Indonesia Pharmaceuticals and Healthcare Report Q1 2012

BMI View: Indonesia will continue to represent a high-risk but high-reward pharmaceutical market for multinationals, on account of its deficient regulatory and intellectual property (IP) environment on one hand, and the large and fast-growing population and economy, on the other. Nevertheless, per capita expenditure on pharmaceuticals is expected to remain below the US$30 mark by 2015, as patients continue to be responsible for the bulk of their medical bills.

Headline Expenditure Projections

Pharmaceuticals: IDR36,351bn (US$4.00bn) in 2010 to IDR40,273bn (US$4.58bn) in 2011; +10.8% growth in local currency terms and +14.4% in US dollar terms. Forecast up slightly from Q411 due to new population data.
Healthcare: IDR127,634bn (US$14.05bn) in 2010 to IDR135,655bn (US$15.42bn) in 2011; +6.3% growth in local currency terms and +9.8% in US dollar terms. Forecast down slightly from Q411 due to macroeconomic factors.
Medical devices: IDR7,142bn (US$786mn) in 2010 to IDR7,797bn (US$886mn) in 2011; +9.2% growth in local currency terms and +12.7% in US dollar terms. Historical size revised upwards significantly due to new data.

Business Environment Rating: In BMI's Q112 Business Environment Rating (BER) matrix for the Asia Pacific region, Indonesia places 13th, down from 12th previously. Its score is some 1.1% lower on a quarter-on-quarter (q-o-q) basis, on account of new population data. Generally speaking, the main drawbacks to investment in Indonesia include corruption, low per-capita drug spending and a small proportion of the elderly in the country. On the other hand, factors such strong expected annual growth of its pharmaceutical market, coupled with the already high and also rising population numbers and a relatively solid political and economic base are expected to encourage multinationals to invest in the country despite a risky operating environment.

Key Trends And Developments

In an attempt to further improve secondary care, in November 2011, the Indonesian health ministry established a supervisory body, the Indonesian Hospitals Supervisory Agency (BPRSI), to eliminate irregularities in hospital care. This followed complaints about poor care and medical malpractice. Patients have reportedly received poor service due to a lack of set standards of procedures for services in hospitals in the country. The BPRSI will develop an oversight system to monitor operations in all public and private hospitals. The five member agency will also establish provincial supervisory bodies that will be managed by governors. It is also likely to monitor the proposed implementation of free third-class hospital care for all citizens in 2012.
In line with the focus on healthcare system improvement, the University of Indonesia started the construction of a new hospital at its Depok campus in October 2011. The Japan International Cooperation Agency will provide loan to the university to build the IDR1.4trn (US$158.2mn) UI Hospital. According to the university rector, Gumilar Rusliwa Somantri, the hospital will be a world-class facility for education and a benchmark for hospitals in the region. The first phase of the construction will establish a new complex for the schools of medicine, dentistry and pharmacy by June 2012.
The Indonesian government aims for the country to become a global hub for halal-labelled products as it seeks a greater share of the industry. Previously, the halal concept was applied to food only; however, other goods and services, such as clothing, pharmaceuticals, cosmetics and financial services can also now be certified as halal. The country should respond constructively to the demand for halal products in order to strengthen the economy, according to Hatta Rajasa, the coordinating minister for the economy.

BMI Economic View: Indonesian Q311 GDP growth came in at a strong 6.5% year-on-year (y-o-y) for a third straight quarter, marking the economy's continued domestic demand-driven resilience in the face of mounting external pressures. We continue to like Indonesia as a regional outperformer, with more external trade dependent peers like Singapore feeling the effects of a protracted slowdown in exports. Indeed, GDP growth stayed above 4.0% in 2009 at the peak of the global financial crisis, and with sound domestic fundamentals, Indonesia is better prepared to weather such a storm this time around, which will clearly have a positive effect on the performance of its pharmaceutical and healthcare markets.

BMI Political View: Indonesia's President Susilo Bambang Yudhoyono has vowed to eradicate corruption in the government as he reshuffles his cabinet with the addition of new ministers. This move is seen an attempt to enhance investor confidence and improve his approval ratings. The cabinet reshuffle resulted in changes to 12 of the country's 34 ministries and is targeted towards improving the country's economic management. Analysts believe that the new appointments are not expected to result in any improvement in economic management. The president saw a major decline in his approval rating to 42.6% in October 2011, compared with 60.7% in the same month of 2010, according to the Indonesia Survey Institute.