More incentives to boost industry

By : Made Anthony Iswara



Indonesia needs to provide more incentives to boost foreign direct investment (FDI) in the country’s pharmaceutical industry as the existing tax breaks are not sufficient to revive the industry, which has been dormant in recent years.

“Investing in Indonesia requires high operational costs from extensive travel time between the ports and the scattered distribution centers,” Institute for Development of Economics and Finance (Indef) economist Berly Martawardaya said on the sidelines of a public discussion on Tuesday. “Such high costs should be compensated through adequate incentives,” he added.

Berly said that additional incentives were particularly critical in increasing the country’s competitive advantage with its neighboring countries.

Indonesia has issued fiscal incentives such as tax holidays and tax allowances in a bid to attract more investment in various sectors – including for pharmaceutical raw materials production – in addition to simplifying business licensing procedures through the introduction of the Online Single Submission (OSS) system.

But neighboring countries such as Vietnam and Malaysia had already gone the extra mile on top of their tax holidays, he said, with some of them temporarily discounting land taxes for factories, establishing special economic zones and providing grants for foreign research-based pharmaceutical companies.

Such incentives, Berly said, had made them more favorable for foreign investors compared to Indonesia. Moreover, he blamed the 2008 ministerial regulation on the registration of medicines for discouraging foreign investors from investing in Indonesia.

The regulation obliges foreign nonproducing companies – including those in research and distribution – to register their pharmaceutical products through local or multinational manufacturing companies within a maximum period of five years. He said that during the period from 2003 to 2008, investment growth was high. “But, after 2008, the growth dropped,” Berly said, adding that the regulation had instead become a disincentive for foreign investors.

According to Indef’s data, foreign investment in the pharmaceutical industry fell by 25 percent in 2018 from the previous year. Berly said the decline indicated that Indonesia was not attractive enough for foreign investors to set up pharmaceutical factories.

He said the foreign investment would have reduced the industry’s dependency on imported materials as they could boost research to recreate homemade products.

A report by the Health Ministry’s research and development agency last year revealed that about 90 percent of the pharmaceutical industry still used imported active pharmaceutical ingredients (APIs).

Nonetheless, the Health Ministry’s director overseeing pharmaceutical production and distribution, Aguidini Banun Saptaningsih, said the ministry would continue to implement the law, which she claimed had kept medicinal quality at its best while sorting out falsified products in the market.

Besides, she said the action plan stipulated in the 2018 ministerial regulation on pharmaceutical and medical equipment industry development would help reduce the industry’s dependency to about 80 percent by 2021, although she did not specify how the scheme would help the ministry to reach its target.

Aguidini also mentioned a recent foreign investment worth Rp 54 trillion (US$3.81 billion). Apart from the billion-dollar project, she cited data from the Food and Drug Monitoring Agency that listed 10 pharmaceutical hubs built after 2012, including two facilities that are under construction. The existing ones include the merged South Korea-Indonesia biological product facility Daewoong-Infion established in 2015 and the India-Indonesia oncology and biosimilar products hub Amarox established last year.