measures have been particularly pronounced in the commodities sector. Under Prabowo’s predecessor, Joko Widodo, the government imposed a ban on nickel ore exports in 2019, compelling foreign companies to invest in local nickel processing facilities—this policy resulted in unprecedented inflows of investment into the steel and electric vehicle industries, both highly reliant on nickel.
While Prabowo has expressed intentions to foster a welcoming environment for investments, specific details regarding his strategy remain vague. He has vowed to maintain the previous administration’s policy of “downstreaming,” aimed at enhancing the value of the nation’s export commodities.
At the Qatar Economic Forum in May, Prabowo rebutted criticisms surrounding Indonesia’s “downstreaming” policies, asserting, “We are not protectionist. What we are doing is very logical. Every country in the world will fight or protect the national interests of its people,” attempting to clarify the intent behind his government’s strategies.
His government’s latest actions seem to indicate a particular emphasis on regulating technology companies. In the waning days of the Widodo administration, there were announcements regarding bans on Chinese e-commerce platforms, Temu and Shein, due to concerns over their potential detrimental impacts on small and medium-sized enterprises in Indonesia, particularly regarding competition from cheaper foreign goods.
Indonesia holds immense opportunity for multinational corporations such as Apple and Google, bolstered by a youthful and tech-savvy demographic. According to the country’s industry ministry, there are currently 354 million active mobile phones in Indonesia, surpassing the nation’s population of 280 million.
The Widodo administration had previously urged Apple to establish a manufacturing facility or a research and development center within the country, highlighting that the establishment of developer academies alone was insufficient; however, Apple’s CEO, Tim Cook, who met with Widodo in Jakarta earlier this year, did not offer any commitments to this request.
The prohibition against Apple and Google appears to be a strategic maneuver by Indonesia to enhance its negotiating leverage; nonetheless, analysts believe that “Indonesia still lacks the manufacturing capabilities” to support such demands, presenting challenges for foreign collaborations and partnerships.
“This is a bad precedent for investors and potential partners for Indonesia under the Prabowo administration,” remarked Bhima Yudhistira, director of the Center of Economic and Law Studies in Jakarta. He emphasized that the government has yet to enhance its fundamental competitiveness, which is crucial for attracting increased foreign investments.
**Interview with Lydia Ruddy, Managing Director of the American Chamber of Commerce in Indonesia**
**Interviewer:** Lydia, thank you for joining us today. In light of Prabowo Subianto’s recent actions as Indonesia’s new president, what’s your perspective on the impact of his local content policies on foreign investment in the country?
**Lydia Ruddy:** Thank you for having me. Prabowo’s administration has indeed taken a bold stance by enforcing the local content requirement, notably with the recent bans on Apple’s iPhone 16 and Google’s Pixel phones. While the intention to boost local production is commendable, these policies could potentially deter foreign investors. Companies are likely to reconsider their investments in Indonesia if they face substantial barriers to importing necessary products or materials.
**Interviewer:** You mentioned the risk of deterring foreign investment. Can you elaborate on how this could compare to Indonesia’s competitors in the region?
**Lydia Ruddy:** Certainly. Investors are already navigating a landscape marked by bureaucratic hurdles and concerns about corruption in Indonesia. When they see policies that enforce strict local content requirements—especially when neighboring countries like Vietnam and Malaysia offer more investment-friendly regulations—they might opt for those markets instead. The recent actions could diminish Indonesia’s competitiveness, which is worrying for the long-term economic growth Prabowo aims to achieve.
**Interviewer:** What are your thoughts on the rationale behind pushing for local production? Is it a viable strategy?
**Lydia Ruddy:** The desire to enhance domestic production and maximize local value is understandable. However, the way it’s currently being implemented could backfire. Forcing foreign companies to comply with high local content thresholds right away may lead to shortages in products that consumers want or need, eventually resulting in frustration among the local population. A balanced approach that encourages investment while gradually fostering local capabilities would likely yield better results.
**Interviewer:** Prabowo has mentioned that these policies are not intended to be protectionist but serve logical national interests. Do you believe this aligns with the expectations of foreign investors?
**Lydia Ruddy:** Investors want assurance that the market is open and fair. While it’s essential for a country to protect its interests, there needs to be a clear communication and visible commitment to creating an environment that invites foreign capital. If the government’s narrative is inconsistent with the realities on the ground—like implementing immediate and strict bans—trust erodes, which can hinder economic collaboration and growth.
**Interviewer:** Lastly, as we look ahead, what do you hope to see from Prabowo’s administration pertaining to foreign investment and economic growth?
**Lydia Ruddy:** I hope to see a refined approach that genuinely balances the objectives of enhancing local industries while maintaining a welcoming environment for foreign investors. Clear, achievable guidelines, alongside a commitment to transparency in regulatory practices, will be crucial. Continued dialogue with the business community could help refine these policies and ultimately foster a more sustainable economic environment.
**Interviewer:** Thank you, Lydia. Your insights are invaluable as we navigate these changes in Indonesia’s economic landscape.
**Lydia Ruddy:** Thank you for having me. It’s an important conversation, and I look forward to seeing how Indonesia shapes its future.
