The global pharmaceutical sector has been a focal point in the coronavirus crisis since it played a critical role in the development of the COVID-19 vaccine. Moreover, an economy cannot function and flourish without being backed by physically fit individuals. Hence the pharmaceutical industry in Indonesia assumes prime significance.
The Indonesian government is inclined to see the national pharmaceutical sector expand because it has remained heavily reliant on raw material imports, putting significant strain on the country’s trade balance, current account balance, and rupiah exchange rate. In its bid to increase domestic production in the pharmaceutical industry, the government has pivoted towards global investment.
Moreover, a rising number of Indonesians are devoting more of their disposable income to healthcare, the country’s reliance on imported raw materials is only going to expand if the domestic raw material output is not boosted.
Why Foreign Investors Should consider Investing in Indonesia’s Pharmaceutical Industry?
Opportunities in Pharmaceutical Raw Products Business
According to the Indonesian Ministry of Health, there are 241 drug manufacturing businesses, 17 pharmaceutical raw drug industries, 132 traditional medicine industries, and 18 natural product extract industries in Indonesia as of 2021.
The Indonesian pharmaceutical industry, for example, accounts for 27% of the whole ASEAN pharmaceutical industry. The majority of these businesses are involved in the formulation or production of pharmaceuticals, however, for ascertaining raw materials Indonesia continues to be heavily reliant on imports from other countries. Consequently, investing in pharmaceutical raw materials in Indonesia presents a lot of lucrative prospects.
Improved Business Licensing Process
The government has decided to speed up the licensing procedure for medical equipment suppliers to assist Indonesia in combating the COVID-19 pandemic. By using the Indonesian Investment Coordinating Board (BKPM)’s Online Single Submission (OSS) and maximizing monitoring through the BKPM Investment Control and Command Center (Pusat Kopi BKPM), the license may now be obtained in less than 24 hours.
Open to 100% Foreign Ownership
To lessen its reliance on imported pharmaceutical raw materials, the Indonesian government permitted foreign investors to own 100% of their investment in its pharmaceutical industry. According to the Positive Investment List, the following are some of the pharmaceutical-related company operations that are available for 100% ownership:
| KBLI Number | Business Activities |
| 21011 | Pharmaceutical Material |
| 21011A | Pharmaceutical Raw Material and Its derivative products |
| 21011B | Biotech-based Pharmaceutical Raw Material |
| 21011C | Blood-based Pharmaceutical Raw Material |
How to Calculate Local Content for Pharmaceutical Products in Indonesia
MOI Regulation No.16 of 2020 outlines the components of the local content level for pharmaceutical finished goods and raw materials, as well as the mechanism for calculating it. It also lays out the steps for obtaining a certificate indicating the level of local content in pharmaceutical products.
Local Content Calculation for Pharmaceutical Products in Indonesia
Variables
When evaluating the local content level of local pharmaceutical manufacturing operations, the following are the key elements to consider:
- the employees’ nationalities
- the manufacturing plants’ ownership
- utilization of locally sourced materials
Calculation
The local content of pharmaceutical products is calculated using four factors such as raw materials, research and development, manufacturing process, and packaging.
For the computation of total local content, each component is further divided down into sub-components with varying weight values, as follows:
| No. | Component | Sub-Component | ||
| Description | Weight | Description | Weight | |
| 1 | Raw Materials Content | 50% | Active Pharmaceutical Ingredients (“API”) | 65% |
| Additional Ingredients | 35% | |||
| 2 | Research and Development | 30% | Development of New Drugs | 25% |
| Clinical Trial | 30% | |||
| Formulation | 35% | |||
| Bioavailability (“BA”) / Bioequivalence (“BE”) | 10% | |||
| 3 | Production Process | 15% | Compounding | 60% |
| Dosage Forming | 40% | |||
| 4 | Packaging Process | 5% | Batch Release | 50% |
| Primary Packaging | 40% | |||
| Secondary Packaging | 10% | |||
Issuance of Local Content Certificate
The Ministry Of Industry (MOI) has the right to provide a local content certificate for pharmaceutical products, according to MOI Reg. 16/2020. The relevant pharmaceutical manufacturing company (“PMC”) will first determine the local content level manually. The PMC may submit an application to the Directorate General of Chemical, Pharmaceutical, and Textile Industry (“Directorate General”), through the MOI’s Public Services Unit (“PSU”), for verification of the local content calculation, including the following documents:
- Industrial Business License;
- Company profile, organizational structure, and production data;
- PMC’s self-assessment of the local content level;
- Certificate of Production from the Ministry of Health; and
- A yearly production and marketing realization report presented to the Food and Drugs Supervisory Agency.
Within one business day of the PMC submitting the necessary papers, the PSU will check that they are complete and shall transmit the application to the Directorate General. Within five business days of receiving the application from the PSU, the Directorate General will issue a letter approving the computation of the local content level if there are no issues with the application.
When the PMC receives the permission letter, it must forward it to an independent assessor authorized by the MOI to validate the local content estimate. The independent assessor will notify the Center for the Utilization of Domestic Products, which will provide the local content certificate within five working days if the verification result matches the PMC’s computation. The certificate for local content is valid for two years.
Get in Touch with Us
While making an investment in Indonesia’s pharmaceuticals industry, Cekindo will provide you with a seamless company registration experience. Our license specialists can assist you in a hassle-free acquisition of business licenses.
Moreover, Cekindo’s can assist you in your product registration. Furthermore, Cekindo provides tax and accounting services and can act as your HR entity to carry out HR and recruitment services to help cut overhead costs of setting up a department.
