Government, ASEAN Move to Drive Indonesia Drug Sector

March 21, 2005

Sources within Indonesia's drug industry have claimed that the country's drug sector faces substantial changes in the wake of the ASEAN Free Trade Agreement (AFTA), scheduled to be introduced by 2009. The country currently exports pharmaceutical products worth US$30mn to fellow ASEAN members, although this compares unfavourably with the trade bloc's overall market value of some US$5bn.

Plans under consideration by Indonesia's government to extend healthcare to a greater proportion of the country's population could also stimulate sector growth. Such a development is likely to favour the generics-dominated local industry, whose 198 firms mainly produce basic medicines However, AFTA presents a significant competitive threat to the local sector, which produced drugs worth some US$1bn in 2004.

Nevertheless, the success of the government's plans will to some extent depend on progress on liberalisation and consolidation in the sector. Authorities recently issued a ruling allowing drugmakers to deal directly with retailers, although the presence of the country's estimated 2,200 established drug distributors remains very strong. Meanwhile, state-held industry leaders such as Indofarma have continued to restructure and divest loss-making operations, ahead of widely expected mergers and privatisations in the local industry.