Authorities in Indonesia say a $US1 billion ($1.6 billion) pledge by US tech giant Apple to build an AirTag factory in the country is not enough for them to lift a ban on sales of the company's latest smartphone.
Indonesia requires that smartphones sold domestically contain at least 40 per cent locally manufactured components — a measure intended to support local jobs and industry.
The iPhone 16 was released globally in September and the following month was blocked for sale in Indonesia.
A similar ban on the sale of Google Pixel devices soon followed.
Apple had been able to sell previous iPhone models in Indonesia, circumventing the 40 per cent local content requirement by funding colleges to train Indonesian app developers since 2018.
The Apple Developer Academy opened its fourth location in Bali in 2024 and the company says it has spent 1.6 trillion rupiah ($158 million) on the program to date.
Yet it has no manufacturing presence in Indonesia and there is no official Apple store in the archipelago.
South-East Asia's largest iPhone market
Several days of negotiations with senior Apple executives in Jakarta this week failed to reach a deal, despite the company pledging to build a manufacturing facility to supply 65 per cent of the world's AirTags.
AirTags are tracking devices that Apple markets as being used to locate a user's belongings such as a wallet or keys.
Indonesia's investment minister, Rosan Roeslani, had announced on Tuesday that the facility would be based on Batam, an island near Singapore with a growing presence of technology companies.
"This factory is projected to be operational by early 2026," Mr Roeslani said, as quoted by the Antara news agency.
An earlier offer to invest $US100 million in Indonesia via a proposed accessory and component plant was rebuffed by the country's Ministry of Industry, which said the offer had not "met principles of fairness".
Industry Minister Agus Gumiwang Kartasasmita has cited larger investments by Apple in neighbouring Vietnam and Thailand.
Apple holds just 2 per cent of Indonesia's smartphone market, which is dominated by cheaper Chinese brands like Oppo and Xiaomi at the entry level, and by Korean giant Samsung at the higher end.
Still, Indonesia's sheer size, with a population of some 280 million, means it is a major battleground for smartphone makers.
"Indonesia is home to a tech-savvy and young population, with tremendous potential," said Hilman Palaon, a research fellow with the Lowy Institute's Indo-Pacific Development Centre.
And Apple commands a majority of the premium end of the Indonesian market — phones selling for more than $US1,000 ($1,613) — said Kiranjeet Kaur, associate research director at market intelligence firm IDC Asia/Pacific.
Indonesia was already the largest iPhone market in South-East Asia based on sales in the first three-quarters last year.
"If not for the iPhone 16 ban," Ms Kaur said, it was on track to overtake Thailand as the largest market in the region in terms of shipment in 2024 overall.
Risks of Indonesia's protectionist approach
In the wake of scuppered negotiations with Apple, Indonesia's Communication and Digital Affairs Minister Meutya Hafid said the country was ready to be the "centre of the digital ecosystem" within the Association of Southeast Asian Nations (ASEAN).
"Indonesia is a strategic market with the potential that is bigger compared to other countries in ASEAN," she said in a press release.
But some analysts argue Indonesia's hardball tactics with Apple could repel future foreign investment.
"It could lead to more localised production and innovation," Lowy's Dr Palaon said.
"However, this could also compel companies to reconsider their investment strategies — maybe they seek more flexible environments elsewhere, outside of Indonesia."
Apple chief executive Tim Cook visited Indonesia in April last year, during which he promised to "look at" manufacturing Apple products there after meeting then-president Joko Widodo.
"I think the investment ability in Indonesia is endless," Mr Cook said at the time.
"I think that, there are a lot of great places to invest, and we're investing. We believe in the country."
Chinese smartphone maker Honor Device, a former Huawei subsidiary, announced in early January that it would enter the Indonesian market in March 2025.
Still, Ms Kaur said higher-end consumers in Indonesia were "definitely looking forward to getting their hands on iPhone 16".
"There should be a lot of pent up demand for iPhone 16 in the country," she said.
