BMI View: Indonesia is one of the most promising markets for pharmaceutical and healthcare companies in South East Asia. The country's large population, positive economic outlook and considerable disease burden bode well for growth in demand for drugs, medical devices and healthcare services.
We highlight Indonesia as one of the most promising markets for pharmaceutical and healthcare companies in South East Asia. Indonesia's public and private sector spending within the two sectors is set to increase significantly over the next decade, presenting a large and expanding commercial opportunity for drugmakers, medical device companies, hospital operators, health insurers and other service providers. Indonesia's demographic profile and economic outlook anchor our positive view of the overall commercial opportunities in the country. However, we do note there are several risks to bear in mind.
Key Growth Drivers Of Pharmaceutical & Healthcare Spending
Large, growing population and increasing life expectancies: Indonesia's total fertility rate (TFR) was 2.6 in 2012, indicating an expansion in the country's population. However, population growth is expected to slow, as TFRs stabilise in line with improving quality of life. Life expectancy in Indonesia is currently 70 years, but the rollout of universal healthcare and further uptake of pharmaceuticals will contribute to increasing life expectancy and therefore an ageing population. Over time, an ageing population will drive demand for pharmaceuticals and healthcare services.
Considerable burden of disease: mortality rates in Indonesia for a range of diseases and conditions are still high, relative to the country's development status. Indonesia also has the world's third largest tuberculosis burden behind India and China, with 91,000 annual deaths and 528,000 new infections every year. However, rising incomes, accelerating urban migration and dietary shifts indicate that diseases such as diabetes and obesity will increase. Indonesia currently has an estimated 10mn diabetics, highlighting the rapid increase in non-communicable diseases. These trends will catalyse demand for pharmaceuticals and healthcare services.
Rollout of universal healthcare: uptake of healthcare insurance has been rapid, with almost 127mn Indonesians being issued healthcare insurance cards from the Social Security Management Agency for Health (BPJS Kesehatan). However, only 96.4mn are payers, who contribute monthly premiums of almost IRP19,225 (USD1.64) per person per month. The ultimate goal by 2019 is to have universal coverage for all Indonesians. The government has pledged to significantly increase its own expenditure on healthcare, by investment in large-scale infrastructure upgrades, development of the workforce and increasing capacity to offer services to the country's large population. Universal healthcare will provide a stable, solid base for pharmaceutical and healthcare spending.
Rising wealth and consumer incomes: Indonesia's future private consumption and GDP growth prospects are second only to China in our forecasts for the Asia region. We forecast private consumption per capita to grow from USD1,900 in 2014 to USD5,300 by 2023. Higher levels of labour participation, growth in manufacturing and mining and the increased provision of credit will boost consumption over the coming years. This rise in consumption will bode well for generic drugs, over-the-counter medicines, and consumer healthcare and healthcare services which are typically paid out-of-pocket. Moreover, pooling of insurance premiums will create a market for innovative drugs over the long term, enabling drugmakers to sell higher value products in this emerging market.
Key Risks To Pharmaceuticals & Healthcare Spending
Ambivalent government policies on attracting investment: the Indonesian government has acted ambivalently towards foreign companies, offering concessions to attract investment while also forcing taxes or other regulatory measures on companies. While the government has stated it wishes to open up the country to foreign investment, foreign ownership of pharmaceutical firms is limited to 75% under the country's negative investment list. This forces foreign companies to partner with a local investor and offer 25% equity in order to gain access to the Indonesian market.
Halal certification: debates over forcing drugmakers to obtain halal certification are coming to the fore in Muslim-majority Indonesia. If there is a push for stricter restrictions or an introduction of halal requirements in pharmaceuticals, this could effectively limit market access or require extensive upgrading of manufacturing facilities to comply, as drugmakers would have to incur spending on upgrading facilities and creating separate production lines for halal products, thereby increasing their costs of production for the Indonesian market. This would also facilitate a loss of economies of scale, as demand for halal products at the global level is still low.
Poor intellectual property rights: the Indonesian government has issued compulsory licences in the past on nine patented products and removed the right of companies to appeal the issuance of licences. Furthermore, the government has shown a willingness to breach the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement, by using the provisions outside of what are deemed 'emergency needs'.