AFTA may threaten local pharmaceutical industry's survival

JAKARTA (JP): The implementation of the ASEAN Free Trade Agreement (AFTA) next year will threaten the existence of local pharmaceutical firms, an industry insider said here on Monday.

J.R. Kosasih, the president of pharmaceutical distributor PT Millennium Pharmacon International, said most local pharmaceutical companies would be unable to survive the stiffer competition following the implementation of AFTA.

He said the country's pharmaceutical industry was too weak to compete with drug producers from other member states of the Association of Southeast Asian Nations (ASEAN).

According to him, at least 140 of 180 local pharmaceutical companies did not have adequate networks to compete with their ASEAN competitors. This inability to compete will eventually lead to their closure.

"These local pharmaceutical firms will be struck by the influx of cheaper drugs from other ASEAN countries," Kosasih said during a media conference.

ASEAN groups Malaysia, Singapore, Cambodia, Brunei, Indonesia, Laos, Myanmar, the Philippines, Thailand and Vietnam. Under AFTA, the flows of pharmaceutical products within the region will be free from tariff and nontariff barriers.

The Indonesian government currently only allows the import of drugs and their raw materials from countries in the Pharmaceutical Inspection Cooperation, including the United States, Australia and European countries. Limiting the import of drugs was part of the government's efforts to protect local pharmaceutical companies.

Kosasih said that with the implementation of AFTA, there would be no more nontariff barriers to hamper the entry of ASEAN pharmaceutical players into the country's promising market.

Even without AFTA, the Indonesia pharmaceutical industry has become overcrowded, a situation that has forced many drug companies to cut back on production, he said.

"Idle production capacity in many pharmaceutical firms is very high, with only between 40 and 50 percent installed capacity being used in their operations on average," Kosasih said.

With such ineffective operations, these companies will have a difficult time surviving the increased competition that will accompany AFTA, he said.

Aside from a low level of production efficiency, a dependence on imported raw materials is a major hurdle for local drug producers, Kosasih. "Around 95 percent of raw materials for drugs are imported."

This dependence on imported materials leaves the country's pharmaceutical industry extremely vulnerable to the depreciation of the rupiah against the US dollar, he said.

The continued weakening of the rupiah against the greenback recently resulted in a 20 percent increase in drug prices, he said.

Kosasih, however, said that despite the gloomy outlook for local pharmaceutical firms, the country's pharmaceutical market still had a great deal of potential.

The country's pharmaceutical market stood at Rp 1.1 trillion (about US$98.21 million) last year.

"The market will grow by 17.5 percent this year," he said. (03)