Govt Bends Local Content Rules to Lowest Level to Spur Domestic Buys

The government has loosened its local content requirement for state procurement in a bid to encourage spending on locally made products under Presidential Regulation No. 46/2025, introduced on April 30 as the second amendment to the 2018 regulation on state procurement. 

The new rule allows state agencies and institutions to buy homegrown products that have local content of at least 25 percent, the lowest level possible. Ministries, agencies and regional administrations were previously required to prioritize goods composed of at least 40 percent local content. This requirement could also be met by making certain economic “contributions”, such as supporting an empowerment program for small and medium enterprises (SMEs) or investing a large sum of domestic capital. 

“This regulation is a more affirmative, aggressive and proactive step […] to safeguard domestic industries and expand the market for locally made goods,” Industry Minister Agus Gumiwang Kartasasmita said on Tuesday. 

Agus highlighted Article 66 in the new rule, which emphasizes an obligation for government institutions to utilize domestic products, including goods that involved local designs and engineering services. The revised rule allows for the purchase of goods with a minimum local content of 25 percent, on the condition that no domestic manufacturers can produce a similar product with 40 percent local content or at a sufficient volume to offer a lower price. 

If neither threshold is achievable, a state institution is permitted to procure domestic goods with less than 25 percent local content, including goods without local content certification, as long as the item is listed in the national industry information system (SIINAS). 

The regulation was eased last month after President Prabowo Subianto called for a broader review of the local content policy, saying it was part of his “mission” to deregulate the economy and cut through “convoluted” bureaucracy. Indonesia has long used the local content rule to protect and strengthen domestic industries, but it now appears to be using the provision as a bargaining chip in its ongoing tariff talks with the United States. 

Agus denied any link between the timing of the revised rule and US tariff threats, saying the Industry Ministry had been working to ease the policy since February, well before Washington raised issue with Indonesia’s employing “nontariff barriers”. The US accusations justified slapping a 32 percent tariff on Indonesian goods by pointing to the country’s local content rule and certain import restrictions. 

Smoother Certification 

Following the new regulation, the ministry is streamlining the local content certification process to cut costs and red tape, aiming to slash approval times from months to days. Industry players have long argued that while the policy could boost domestic production, rigid rules and slow certification have hampered its effectiveness. 

“What used to take a year, we want to cut down to three months, or from three months to just 10 days,” Agus said, adding that the ministry would finalize the new procedures soon. 

However, the minister declined to address when the government might relax the general local content requirements for goods outside of state procurement, a proposal that has been met with pushback from business groups warning such a move could undercut domestic industries. 

Source: The Jakarta Post 

Warning Signs Flashes as Indonesia’s Factory Sector Contracts Sharply

Indonesia’s manufacturing sector suffered a steep contraction in April 2025, with the S&P Global Manufacturing Purchasing Managers’ Index (PMI) falling to 46.7, the lowest since August 2021 during the COVID-19 pandemic.  

A PMI reading below 50 indicates contraction, while a reading above that level signals expansion. The April figure underscores the fragility of Indonesia’s post-COVID recovery. 
 
Ajib Hamdani, an economic policy analyst at the Indonesian Employers Association (Apindo), attributed the downturn to weakening global demand, fallout from new US import tariffs, and softening domestic consumption. 

“Global uncertainty, particularly due to Trump-era protectionist policies, is directly pressuring Indonesia’s manufacturing exports,” Ajib said in a Monday interview with Beritasatu TV. The US accounts for about 14 percent of Indonesia’s export market, and the tariff-driven slowdown has already translated into a sharp drop in demand. 

He warned that rising input costs, combined with decreasing demand, are pushing production costs higher and eroding manufacturers’ margins. “There’s a real concern this contraction will continue through year-end unless mitigated effectively,” he said. 

The downturn is further exacerbated by domestic challenges, including sluggish consumer spending and rising job losses. Ajib cited over 40,000 layoffs between January and March this year, eroding purchasing power and prompting companies to scale back production. The figure exceeds government estimates. As of May 2025, more than 24,000 workers in Indonesia had been laid off, according to Manpower Minister Yassierli, nearly a third of the total layoffs recorded in all of 2024. 

