Indonesia Blocks 4,000 Imports:

Everything you Need to Know About the Country’s Import Ban

Indonesia has quietly created a major source of tension in the world of trade. Last December, the country’s government, led by president Joko Widodo, passed a series of import restrictions aimed at supporting local industries. Now, as many of these laws come into effect, large companies have begun to feel the pains of trade restrictions.

To understand the impact of these restrictions, let’s first look more closely at Indonesia’s economy. Currently, the country is the 16th largest economy in the world, with a GDP of over $1.32T and a population of 275 million people—making it the fourth most populous on Earth. Most of its economic might comes from small companies and medium sized companies which, put together, employ as much as 96.9% of the country’s population and provide as much as 60.5% of its total GDP. 

In recent years, many of these companies have been challenged by the rise of e-commerce and, crucially, the recent rise of online retail stores in social media sites such as TikTok. Currently, it is estimated that the total e-commerce market in Indonesia is worth $52.9 bn with the expectation of reaching a value of $86.8 bn by 2028. As a result, the country’s SMEs have struggled to make ends meet amidst increased competition. In just four years, monthly imports in Indonesia went from an average monthly value of $11.8 million in 2020, to $18.4 million last February alone. That is, a 55.9% increase in monthly imports much of which is believed to come from the rise of e-commerce in the region.

Indonesian Imports over Time

A line chart showing the imports to Indonesia over the last 4 years

(Data from Trading Economics)

Indonesia’s import restrictions emerged as a means to protect smaller players in the local economy. They came in the form of an omnibus law—a common term for a piece of legislation packaging a series of initiatives into a single vote— providing for a number of import bans, as well as granting the Ministry of Trade the faculty to issue licenses to import and export goods to the country. Put together, the law in question bans the import of some 4,000-3,000 products to the country, hoping to encourage foreign companies to offshore production and, in the process, support local SMEs. But while many of the intended laws target goods sold on e-commerce marketplaces, there are also various other complex products like computers as well as various raw materials.

Although initially conceived as a means to improve local conditions, the restrictions have soon backfired, sparking concerns over potential shortages across the country. Companies like Apple and tire-manufacturer Michelin have both warned of potential shortages in products in months to come if the Indonesian government continues to enforce the imports ban. 

For supply chains as a whole, the trade restrictions are a clear blockade of one of the largest markets in the world. While the Ministry of Trade has shown an initial willingness to reform the laws in question, there is still no clear timeline as to when such changes will be made.

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