Indonesia’s pharmaceutical market is the largest market in the Southeast Asia region. Sales of medicines in Indonesia were valued at Rp 110.6 trillion (roughly US$7.6 billion) in 2020 and is forecasted to expand to Rp 176.3 trillion by 2025, according to US-based Fitch Ratings. This translates to a compound annual growth rate of 9.8% in local currency terms, and 10.7% in USD terms.

This should come as no shock to those who are already in the pharmaceutical business in Indonesia. For the last 10 years, the country’s pharmaceutical market has been one of the fastest growing in the SEA region. This is driven by both the country’s massive market of over 265 million people – the fourth largest population in the world – as well as the expansion of healthcare access via the government’s universal healthcare program enacted in 2014. 


This trend is expected to continue over the coming years, supported by an ever-increasing healthcare budget. For 2022, the government has set aside Rp 256 trillion in its effort to contain the COVID-19 pandemic, or about 9.4 percent of the total budget. This is much higher than the 5% limit mandated by the constitution. And while this is done due to the outstanding circumstances brought upon by the corona crisis, this also demonstrates the Indonesian government’s commitment to providing and improving healthcare access for its citizens. 


On the other hand, the government’s high spending for its healthcare sector also reflects one of its most contentious points: the fact that over 90% of the raw ingredients needed by the country’s pharmaceutical sector cannot be produced locally and must be imported. The issue thus carries a certain measure of political weight and is considered a risk for foreign investors. That said, the current government is showing support to foreign investors and has even further opened up the sector from the previous partial foreign ownership to 100% full foreign-ownership by way of the Omnibus Law for Job creation introduced in late 2020.  


The impetus for the opening of the pharmaceutical sector is the hope that foreign investors could assist in developing the national healthcare industry, which has been a stated goal of the current administration. According to data from the World Bank, the ratio of hospital bed in Indonesia for every 1,000 patients is only 1.2, lower than Singapore (2.3) and South Korea (12.27). Meanwhile, healthcare spending is at 3.3% of GDP, lower than even the average among low-income countries (6.1% of GDP) as well as the average of East Asia Pacific countries (7.4% of GDP). But even with this low healthcare spending, most private hospitals are already overcrowded and profitable, which implies a huge growth opportunity. 


Indeed, amidst the significant economic contraction caused by the COVID-19 pandemic, the chemical, pharmaceutical and traditional medicine sectors still managed to grow 8.65% in the second quarter of 2020, and 5.59 throughout the first half of the year.  


In the long-term, the healthcare industry will experience significant growth as the Indonesian middle-class grows and demand increases for products to treat common and even niche conditions. In this regard, foreign investors may also take notice of the growth of Indonesia’s digital healthcare as the use of healthcare apps is also transforming the local market. Local healthcare app, Alodokter, recorded more than 30 million active users since March 2020. The Indonesian government is also invested in these so-called telehealth firms. The Ministry of Health partnered with Halodoc, as well as local ride-hailing giant Gojek, to provide COVID-19 diagnostics in remote areas. 





Source: WDI World Bank, Ciptadana


According to data from the World Bank, the ratio of hospital bed in Indonesia for every 1,000 patients is only 1.2, lower than Singapore (2.3) and South Korea (12.27). Meanwhile, healthcare spending is at 3.3% of GDP, lower than even the average among low-income countries (6.1% of GDP) as well as the average of East Asia Pacific countries (7.4% of GDP).


Source: Ministry of Health of the Republic of Indonesia, Statistics Indonesia (BPS)


Indonesia contains huge opportunity for the pharmaceutical industry, marked by the rising numbers of industries where, within 2015-2019, domestic pharmaceutical industries saw the rise of 132 new industries. Raw materials industries have also grown from 8 to 14 between 2016 and 2019.


Source: Ministry of Industry of the Republic of Indonesia


In 2016-2018 the pharmaceutical industry trade balance experienced an increasing deficit. After its decline in 2019, the trade balance deficit once again rose in 2022, reaching US$1.05 billion. This shows that, in order to fulfill the demand of pharmaceutical products including raw materials, Indonesia still relies on imports. 





The fact that over 90% of the raw materials needed to produce medicine must still be imported can be viewed as a double-edged sword for foreign investors as many in Indonesia would rather see the country produce enough of its own medicines to meet domestic demand. The Indonesian government aims to reduce imports by 35% by the end of 2022 in its effort overcome its dependence on raw material imports.  


However, also due to this massive domestic demand, the outlook for medicine sales in Indonesia is still seen as largely positive. While revenue growth opportunity from generic drug from multinational companies will inevitably be pressured by this policy, innovative drugs will still remain profitable due to a lack of scientific expertise present in the country.  


The current disruption to the global supply chain caused by the COVID-19 pandemic can also be considered as a boon as Indonesia is strategically located astride or along major sea lanes connecting East Asia, South Asia and Oceania. Indeed, the Indonesian government has made it clear that it wants to woo multinational pharmaceuticals away from China as well as other Southeast Asian countries and have them build their manufacturing facilities in Indonesia by offering tax holidays and other incentives. 


However, the country’s ambitions remain hampered by the fact that its supply chain infrastructure, level of skilled workers and availability of medical scientists are still poor in comparison to its regional neighbors such as Singapore, India and South Korea. Additionally, foreign multinational companies may also be dissuaded by the dominance of state-owned enterprises in procuring major government contracts. Domestic companies such as Kalbe Farma, Tempo Scan Pacific and Kimia Farma are well established with strong presence in the sub-sectors of logistics, over-the-counter medicine and consumer healthcare across the archipelago. 


According to data from the Ministry of Industry, 220 companies support the pharmaceutical industry in in Indonesia, and 90% of these focus on the downstream sector in producing medicines. Meanwhile, data from the Ministry of Health shows that, up to 2021, there are 241 pharmaceutical formulation industries, 17 pharmaceutical raw material industries, 132 traditional medicine industries, and 18 natural product extraction industries. 





Despite the aforementioned challenges, Indonesia’s pharmaceutical is still highly prospective. The country’s huge, and young (over 80% are of working age and 50% below the age of 24), population, on top of the government’s support towards a healthcare revolution, promises significant growth opportunities for foreign companies. 


The COVID-19 pandemic has further highlighted the challenges faced by the country’s healthcare system and how foreign companies can assist Indonesia in developing the national healthcare industry. The increase in demand for medical equipment and pharmaceutical drugs during the pandemic was clearly seen in the market. One highly potential sub-sector is the telemedicine sector which, when taking into account the Indonesian e-commerce sector report by Bain and Temasek that forecasts an $83 billion market value in 2025, are just one of the many avenues for growth available in the Indonesian pharmaceutical sector. 


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