Manufacturers are responding by cutting inventory levels and relying on existing stocks to fulfill orders, even during the typically high-spending Eid holiday period, a worrying sign for an economy still trying to regain pre-pandemic momentum. 

Ajib urged the government to prioritize revitalizing labor-intensive industries to stimulate private sector growth and generate employment. “The state can’t shoulder the burden alone. We need targeted incentives to help the private sector rebound and absorb labor,” he said. 

Adding to the alarm, data from the Central Statistics Agency (BPS) showed the national economy grew just 4.87 percent in Q1 2025, below both last year’s first-quarter figure of 5.11 percent and the 2024 annual average of 5.03%. 

“This is a warning sign. If we’re starting the year below 5 percent, hitting the annual growth target will be extremely difficult,” Ajib cautioned. 

Mohammad Faisal, executive director of the Center of Reform on Economics (CORE), echoed the concerns, stating the PMI’s 5.6-point plunge as unusually steep. 

“PMI fluctuations are normally marginal, one or two points. A drop of this scale signals a dramatic shift, particularly between pre- and post-Eid demand,” he said. 

Faisal attributed the shortfall to fading seasonal spending after Ramadan (the fasting month in March), continued budget tightening, and weak export demand. He warned that unless purchasing power is restored, a return to manufacturing growth could remain elusive until at least early 2026. 

While certain sectors, such as basic metals and mineral processing, remain resilient, labor-intensive industries like textiles, footwear, and even food and beverages are starting to feel the strain. 

“The root problem is weak demand, both domestically and abroad,” Faisal concluded. “We need immediate policy intervention to avoid a prolonged downturn.” 

Source: Jakarta Globe 

Grab Looks To Strike a Deal to Acquire Indonesia’s GoTo in Q2, Source Say

U.S.-listed ride-hailing and food delivery company Grab is looking to strike a deal to take over smaller Indonesian rival GoTo in the second quarter, two sources with knowledge of the matter said. 

Singapore-headquartered Grab has hired advisers to work on the proposed deal, the two sources added. The deal is subject to terms such as financing, which Grab is in discussion with banks, one of the sources added. Grab declined to comment. 

In a stock exchange filing on Thursday, GoTo said it has not made any decision regarding any proposals it may have become aware of or received. 

A deal could value GoTo at around USD 7 billion, according to a separate source with knowledge of the matter. Jakarta-listed GoTo's shares have climbed 20% year-to-date, giving it a market value of around USD 5.8 billion, LSEG data showed. 

Grab's shares on Nasdaq are up 2.4% so far this year, giving it a market value of nearly USD 20 billion, according to LSEG data. 

GoTo will be selling off its international unit, two separate sources familiar with the matter said. In Indonesia, GoTo will sell its entire operations except its finance arm to Grab, one of the two sources added. 

Deal terms are not finalised and could change as the two companies are still in negotiations, the sources cautioned. 

Grab, backed by Uber, offers delivery, mobility and financial services, among others, according to its website. 

GoTo, whose investors include SoftBank and Taobao China Holding, describes itself as Indonesia's largest digital ecosystem that provides e-commerce and banking services, its website showed. 

ON-AND-OFF TALKS 

The merger talks between Grab and GoTo have been on-and-off for years but have not resulted in a deal, primarily due to competition concerns over a tie-up between two major players in Southeast Asia. 

A merger between the two would create a giant in the ride-hailing industry in the region dominating around 85% of the USD 8 billion market, according to data analytics company Euromonitor International. 

"The combined entity would hold a market share of over 91% in Indonesia, and almost 90% in Singapore," said David Zhang, Euromonitor International's insights manager of payments and lending in Asia. 

"Markets especially in Indonesia and Singapore will impose strict scrutiny," he said, adding that the deal will likely be blocked by regulators in key markets in Southeast Asia. 

Indonesian stockbroker BRI Danareksa Sekuritas' analyst Niko Margaronis, who covers GoTo, said that the Indonesian authorities may adopt a more pragmatic approach when assessing a potential merger, weighing the benefits of strengthening existing players and fostering long-term economic value. 

Antitrust scrutiny has intensified significantly against the backdrop of rising cost of living driven by an uncertain global economic outlook made worse by U.S. President Donald Trump's tariffs. 

Source: Reuters