January 9, 2025
JAKARTA – The government has welcomed Apple Inc.’s US$1 billion commitment to build a manufacturing facility in Batam Island, but the ban on local sales of the iPhone 16 remains in place as it still fails to meet the country’s local content rules.
Industry Minister Agus Gumiwang Kartasasmita said on Wednesday that the commitment would result in a factory to produce AirTag tracking devices, but he insisted the accessory plant did not satisfy conditions to lift the sales ban, arguing that it is not a component of the gadget in question.
“As of this afternoon, there is no basis to issue a local content certification [to permit Apple to sell the] iPhone 16 because the investment is unrelated to smartphone components,” Agus told reporters in his office.
Apple will partner with Chinese electronic components manufacturer Luxshare Precision Industry Co. Ltd., also known as Luxshare-ICT, to establish the Batam facility, Agus said.
However, it remained unclear if the investment commitment had been signed.
Last year, the government prohibited the sale of iPhone 16 devices in the country, having found that Apple was not in compliance with a rule requiring its products to meet a 35 percent local content requirement for imported smartphones, tablets and laptops.
The threshold is expected to be raised to 40 percent in the near future.
Companies can comply with the policy by locally manufacturing their devices in the country, developing firmware locally or investing in local innovation.
Indonesia wants R&D
The industry minister had a meeting with Apple’s vice president of global government affairs Nick Ammann and other executives in his office on Tuesday, when Apple formally submitted its investment proposal.
However, Agus said no deal had been reached and added the investment amount was “insufficient”.
During the discussions, the Industry Ministry countered the proposal by requiring the tech giant to establish research and development (R&D) centers to qualify for the content rule under an innovation scheme, which Apple had not done in the country.
Since 2018, Apple has committed to investing Rp 1.7 trillion ($108 million) in building developer academies to support sales of older iPhone models, but the investment has fallen short of $10 million, according to the Industry Ministry.
“We will ensure that Apple complies with building R&D facilities, not just educational and training centers like they’ve been running for the past seven years,” Agus emphasized.
Following the meeting with the Industry Ministry on Tuesday, Apple’s Ammann only told reporters “it was a great discussion” without divulging any details.
Still on Tuesday, Ammann also met with Investment and Downstream Minister Rosan Roeslani with the minister signalling his approval for the proposal and said the AirTag tracking devices’ plant in Batam was expected to supply 65 percent of the global supply.
The factory, Rosan noted, marks an “early step” in Apple’s broader investment in Southeast Asia’s largest economy.
“Apple has already surveyed the land [in Batam], and I’ve also been shown the site. The factory is expected to be operational by early 2026,” Rosan told reporters after his meeting with Apple representatives.
On Wednesday, Ammann also visited Coordinating Economic Minister Airlangga Hartarto in his office, though Airlangga declined to provide details of the meeting, saying, “Please ask the Industry Ministry [whether Apple’s investment was approved].”
Krisna Gupta, a senior fellow at the Center for Indonesian Policy Studies (CIPS) viewed Apple’s investment as a testament to Indonesia’s potential as a market of 280 million people, but investment decisions in the end would hinge on cost and benefit.
The industry minister’s request to meet local content requirements by establishing an iPhone-focused manufacturing plant without disrupting Apple’s global supply chain could present a significant challenge for Apple, Krisna opined.
“How much of Apple’s production can contribute to the 35-40 percent local content without adding value from outside? Especially when Apple is already pushing its suppliers to set up factories in India and Vietnam. Many of these suppliers may not fit into the cost structure,” Krisna told The Jakarta Post on Tuesday.
Dendi Ramdani, head of state-owned lender Bank Mandiri’s industry and regional research department, viewed Apple’s $1 billion investment in Batam as “a reasonable initial step” toward future investment and Indonesia’s tough position reflected its competitive advantage in attracting foreign investment.
“Apple’s investment figure is reasonable and its visit alone has proven how much the market means to them,” Dendi said, adding that there were many considerations in place regarding establishing manufacturing plants.
Companies like Apple, which are part of the global value chain, must consider many factors when establishing manufacturing facilities, such as logistics costs, especially in one of the world’s most expensive shipping markets.
“Investment, however, must be seen as a gradual process. If Indonesia can nurture this investment, it could pave the way for establishing a stronger production base in the region,” he added.