Price hikes may force drugmakers to relocate

Rendi A. Witular, The Jakarta Post, Jakarta

Companies producing pharmaceuticals in Indonesia may be forced to relocate to Thailand to cut costs following the utility price increases, the Indonesian Pharmaceutical Federation (GPFI) says.

CPFI chairman Anthony Ch. Sunarjo said on Tuesday that the fuel, electricity and telephone tariff rises would increase production costs by 10 percent to 15 percent.

He said this would make Thailand more appealing as a production base as it offered a better investment climate and cheaper energy costs.

"The (utility price) hikes will push production costs up. Foreign pharmaceutical manufacturers will likely cut production rather than increasing the price of their products."

In the past five years, the price of pharmaceutical products has increased by an average of 200 percent while production costs had soared by 500 percent, he said.

Anthony said the companies risked losing their respective market shares if they increased prices above what could be spent by the already burdened people.

The country's pharmaceutical companies compete intensively in a small market within Indonesia.

The country's overall drugs market grows by around 20 percent every year, but turnover is still small. Last year's market value was estimated at around US$1.5 billion.

The market size is shared by 198 drug manufacturers, of which around 70 percent are controlled by 35 foreign manufacturers, including world giants Pfizer, Roche, Aventis, Novartis and Mead Johnson.

Anthony said any relocation could create more unemployment in Indonesia.

He also said the relocation would make Thailand's pharmaceutical industry stronger and it would gradually overtake Indonesia as the largest drug manufacturer in the Southeast Asian market.

"The price hike has weakened our competitiveness. Now Thailand-made drugs are sold around 0.7 percent to 1 percent cheaper than ours," Anthony said.

He feared that Thailand could take over Indonesia's export markets, including in Vietnam, Cambodia and Laos.