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6 Mar 2025
Insight
Indonesia’s strategic plan to become a semiconductor hub in Asia is steadily progressing, but several key developments and challenges remain. With a new administration in place, we consider whether Indonesia will maintain its current momentum or whether a policy shift will impact the trajectory of its nascent semiconductor industry.
Recent developments
Less than a month after our October bulletin, President Joko Widodo met with President Biden to strengthen US-Indonesia cooperation in semiconductors. The leaders committed to enhancing Indonesia’s human resource capacity in the industry through, among other things, collaboration with American universities and leveraging U.S. government support via the ITSI Fund.1
Indonesia is also making tangible progress through its recent partnership with Arizona State University (ASU), formalised in a Memorandum of Understanding (MoU) on 21 November 2024. This collaboration, witnessed by Coordinating Minister for Economic Affairs Airlangga Hartarto, aims to develop a semiconductor workforce acceleration program, faculty certification, and supply chain policy initiatives. A joint action plan is set to follow2 The focus of this MoU appears to be on technology transfer and sharing in order to enhance the skills of Indonesian workers.
Further steps towards supply chain resilience
The Indonesian government has set a target of 8% economic growth by 2029, with one of its key strategies being the downstream processing of natural resources.3 To accelerate this initiative, on 3 January 2025 the government established a Task Force for Downstream Acceleration and National Energy Resilience through Presidential Decree No. 1 of 2025 (the National Energy Resilience Initiative).
This Initiative arose from the desire to harmonise policies across industry sectors and expedite the downstream processing of critical natural resources, including silica sand, a key raw material in the semiconductor industry.
The growth of domestic silica sand production by accelerating downstream processing is expected to strengthen Indonesia’s emerging semiconductor industry and support its long-term development.
Separately, in November 2024, Indonesia and China signed a bilateral strategic agreement on the blue economy (the Blue Economy Cooperation4), which focuses on improving the resilience of Indonesia’s logistics systems, which are dominated by sea and air logistics networks (aside from the island of Java).
What to expect next
Several key factors will shape the pace and ultimate success of Indonesia’s goal of becoming a semiconductor hub on the backbone of strengthened domestic capabilities and production.
In particular, the government is expected to issue implementing regulations and projects, potentially including tax breaks and infrastructure support, to realise both the National Energy Resilience Initiative and the Blue Economy Cooperation.
In terms of domestic demand, news reports suggest that demand for electric vehicles is likely to increase, with new vehicles coming from new market entrants.5
As for external factors that may have an impact on Indonesia’s plan, based on our general observations, to date there have been no amendments to the US CHIPS Act, making it still attractive for US industry players to collaborate with players here in Indonesia.
However, we should note that some news outlets have recently reported President Trump’s call for the repeal of the US CHIPS Act.
If you have questions or wish to discuss these developments further, please reach out to your usual contact.
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The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.
© Herbert Smith Freehills 2025