Apple is investing close to $10 million in local production in hopes of lifting a recent ban on iPhone sales. It plans to build a factory in Bandung, southeast of Jakarta, in collaboration with its local suppliers.

As Indonesia enforces a very strict domestic content requirement, this investment by Apple will unlock its massive market while keeping up with the government's drive for local manufacturing.

Apple Factory in Indonesia is Inching Closer

Apple iPhone Ban in Indonesia

As per Bloomberg, sources close to the matter said that Apple has submitted its investment proposal to Indonesia's Ministry of Industry. The ministry has blocked the sale of iPhone 16 recently stating that the company didn't comply with a 40 percent domestic content mandate for smartphones and tablets.

In response, the iPhone maker is keen on raising local content through the support of a facility that will focus on accessories and parts production for its devices. Still in draft form, the ministry is assessing this plan, and a decision may soon be reached.

Both Apple and Indonesia's Ministry of Industry have declined to comment on this issue, indicating the sensitive nature of the negotiations.

Prabowo's Manufacturing Push: Lifting Local Industry Through Restraints

The latest iPhone 16 ban by Indonesia is an expression of a trend in its new President Prabowo Subianto. The new administration has been very hard on international tech giants, which forces them to increase local production.

Google Pixel phones are also banned in Indonesia for a failure to meet local content requirements. This policy follows the previous policies of earlier administrations, such as the one implemented by former President Joko Widodo, which placed protective measures for the retail and tech sectors of the country.

Indonesia banned ByteDance's TikTok from the country's internet last year, forcing the firm into a joint venture with Tokopedia, an e-commerce business owned by GoTo Group.

Ultimately, ByteDance gave in, promising an investment of $1.5 billion. The Prabowo administration appears to be applying the same tactic, applying leverage and local strength with regulation to force foreign investment.

Strategic Value of Indonesia Market for Apple

While $10 million is peanuts in the grand scheme of Apple's global operations, this could help it massively tap into Indonesia's markets, with 278 million consumers—over half of whom are under 44 and remarkably tech-savvy.

Yet Apple has always abhorred having standalone facilities in Indonesia and has often resorted to collaborating with indigenous component manufacturers. If this suggestion is agreed upon, there could be a change of tack from Apple in further establishing itself in Southeast Asia.

However, the Indonesian government said that Apple is not yet on par with its investment in the country because it only met half of its previously promised investment. That is so since Apple had invested approximately 1.5 trillion rupiah or $95 million through its developer academies and refused to commit to 1.7 trillion rupiah.

Officials in Indonesia further asked Tokopedia and TikTok to delete their listings of the iPhone 16 and said that they may have legal cases filed against them if nothing was done on their end.

Prospects of Risks for Foreign Companies in Indonesia

Though the proposed investment from Apple may benefit Indonesia, the decision of the government would make other foreign companies hesitate to establish business in the country. Its history of undetermined trade policies makes it a challenge for a multinational corporation looking forward to spreading its business in the area.

Earlier this year, the government imposed import restrictions on everything from MacBooks to chemicals in an effort to nudge foreign companies to manufacture locally. It has been challenged by long-time players such as LG Electronics, which faced a challenge in importing critical components for its Indonesian operations.

Despite these policies, the manufacturing industry has been declining in Indonesia in recent years. Manufacturing, as a share of national GDP, declined from 21.1% in 2014 to 18.7% in 2023, which points out how complicated it is to turn the local industries around even if one is using protectionism.

The strategy of the government under Prabowo would be to turn it around by increasing direct investment and setting up a more autonomous economy.