Abstract
In BMI’s Business Environment Rating matrix for Q409, Indonesia once
again occupies 12th position, out
of the 15 regional markets surveyed in
the Asia Pacific region. The country’s pharmaceutical rating is
lower than in the previous quarter, with most other markets being downgraded
due to the current
economic challenges. Main drawbacks to investment in
Indonesia include political instability, corruption,
low per-capita
spending on pharmaceuticals – which is further hampered by rising costs
of drugs – and a
small proportion of elderly people in the country.
On the other hand, annual growth of its pharmaceutical
market, coupled
with rising population numbers and a relatively promising economic base, will
continue
to attract multinationals willing to expose themselves to a risky
operating environment.
By 2013, the market should reach a value of
IDR39,749bn (US$4.60bn), up from IDR26,393bn
(US$2.79bn) in 2008. The
figures represent a compound annual growth rate (CAGR) of 8.53% in local
currency terms, although the forecasts are at risk from economic and
regulatory factors. Given the lack of
a reimbursement scheme, local
population will continue to rely on cheaper, mostly domestically-produced
generics. Consequently, copy drugs’ total market share is expected to
increase from 21.7% in 2008 to
25.5% in 2013, at the expense of their
patented counterparts. This situation will be compounded by the
possible
closure of some multinational sale offices currently operating in Indonesia,
due to the
requirement that foreign companies either invest locally or
leave.
However, as most active pharmaceutical ingredients (APIs) are
imported, the effects of weaker local
currency and the rising costs of raw
materials are passed onto the consumer. Therefore, pharmaceutical
volumes
will remain vulnerable to currency fluctuations and the purchasing power of
the local population.
On a positive note, exports – driven by Good
Manufacturing Practice (GMP) certification gained by some
local
manufacturers over the past months – should continue to increase
steadily, mirroring the trend over
recent years.
Despite the
significant problems affecting the pharmaceutical sector, it is hoped that
opportunities to
precipitate the growth of Indonesia’s drug industry
will be provided by the Association of Southeast
Asian Nations (ASEAN)
free trade agreement (FTA), which is due to be fully implemented in 2011,
when the 10% tariff on pharmaceuticals entering Indonesia will be reduced to
zero. China is due to
complete an FTA with the ASEAN by 2010, representing
new business opportunities as well as threats to
Indonesia’s
drugmakers. An FTA between ASEAN countries and Australia and New Zealand was
signed
in February 2009, while a deal with India is also being
implemented, having been approved by the Indian
cabinet in July 2009. An
agreement with Japan is already in force, implementing a lower 5% tariff
for
medicines.
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