Indonesia keeps iPhone 16 ban despite $1.6 billion Apple offer to build AirTag factory

Indonesian authorities have stated that a $1 billion (approximately A$1.6 billion) investment commitment from US tech giant Apple to build an AirTag factory in the country is not sufficient to lift the sales ban on the company's latest smartphones. Indonesia requires that smartphones sold domestically contain at least 40% locally manufactured components, a measure aimed at supporting local employment and industrial development.

The iPhone 16 was launched globally in September last year but was banned from sale in Indonesia the following month. Sales of Google Pixel devices also faced a similar ban shortly after. Apple had previously circumvented the 40% local content requirement by funding the training of Indonesian app developers at universities, allowing them to sell previous iPhone models in Indonesia. Since 2018, Apple has invested 1.6 trillion Indonesian rupiah (approximately $158 million USD) in this program and opened its fourth Apple Developer Academy in Bali in 2024.

Despite this, Apple does not have a manufacturing base or an official Apple Store in Indonesia. Several days of negotiations with Apple executives in Jakarta this week failed to produce an agreement. This occurred despite Apple's commitment to build a manufacturing plant that would supply 65% of its AirTag production globally. AirTags are tracking devices that Apple sells to locate items such as wallets or keys.

Indonesian Investment Minister, Bahlil Lahadalia, announced on Tuesday that the factory would be located on Batam Island, near Singapore, where the number of tech companies is growing. According to Antara News Agency, Lahadalia stated, "The factory is expected to be operational by early 2026." Previously, Apple had proposed investing $100 million in Indonesia through a proposed accessories and components factory, but this was rejected by the Indonesian Ministry of Industry, which stated that the proposal "did not meet the principles of fairness." Industry Minister Agus Gumiwang Kartasasmita cited Apple's larger investments in neighboring Vietnam and Thailand.

Apple holds only a 2% share of Indonesia's smartphone market, which is dominated by cheaper Chinese brands like Oppo and Xiaomi in the entry-level market and South Korean giant Samsung in the high-end market. Nevertheless, Indonesia's large population (approximately 280 million) makes it a key battleground for smartphone manufacturers. According to Hilman Palaon of the Lowy Institute's Indo-Pacific Development Centre, "Indonesia has a tech-savvy and young population, which is a huge potential." Kiranjeet Kaur, Associate Research Director at market intelligence firm IDC Asia Pacific, stated that Apple holds a majority share of Indonesia's high-end market (phones priced over $1,000).

Sales data from the first three quarters of last year showed that Indonesia was already the largest iPhone market in Southeast Asia. Kaur stated that Indonesia was on track to surpass Thailand as the largest market in the region in terms of overall shipments in 2024, "if not for the iPhone 16 ban." Following the breakdown of negotiations with Apple, Indonesian Minister of Communication and Digital Affairs, Budi Arie Setiadi, said that Indonesia was prepared to become the "centre of the digital ecosystem" within ASEAN. He stated at a press conference, "Indonesia is a strategic market with greater potential compared to other ASEAN countries."

However, some analysts believe that Indonesia's tough stance against Apple could deter future foreign investment. Dr. Palaon stated, "This could lead to more localized production and innovation. However, it could also force companies to reconsider their investment strategies - perhaps they will seek more flexible environments outside of Indonesia." Apple CEO Tim Cook visited Indonesia last April, during which he pledged to "consider" manufacturing Apple products in Indonesia after meeting with then-President Joko Widodo. Cook stated at the time, "I think the investment capacity in Indonesia is unlimited. I think there are many great places to invest, and we are investing. We believe in this country."

Chinese smartphone manufacturer Honor Devices (formerly a subsidiary of Huawei) announced in early January that it would enter the Indonesian market in March 2025. Despite this, Kaur stated that high-end consumers in Indonesia are "definitely looking forward to getting their hands on the iPhone 16." She added, "There should be a significant amount of pent-up demand for the iPhone 16 in the country."