Indonesia is currently striving to increase the volume of production of goods onshore, which is a logical effort in the context of the prospects for the development of the homegrown industrial sector, but under certain circumstances, such a strategy of action can cause all sorts of problems, which happened in the mentioned country.
Companies warn that shipments of some products, including Apple’s MacBook Pro, may stop in Indonesia as early as the end of April. This unfavorable outlook is related to the realization of Jakarta’s plan to increase the manufacturing of goods at homegrown production facilities.
Also in Indonesia, in the next few months, the likely, but so far potential risk of stopping the supply of Michelin tires and chemicals from Europe may become a reality. The country faced the prospect of shortages after the local authorities enforced a controversial rule in early March, which some experts and analysts perceived as an attempt to restrict imports of goods of many categories and brands. This was reported by the media, citing anonymous insiders who are well aware of the current state of affairs in the Indonesian trade sector and the industrial environment of the state.
It is worth noting that concerning Jakarta’s efforts, the notion of homegrown production facilities is more extensive than the literal interpretation of this term. Insiders note that the Indonesian leadership, as part of the implementation of the policy of gradually reducing the volume of imported products, expected that appropriate actions would become an incentive for foreign companies to start building plants onshore. At the same time, the final effect of Jakarta’s measures turned out to be the opposite. According to insiders, against the background of the practice of restrictions by the Indonesian authorities, foreign companies began to consider as the most likely such complexes of solutions strategies to respond to the changed conditions, which provide for shrinkage in the scale of activities in the country and in some cases a complete abandonment of doing business. The informants used the right of anonymity since the mentioned issue is currently being discussed exclusively in the format of strict confidentiality.
At the same time, problems whose territory of existence is still symbolically behind the scenes are gradually beginning to signal the fact of their existence in the public space. Top managers of companies, including, among others, the above-mentioned Apple and Michelin, did not hide their outrage over Jakarta’s actions. Against the background of these sentiments, business chambers in some countries, including South Korea and the United States, have written letters to the governments of these countries. This case factually involves an indirect request to the Indonesian leadership to reconsider the current approach to stimulating local production by limiting external supplies. It is worth noting that the outrage of foreign business is partly public. For example, insiders reported on the letters to the governments, noting that the relevant information belongs to the confidential category.
Apple representatives and officials from Indonesia’s ministries of trade and industry did not respond to media requests for comment on the state of affairs that has emerged in connection with the measures taken by Jakarta.
Michelin representatives told reporters that the company interacts with associations and other firms that have been affected by the problem. Also, as part of the comment, it was stated that it was hoped that the Indonesian government would take measures to improve the situation.
Moreover, Michelin ascertained the desire to fully integrate Indonesia into its global value chain. Representatives of the company separately noted that due to the aforementioned goal and in the context of the prospects for achieving it, openness in trade is the most important value.
A new rule introduced by the Indonesian government actually restricts the import of about 4,000 products, including finished goods. Among other things, this measure concerns the supply of laptops and raw materials such as hazardous chemicals. Import permits are granted to companies subject to receipt of a letter of recommendation from the Indonesian Ministry of Industry. The relevant procedure is very burdensome. In this case, companies must provide tenancy agreements and annual supply forecasts to the country. Forecasts can be used by the Indonesian government to set import quotas for certain goods. The idea of the Jakarta action concept is to create a system of conditions under which it will be more profitable for foreign companies to build a plant onshore. If firms abandon such a strategy, there is a risk of losing to competitors due to the quota mechanism.
The controversial rule restricting foreign supplies to Indonesia was signed into law in December. According to insiders, since then, many companies have asked local authorities to provide clarifications regarding the new import regulation system, but no response has been received. Firms have a kind of consolidated position that Jakarta’s measures of the specified issue are the complexity and ramification. Foreign businesses are faced with the need to plan budgets, logistics, and transport for goods.
Currently, companies are contacting the Minister of Coordinating Investment and Maritime Affairs of Indonesia, Luhut Panjaitan, with a request to ease the rule. This minister has a kind of unspoken status of a person close to the country’s president Joko Widodo. Insiders claim that Luhutu Panjaitan, in private conversations, described the rule as potentially injuring Indonesia’s business reputation and economic interests. A representative for the minister did not respond to a media request for comment.
It is worth noting that Joko Widodo positions himself as a politician who is positive about cooperation with foreign investors, but at the same time, he has a categorical position against the import of goods competing with local products.
As we have reported earlier, TikTok and GoTo Announce Partnership in Indonesia.
