Make Indonesia Great Again
Embraced now by none other than the world’s most developed economy, i.e. the United States, import substitution used to be the development strategy of choice for many lower-income emerging economies across Latin America, Asia and Africa.
The approach aimed at reducing reliance on imported goods, thus boosting domestic production, creating jobs, building know-how, preserving currency reserves and securing economic sovereignty.
Indonesia is no stranger to this strategy.
Since the election of President Jokowi Widodo in 2014, and now under President Prabowo Subianto, the country has steadily pursued this path with renewed determination.
We don’t need no education. We want manufacturing
Consistent with this approach, this week Indonesia’s Government has rejected Apple’s offer to invest about US$100m in “Apple Academies” – aimed at training local talent – in order to lift the sales ban on the iPhone 16 imposed by the Ministry of Industry (see here).
Why? Indonesia requires all electronic devices with cellular connectivity to include at least 35% of locally produced components, a policy designed to spur the growth of the domestic high-tech manufacturing sector.
Industry Minister Agus Gumiwang Kartasasmita has summed it up well: “We recommend Apple consider developing manufacturing facilities in Indonesia.” He emphasized that Apple’s proposal fell short compared to contributions from other smartphone brands already manufacturing in the country, particularly in terms of added value, tax revenue, and job creation.
So what? The bigger picture
Import substitution is part of a broader Government strategy, which includes also Indonesia’s push for “downstreaming” in the commodity sector, and attempts to take advantage of the gradual reconfiguration (or “re-shoring”) of Western supply chains away from China.
These drivers should position Indonesia as prime destination for inward foreign direct investment (FDI), which is one of the reasons why we are optimistic about Indonesia (especially about undervalued small & mid-caps exposed to the Government’s massive infrastructure development programme). See here if interested in our investment case.
Follow us on LinkedIn
This is a marketing communication intended exclusively for institutional investors. Refer to the Fund Prospectus & KID before making any investment decision.
Back
