Healthcare Indonesia: Boosting Local Production of Medicines' Raw Materials
In one of the next economic stimulus packages of the Indonesian government the focus will be on increasing domestic production of raw materials for medicines and medical devices. Currently, these industries are still highly dependent on imports of raw materials. It is estimated that around 90 percent of raw/basic materials for medicines and medical devices need to be imported from abroad and therefore cause additional pressure on Indonesia's balance of payments.
Darmin Nasution, Indonesia's Chief Economics Minister, said the production of medicines in Indonesia is already well developed. However, only 10 percent of raw materials (needed to produce medicines) are sourced domestically.
Indonesia's Healthcare and Social Security Agency (BPJS Kesehatan) each year incurs losses of about IDR 5 trillion (approx. USD $360 million) as this agency subsidizes health care for the poorer segments of Indonesian society. Given that 90 percent of medicines' raw materials are imported, part of BPJS Kesehatan's funds (which are taken from the central government's state budget) flow abroad.
Minister Nasution said it is important that these funds remain within the country and therefore one of the government's next stimulus packages will focus on enhancing domestic sourcing of raw materials for the (domestic) production of medicines. Indonesia's Industry Minister Saleh Husin said his ministry is preparing incentives (such as tax allowances or tax holidays) for investment in the domestic medicine industry. The Industry Ministry is also considering to open room for foreign investment in this sector up to 100 percent. Currently, foreign ownership of companies that produce raw materials for medicines is limited to 85 percent.
Two large Indonesian pharmacy companies, which currently mainly focus on the production of downstream health products, are Kalbe Farma and Kimia Farma. However, both companies are increasing focus on upstream products (raw materials for the production of medicines). Kalbe Farma is currently constructing a plant (for the production of raw materials) in Cikarang (West Java). This plant is expected to start operations in 2017 or 2018. Meanwhile, Kimia Farma has invested IDR 100 billion in a raw materials production plant, also in Cikarang.
Since September 2015 the Indonesian government has unveiled eight economic stimulus packages - involving deregulation measures, incentives for investment, support for local industries, and efforts to increase people's purchasing power - in an effort to boost the country's economic growth pace, which is estimated to have dropped to a six-year low in 2015.
Economic Stimulus Packages of the Indonesian Government:
| Package | Unveiled | Main Points |
| 1st | 9 September | • Boost industrial competitiveness through deregulation • Curtail red tape • Enhance law enforcement & business certainty |
| 2nd | 30 September | • Interest rate tax cuts for exporters • Speed up investment licensing for investment in industrial estates • Relaxation import taxes on capital goods in industrial estates & aviation |
| 3rd | 7 October | • Cut energy tariffs for labor-intensive industries |
| 4th | 15 October | • Fixed formula to determine increases in labor wages • Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses |
| 5th | 22 October | • Tax incentive for asset revaluation • Scrap double taxation on real estate investment trusts • Deregulation in Islamic banking |
| 6th | 5 November | • Tax incentives for investment in special economic zones |
| 7th | 4 December |
• Waive income tax for workers in the nation's labor-intensive industries • Free leasehold certificates for street vendors operating in 34 state-owned designated areas |
| 8th | 21 December | • Scrap income tax for 21 categories of airplane spare parts • Incentives for the development of oil refineries by the private sector • One-map policy to harmonize the utilization of land |
Various sources
The ninth stimulus package is set to be released this week. However, this package will not focus on the domestic production of medicines. Most likely the government will focus on the medicine industry in the tenth or eleventh package.
Franky Sibarani, Head of the Indonesia Investment Coordinating Board (BKPM) - the investment services agency of the Indonesian government -, supports investment in domestic production of raw materials for medicines as this sector is included in the BKPM's priority list. This list involves the development of Indonesia's manufacturing industry, raw materials, import substitution, and agriculture.