Pharma firms may turn to Indonesia as alternative source of raw materials | Healthcare Asia Magazine
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Pharma firms may turn to Indonesia as alternative source of raw materials

A US pharma firm is planning to move its production base to Indonesia from China.

Indonesia could stand to benefit from the disruptions in global supply chains of pharmaceutical raw materials amidst speculations that some companies are looking to move out of China and seek alternative production bases, according to a note by Fitch Solutions.

A number of emerging markets with developed industrial sectors and low labour costs have emerged as options for firms planning to move out of China. According to Indonesian Health Minister Terawan Agus Putranto, “the outbreak has created an opportunity to boost local production of pharmaceuticals and expand the use of local inputs in the manufacturing process.”

Around 90% of the raw ingredients used by pharma companies in Indonesia are imported, with China supplying about 60%. In light of this, the Indonesia Chamber of Commerce and Industry estimated that the country’s pharma firms were operating around 55-60% capacity in May due to supply chain disruptions.

Further, the Indonesian government is in talks over the possibility of offering a new production base to US-controlled pharma firms that wish to move factories out of China, according to Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan.

Already, media reports in mid-May revealed that state-owned Kawasan Industri Wijayakusuma industrial park, in Central Java, was preparing to house a US pharma firm planning to relocate from China. The project was reported to be in regional spatial planning stages.

However, the country’s red tape problem could dissuade such investment. Indonesian Pharmaceutical Association chairman, Tirto Koesnandi, stated that an unsupportive regulatory framework and high wages could deter investors from setting up operations in the country.

Moreover, Fitch noted that Indonesia’s regulatory environment will remain highly challenging for drugmakers. The Pharmaceutical Research and Manufacturers of America (PhRMA) and its member companies highlighted in a report some concerns with the country’s discriminatory intellectual property regime and forced localisation requirement.

In addition, Indonesia ranked 73rd on the World Bank's Ease of Doing Business Index in October 2019. This could also discourage investors, as neighbouring Malaysia and Thailand fared better in 12th and 21st position, respectively.

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