Less Imports, More Local: Indonesia’s Pharma Game Plan
Indonesia is ramping up efforts to reduce its reliance on imported pharmaceutical raw materials and strengthen its local drug industry. The government is rolling out policies to encourage domestic production, but challenges remain as the country continues to depend heavily on imports.
Ready to turn the corner, Indonesia’s pharmaceutical sector needs to overcome import dependence and regulatory obstacles, among other crucial factors, to achieve long-term success.
A push for pharmaceutical self-sufficiency
The Indonesian Ministry of Health announced on January 14, 2025, that it is accelerating efforts to achieve pharmaceutical self-sufficiency. The plan focuses on two key strategies: increasing research and development in drug raw materials and offering financial incentives to encourage domestic production.
Currently, about 90% of Indonesia’s active pharmaceutical ingredients (APIs) and excipients are sourced from abroad, primarily from China and India. This dependence exposes the industry to risks such as supply chain disruptions, price fluctuations, and geopolitical tensions.
Snapshot of the industry
Java remains the center of Indonesia’s chemical, pharmaceutical, and traditional medicine industries, contributing about 83% of the sector’s output in 2023. East Java led with a 22% share, overtaking West Java, which contributed 21%, followed by Banten at 15%.
Strong infrastructure, including gas pipelines and new industrial estates, has made East Java a prime destination for manufacturers. Despite local production efforts, Indonesia continues to rely on imported raw materials, with organic chemicals being the most significant. In 2023, organic chemical imports reached approximately US$3.8 billion, with acyclic alcohols and polyacetals accounting for the largest share. However, as post-pandemic demand stabilizes, imports of these raw materials have begun to decline.
Policies to support local manufacturing
In 2023, the government introduced measures to strengthen the local pharmaceutical industry. One of these policies requires healthcare facilities to prioritize purchasing domestically produced drugs before considering imports.
The 2023 Omnibus Health Law reinforces this directive, mandating that at least 70% of medicines in the government’s e-catalogue come from local sources. This push aligns with Indonesia’s broader goal of fostering a more self-sufficient pharmaceutical sector.
Growth potential and challenges
Developing local pharmaceutical manufacturing presents opportunities for both domestic supply and export potential. Government incentives and partnerships with local firms could attract foreign investment, driving industry expansion. While initial production will focus on meeting domestic demand, Indonesia aims to position itself as an exporter in the long term.
However, achieving full pharmaceutical independence will take time. Recent investments in R&D and infrastructure will require years before resulting in significant local production. Despite these efforts, imports are expected to remain a major part of the market.
Indonesia’s pharmaceutical exports are projected to grow at a five-year CAGR of 8.1% in local currency terms, reaching IDR 15.3 trillion by 2029. At the same time, imports are forecasted to rise from IDR 19.4 trillion in 2024 to IDR 27.2 trillion by 2029, maintaining a trade deficit.
Regulatory barriers, industry growth
While government initiatives will support pharmaceutical sales growth, regulatory challenges may deter investment. Indonesia’s pharmaceutical industry, one of the largest in Southeast Asia, continues to expand due to a growing population and increasing healthcare spending. However, complex regulations could create hurdles for drug manufacturers looking to establish or expand operations in the country.
Sources: BMI Industry Research / Permata Institute for Economic Research
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