Indonesia's protectionist pressure could bring $1B investment from AppleIndonesia's protectionist pressure could bring $1B investment from Apple

The Indonesian government's strong-arm tactics to attract more foreign direct investment into Southeast Asia's largest economy appear to be bearing fruit, as Apple has reportedly made a $1 billion "investment offer" in its latest bid to lift the ban on the sale of iPhone 16 in the country.

Investment Minister Rosan Roeslani told lawmakers in a meeting at the Indonesian House of Representatives on Tuesday that the $1 billion investment is the first phase of a larger outlay and that he expects a written commitment from Apple within the week, according to news reports.

"Whoever benefits from the sales must invest here, create jobs here. What's important is how the global value chain moves here, because once it does, suppliers follow," Rosan said, as quoted by Reuters.

Indonesia blocked the sale of iPhone 16 devices in October for failing to comply with a requirement that electronics such as smartphones and tablets sold in the country contain at least 35% locally made parts.

Initially, Apple offered to invest $10 million for a factory to make accessories and components in the city of Bandung. This offer was apparently made to make up for the shortfall in its earlier commitment. In 2023, the iPhone maker pledged to invest 1.7 trillion Indonesian rupiah ($107 million) for developer academies across the country, but reportedly fell short by about $10 million.

Apple increased its commitment tenfold to $100 million after its initial proposal failed to lift the ban on the sale of the iPhone 16. But it was also rejected by the Indonesian government as insufficient.

With another tenfold increase that is reportedly on the table, Apple is likely to get its latest device launched in Indonesia.

"Frankly, their investment is still small, very small. It needs to be much larger," Rosan said, as reported by the Jakarta Globe.

The Indonesian government believes that the value of Apple's current investment in the country is modest compared to its local revenues, which exceeded IDR30 trillion ($1.9 billion) in 2023.

Industry Minister Agus Gumiwang Kartasasmita, whose office issued the iPhone 16 ban, reportedly said last month that his top priority is to get Apple to open a local factory, similar to other phone makers such as Samsung and Xiaomi.

The government has been very open about its desire to get Apple to increase its domestic investment and bring it up to par with what the iPhone maker has done in other parts of Southeast Asia.

Industrial ambitions

Indonesia's protectionist measures, such as a law requiring that at least 35% of components used in electronic devices for the domestic market be made locally, have helped ensure that Samsung and Oppo keep their factories in the country. Samsung and Oppo, along with Xiaomi, are the top-selling smartphones in Indonesia.

Industry observers noted that in recent years, the government has been more proactive in using the law to encourage foreign direct investment in the country.

"Indonesia’s push to become part of global value-added supply chains reflects its broader industrial ambitions. By emphasizing local content requirements, the government seeks to shift the country’s role from a consumer market to a creator of technological value," said Ayman Falak Medina in an analysis published last week by business management firm Dezan, Shira & Associates.

"However, systemic challenges, including infrastructure gaps, inconsistent policy enforcement, and the readiness of local suppliers, must be addressed for this vision to succeed," he added.

Medina noted that there are stark contrasts between Indonesia and its regional neighbors in terms of Apple's investment strategy in Southeast Asia.

The company's investment in Indonesia is estimated to be between IDR2.8 trillion and IDR3.3 trillion ($176 million to $208 million), with operations limited to a single assembly plant. This relatively small presence is insufficient to have a significant impact on the local economy.

In Vietnam, Apple has invested $15.4 billion in 35 facilities, reflecting the country's favorable regulatory environment and supply chain readiness. Thailand's established electronics ecosystem has attracted more than $24 billion in Apple investment, focused on components such as the Apple Watch and MacBook. Malaysia, with its advanced infrastructure and reliable local suppliers, is home to 19 Apple facilities.

"Apple's investments in Vietnam, Thailand and Malaysia demonstrate how strategic alignment with local conditions drives success," said Medina. "The disparity in investments underscores the challenges Indonesia faces in attracting large-scale commitments from tech giants."

He added that the iPhone 16 ban encapsulates the tensions between ambitious industrial policies and the realities of global business operations.

Heavy-handed approach could backfire

Indonesia has used the market access to its tech-savvy population of 280 million people, the world's fourth largest, to lure foreign investors into the country, and the iPhone 16 ban is its latest exercise in flexing its economic muscle. It also imposed a ban on the sale of Google's Pixel phones at the end of October for a similar failure to comply with the 35% local content rule.

Last year, ByteDance's TikTok was forced to shut down its new e-commerce service in Indonesia after the government imposed new rules banning online shopping on social media platforms to protect local merchants who couldn't compete with cheap products from China. This led ByteDance to invest $1.5 billion in Tokopedia, Indonesia's largest e-commerce platform, in a merger that allowed TikTok's e-commerce service to be integrated into the expanded entity.

In October, the government also banned Chinese e-commerce retailer Temu from operating in Indonesia, saying its surplus goods from China – sold at deeply discounted prices – were harming local small and medium enterprises.

While the Indonesian government was able to get global companies to bend to its rules, industry observers warned that the heavy-handed approach could backfire.

"This creates a negative sentiment for investors looking to enter Indonesia," said Bhima Yudhistira, director of the Jakarta-based Center of Economic and Law Studies, at the start of the ban on iPhone 16 and Google Pixel devices in November, adding that the move was "pseudo" protectionism that hurt consumers and affected investor confidence.

Meanwhile, Medina noted that rigid enforcement of laws protecting the domestic market not only risks deterring investment, but could also slow the country's integration into global supply chains.

"A flexible, collaborative approach is needed to bridge the gap between Indonesia’s ambitions and the needs of multinational corporations," he added.