Indonesia steps up trade protectionism with Apple and Google phone bans

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Just days into his presidency, Indonesia’s new leader has sent a strong message to foreign tech companies looking to sell in the world’s fourth-most populous country: invest locally or lose access to the market.

But analysts warned that strategy, which remade Indonesia’s economy as a commodities powerhouse, could backfire against the likes of Apple and Google as competition in the region for foreign direct investment heats up.

Over the past week, Prabowo Subianto’s government has banned sales of Apple’s iPhone 16 and Google’s Pixel phones, citing the companies’ failure to meet requirements for 40 per cent of products to be made with locally sourced raw materials.

“We’re encouraging the local content policy to create fairness for all investors, as well as to create added value domestically,” Febri Hendri Antoni Arief, a spokesperson for the industry ministry, said on Friday.

The bans, which came a week after Prabowo was inaugurated, signals that south-east Asia’s largest economy could step up the use of restrictive trade policies to secure investments from foreign companies.

Critics said such policies could dent Indonesia’s appeal — which is already hampered by red tape and corruption — against more investment-friendly nations in the region such as Vietnam and Malaysia. The restrictions also come as Prabowo has laid out ambitious plans to boost annual economic growth to 8 per cent.

“Indonesia takes a hit in its competitiveness compared to other countries in south-east Asia as a result of this kind of policy,” said Lydia Ruddy, managing director of the American Chamber of Commerce in Indonesia. 

Ruddy said it could be “very challenging” for foreign companies to meet local content threshold because domestically made products are not available for some sectors such as electronics, pharmaceuticals, medical devices and renewable energy.

“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 said.

Indonesia has long used trade regulations to attract foreign investment and onshore manufacturing to protect its domestic industries. The local content requirement is one of its strongest mechanisms, requiring industries from energy to agriculture machinery to locally source a certain percentage of goods. For power plants, it is as high as 70 per cent.

This year, Indonesia relaxed the local content requirement for solar power plant projects in a bid to facilitate foreign investment. The energy minister at the time, Arifin Tasrif, said the requirement had made projects much more expensive for foreign companies. 

Indonesia’s protectionism has been even more aggressive in commodities. Prabowo’s predecessor Joko Widodo banned nickel ore exports in 2019, forcing foreign companies to invest in domestic nickel processing facilities. The policy drew record investment in the steel and electric vehicle sectors, both of which use nickel extensively.

While Prabowo has said he will be investment-friendly, he is yet to lay out detailed plans. He has vowed to continue Widodo’s policy of “downstreaming”, or adding value to commodities, to boost the value of the country’s exports.

At the Qatar Economic Forum in May, Prabowo pushed back against criticism of Indonesia’s “downstreaming” policies. “We are not protectionist,” he said. “What we are doing is very logical. Every country in the world will fight or protect the national interests of its people.”

His government’s recent moves indicate a focus on technology companies. In the final weeks of the Widodo administration, officials said they would ban Chinese ecommerce platforms Temu and Shein because of the potential harm to small- and medium-sized enterprises from cheaper foreign products.

Prabowo’s administration has not commented on the bans on Temu and Shein.

Indonesia holds great potential for companies such as Apple and Google due to its young, tech-savvy population. The number of active mobile phones in Indonesia totals 354mn, according to the country’s industry ministry, exceeding the population of 280mn.

Indonesia has previously called for more investment from Apple, which has four developer academies in the country to train students and engineers to develop apps but no manufacturing facility.

The Widodo administration had asked Apple to set up a factory or research and development centre, saying the developer academies were not enough, but Apple’s chief executive Tim Cook, who met Widodo in Jakarta this year, did not make any commitments.

The ban on Apple and Google is an attempt by Indonesia to have more bargaining power, but it is a tough sell because “Indonesia still lacks the manufacturing capabilities”, said Bhima Yudhistira, director of the Center of Economic and Law Studies in Jakarta.

“This is a bad precedent for investors and potential partners for Indonesia under the Prabowo administration,” he said. “The government has failed to increase the fundamental competitiveness to attract more investments.”