Government still hopes for major Apple investment in Indonesia

Despite negotiations between the Indonesian government and Apple, no resolution has been reached regarding their investment stalemate. While the United States tech giant has plans to establish an AirTag factory in Batam, Riau Islands, the Indonesian government considers this investment too small compared to its demand for a US$1 billion commitment. As a result, the government is still awaiting Apple’s revised investment proposal before allowing the sale of the iPhone 16 in the country.

The government has banned iPhone 16 sales due to Apple’s failure to comply with Industry Ministry Regulation (Permenperin) No. 29/2017, which mandates that foreign products sold in Indonesia must source at least 40 percent of their inputs from local producers or establish local manufacturing facilities. Apple has acknowledged that it still owes Rp 240 billion (US$14.8 million) out of its Rp 1.71 trillion investment commitment for the 2020–2023 period, which expired in June 2023. So far, Apple has made only minimal investments in Indonesia, with a single assembly unit and just two out of 360 components sourced locally.

Apple’s investment efforts in Indonesia fall significantly behind its competitors, Samsung and Xiaomi, which have already built manufacturing plants in the country with investments of Rp 8 trillion and Rp 5.5 trillion, respectively.

To fulfill its investment commitment, Apple requested a 50-year tax holiday in exchange for setting up manufacturing facilities in Indonesia, similar to the incentives it received in Vietnam. However, the government rejected the request, prompting the Industry Ministry to withhold the local content requirement (TKDN) certificate for the iPhone 16. As a result, the iPhone 16 cannot be sold in Indonesia, though consumers can still purchase it from abroad and pay the necessary import taxes.

In response to its non-compliance, the government has opted for the lightest sanction, requiring Apple to increase its investment under a third-phase scheme for 2024–2026 and urging the company to establish manufacturing facilities as soon as possible.

Apple has since submitted a new investment proposal worth $100 million, which includes plans to build accessories factories in West Java, establish a product development center and open two new Apple Academy sites in Bali and Jakarta.

Additionally, Apple intends to set up an AirTag manufacturing plant in Batam for export, with production scheduled to begin in 2026. However, the Industry Ministry remains unimpressed, estimating that Apple’s investment in the Batam facility will likely be around $200 million, far below the $1 billion the government is demanding.

The government argues that its $1 billion investment demand is relatively small compared to Apple’s Rp 32 trillion in annual sales revenue from Indonesia, where the company holds a 12 percent market share in the smartphone industry.

Moreover, Apple’s investments in Indonesia are significantly lower than those in other countries. Apple has invested $15.84 billion in Vietnam, $24 billion in Thailand, $250 million in Singapore and 19 plants in Malaysia. Apple’s major production hub in Vietnam employs approximately 200,000 workers and assembles key products, including iPads, Apple Watches and AirPods.

Despite the current impasse, the government remains optimistic that Apple will prioritize Indonesia’s large market, which boasts 168 million mobile phone users, ranking fourth globally after China, India and the US. While Apple still lags behind Android competitors such as Oppo, Samsung, Xiaomi and Vivo, its market share in Indonesia has been steadily growing since 2015.

The Industry Ministry has announced that further negotiations with Apple will take place in the coming weeks, aiming to secure not only higher investment commitments, but also expanded manufacturing operations in Indonesia. As Indonesia pursues an ambitious goal of 8 percent annual economic growth over the next five years, boosting local manufacturing and job creation will be critical to achieving its vision of becoming a high-income economy by 2045.