Exports of pharmaceutical products from Indonesia have declined due to increasing competition from China on the international market. Chinese pharmaceutical companies dominate export markets supported by China's low production cost environment and the availability of raw materials at home. However, despite this situation, the Indonesian Pharmacy Association (GP Farmasi Indonesia) remains optimistic that Indonesia's pharmaceutical exports can climb in 2017.
Dorojatun Sanusi, Executive Director of GP Farmasi Indonesia, said Indonesia's pharmaceutical product exports will rise in 2017 but "not too much". However, based on data from Indonesia's Statistics Agency (BPS), the value of Indonesian pharmaceutical exports fell 2.8 percent year-on-year (y/y) to USD $176.3 million in the January-April 2017 period (from USD $181.6 million in the same period one year earlier).
Declining pharmaceutical exports are not a new phenomenon. In full-year 2016 Indonesian pharmaceutical exports reached a value of USD $566 million, down 3 percent (y/y) from USD $586 million in the preceding year.
In order to buck this recent trend (of declining pharmaceutical exports), Sanusi has high hopes for Indonesian exports to the Middle East. According to Sanusi the Middle East is a promising market that can be supplied by Indonesia. Currently, most of Indonesian pharmaceutical products are shipped to other ASEAN member countries.
Meanwhile, the domestic pharmaceutical market of Indonesia remains promising due to Indonesia's universal health care program (Jaminan Kesehatan Nasional, or JKN) that was launched in 2014. This program aims to provide health insurance to all Indonesians (which means covering more than 260 million people) by January 2019, a very ambitious target that does not come without budget pressures.
In fact, Indonesia's Healthcare and Social Security Agency (Badan Penyelenggara Jaminan Sosial, or BPJS Kesehatan), which runs the JKN program, detected a mismatch between claims paid and premiums received. This has led to concern about the financial sustainability of the program. It will therefore require innovative solutions or more government support to turn the program into a success.
However, it are mostly the cheaper generic drugs that are sold under the JKN program and therefore it cannot push sales much higher in Indonesia's pharmaceutical sector. Contrary to ethical drugs (prescription medication), generic drugs have a much lower profit margin (the profit margin of ethical drugs is around 60 percent, while the profit margin of generic drugs is only around 20 percent). Still Sanusi expects to see a 7 - 10 percent (y/y) growth of pharmaceutical sales in Indonesia's domestic market in 2017 supported by the government's healthcare program.
The Indonesian government allocated IDR 104 trillion (approx. USD $7.8 billion), or 5 percent of the Revised 2017 State Budget, to healthcare spending in 2017. This is a significant rise compared to the IDR 67.2 trillion that was allocated to healthcare spending in last year's budget and shows the government has given more priority to healthcare.
The expanding middle class of Indonesia is also a factor that boosts demand in Indonesia's pharmaceutical industry as their unhealthy lifestyles causes diseases. The World Health Organization (WHO) predicts that diseases - caused by unhealthy lifestyles - will account for 87 percent of all deaths in Indonesia by the year 2030.
One of the weaknesses of Indonesia's pharmaceutical industry is that most raw materials have to be imported. This means it takes more time and money to produce pharmaceutical products in Indonesia (especially in times of rupiah depreciation production costs rise). Therefore, the government is considering to introduce a minimum local content requirement for the pharmaceutical manufacturing industry in a bid to encourage investment in the upstream pharmacy industry.
Problems related to Indonesia's pharmaceutical industry
- The number of Indonesians making use of healthcare services provided by the universal healthcare program exceeds the number of people paying their monthly premiums (causing a growing deficit)
- A large number of healthy Indonesian workers in the private sector do not participate in the universal healthcare program
- In the more remote areas in Indonesia the quality and quantity of infrastructure is weak, implying part of the population does not have good access to healthcare services
- Indonesia's pharmaceutical industry is highly dependent on imports of raw materials. This implies financial troubles in times of severe rupiah depreciation
- Indonesia has one of the lowest total expenditures on health among ASEAN countries, averaged at a mere 2.6-2.7 percent of GDP