Indonesia Investment Series | Indonesian Pharmaceutical Industry Investment Introduction

According to data released by the Indonesian Food and Drug Administration (BPOM), there are currently 239 pharmaceutical companies in Indonesia, including 4 Indonesian state-owned enterprises, 35 multinational corporations, and 169 local companies. Most pharmaceutical companies belong to the finished pharmaceutical industry. 90% of pharmaceutical raw materials are imported, which has a great impact on the market sales price and is too expensive for ordinary people. This article will introduce the status quo of Indonesian pharmaceutical industry development, investment-related policies, and the development of foreign-invested pharmaceutical industry.

I. Development Status of the Pharmaceutical Industry
Indonesia’s pharmaceutical production model has hardly changed in the past 30 years. The most important ingredient in the Indonesian pharmaceutical market is Active Pharmaceutical Ingredients (API). However, it has hardly been developed due to various factors, which 90% of them rely on imports. After processing, the regions are distributed, so the entire pharmaceutical production system in Indonesia is based on high-cost mechanical, manual and basic equipment. According to the data from the Indonesian Ministry of Industry, China accounts for 6.48tn Indonesian rupiah (60%), India 3.42tn Indonesian rupiah (30%), and European countries account for 1.4tn rupiah (10%). It is obvious that the Indonesian pharmaceutical industry has a lot of room for development. The following are the top 10 imported drug data of the Indonesian Ministry of Industry in 2016.
In the face of the import of active pharmaceutical ingredients must meet the huge demand of Indonesia’s national population (about 250 million) annually, which presents several major problems for the pharmaceutical industry. Firstly, the drug trade is seriously unbalanced, directly affecting the market price of drugs. Secondly, drug research and development has not yet reached an acceptable level, rendering pharmaceutical companies to rely on imports. These two major problems have a cyclical effect. Therefore, President Jokowi’s government plans to develop the pharmaceutical industry and medical equipment through the economic stimulus plan announced on March 30th, 2016, and reform the current drug production model. It is hoped that Indonesia will be self-sufficient in the future.

II. The Relevant Policies of the Pharmaceutical Industry

In order to encourage the development of the Indonesian pharmaceutical market, the government allows foreign capital to hold 100% of the shares in this field. Investment activities are concentrated in the upstream pharmaceutical industry, from drug development to semi-finished products. In order to attract more investors, improve the research and development of pharmaceutical raw materials in Indonesia and create new market opportunities, the following policies for investors to understand have been compiled:
1. Indonesian Minister of Health Order No. 87 of 2013 “On the Pharmaceutical Raw Material Industry Development Plan”.
2. The government stipulates No. 14 of 2015 on the 2015-2035 National Industrial Zone Master Plan: the pharmaceutical industry, cosmetics and medical equipment are priority industries.
3. On March 30th, 2016, the National Economic Stimulus Plan (Part 4) “Developing the Pharmaceutical Industry and Medical Equipment”, through the Presidential Decree No. 44 of 2016 “on the negative list of investment, the shareholding ratio of foreign pharmaceutical industry will be increased by 85% to become 100%”. In addition, investors are also given Tax Holiday (tax exemption period) and Tax Allowance.
4. Presidential Decree No. 6 of 2016 “On Strengthening the Pharmaceutical Industry and Medical Equipment Work” requires BKPM to cooperate with relevant departments.

III. The Development of Foreign Pharmaceutical Industry

A close look at the Indonesian pharmaceutical industry would show a very impressive market. The pharmaceutical market has an annual growth rate of 12-15%, accounting for 27% of the entire Southeast Asian pharmaceutical market, 70% of which are Indonesian pharmaceutical companies. In 2017, the pharmaceutical market reached a total of 72tn Indonesian rupiah. As Indonesia’s population continues to increase, the Indonesian government is upgrading its health services through National Health Insurance (JKN), and its demand for drugs has increased significantly. For example, the annual demand for amoxicillin has reached 600 metric tons, with $1.2 million worth.
In 2016, the FDI drug industry value reached 1.085 billion US dollars. Japan is the largest foreign-invested country with a total investment of 127 million US dollars, followed by India, China, Germany, South Korea, Singapore and Spain. Investment areas are concentrated in Java Island, specifically in Banten, Jakarta, West Java and East Java. In the future, the pharmaceutical industry will focus on the Lampung City of southern Sumatra and the Makassar City of South Sulawesi.
Foreign capital has achieved great success in the Indonesian pharmaceutical market, but it has not been able to occupy major rural markets due to geographical, language and other barriers. In addition, local companies dominate the generics and OTC drug markets, with OTC accounting for 40% of the pharmaceutical market, compared with 10-15% in other countries. In contrast, foreign-invested companies are mainly based on newly developed drugs. The Chinese state-owned Tianjin Jinyao Group Co., Ltd. and the largest pharmaceutical industry in Indonesia, PT.Kima Farma Tbk, have invested in a new pharmaceutical industry with a total investment of 12 million US dollars. The plant is located in Lippo Cikarang, covering an area of 2 hectares. The research and development products are glucocorticoids, low-dose injections and infusion of amino acids. Subsequently, PT Indofarma Tbk and China Shijiazhuang Pharmaceutical Group Co., Ltd. reached a cooperation to produce cephalosporin with an investment of 32M Indonesian rupiah. Indonesia is the fourth most populous country in the world, and its market potential is huge. To truly enter the Indonesian market, foreign-funded enterprises must strengthen their localization on the basis of advantageous areas.
(Source: Indonesia Investment)