Halal Pharmaceutical Ambitions Unlikely To Be Realised
BMI View: While Brunei has taken tangible steps towards its goal of becoming a global halal pharmaceutical hub, we highlight that its progress will be impeded by bureaucracy, a lack of specialised infrastructure and competition from neighbouring countries Indonesia and Malaysia - which have similar ambitions and large Muslim populations.
Brunei was one of the first countries to issue guidelines for the manufacturing and handling of halal medicinal products, traditional medicines and health supplements. When these guidelines were released in 2010 it was hoped that this framework would pave the way for the establishment of halal pharmaceutical companies in the country, and for Brunei to become a hub for halal pharmaceutical exports. Subsequently in October 2013, local media The Brunei Times reported that the country's first pharmaceutical manufacturing plant, Simpor Pharma, was set to be operational by the end of 2013, when it had acquired full halal certification from the government. By February 2014, the firm had produced approximately 25mn sharia-compliant capsules, aiming to ship its first batch of exports in three-to-four months.
Simpor Pharma was established through a US$26mn joint investment between Canada-based Viva Pharmaceutical, private equity fund Aureos (Brunei) Capital and a group of local investors. According to Edward Ko, the managing director of Simpor Pharma, the firm will eventually produce halal-certified health supplements, herbal products and other prescription drugs for export to Asia Pacific, the Middle East, Western Europe and the US.
Brunei offers many of the necessary qualities for a successful pharmaceutical sector. Classified as 'very high human development', the country is ranked 30th on the UN Human Development Index (HDI), behind only Singapore (in eighthposition) in Southeast Asia. In addition, in a bid to attract foreign investors, the country has no manufacturing, capital gains and export taxes. As the pharmaceutical industry is considered as a 'pioneer industry', companies that are certified as a 'pioneer status company' can also be exempted from corporate income tax, import duties on machinery and raw material for up to 11 years.
As a Muslim-majority country, Brunei's aim to capitalise on the halal market also offers economic growth opportunities for the country. Pew Research estimates that there were 1.6bn Muslims worldwide in 2010, and projected that the population will grow to 2.2bn by 2030. The majority of the Muslim population resides in Asia Pacific (62.1%), followed by Middle East and North Africa (19.9%), Sub-Saharan Africa (15.0%), Europe (2.7%) and the Americas (0.3%). As there is a strong demand from the Muslim population for halal pharmaceuticals and other products, there are significant global commercial opportunities yet to be capitalised on.
However, despite Brunei's capabilities and attractiveness, BMI believes that the country will not be able to fully capitalise on the opportunities presented by halal pharmaceuticals and the wider pharmaceutical industry. This is due to a number of reasons:
Stable But Small Pharmaceutical Market
Despite Brunei's relatively high per-capita pharmaceutical (US$237) and healthcare expenditure (US$990), its population of 42mn people limits the long-term growth of its pharmaceutical market. Valued at BND120mn (USD100mn) in 2013, Brunei's pharmaceutical market is forecast to grow at a local compound annual growth rate (CAGR) of 5.4% (9.0% in US dollar terms) between 2013 and 2018, reaching a value of BND160mn (USD150mn) by 2018. The majority of its pharmaceutical needs are fulfilled by imports. In 2012, the country imported USD61.8mn, and exported USD73,000 worth of pharmaceuticals. For as long as the country remains strongly reliant on imported products, we highlight that the low import figure means that Brunei can only remain a stable but small pharmaceutical market for foreign investors.
In 2012, Brunei's main import partners included Malaysia (USD27.8mn), Singapore (USD14.1mn), Brazil (USD6.8mn), the UK (USD3.6mn) and France (USD2.9mn). Meanwhile it exported mainly to Singapore (USD294,417), Saudi Arabia (USD240,449), Malaysia (USD192,944), UK (USD86,033) and Papua New Guinea (USD56,617).
In the World Bank's Doing Business Report 2014, Brunei was ranked 56th out of 189 countries in terms ease of doing business, behind neighbouring Southeast Asian countries like Singapore (first), Malaysia (sixth), Thailand (18th). While the country ranked well in terms of paying taxes, getting electricity and trading across borders, it ranked poorly in sub-indicators such as starting a business, enforcing contracts and registering property. Aligning with this, we note that the managing director of Simpor Pharma highlighted the problems posed by bureaucracy in an interview with Oxford Business Group in 2013, stating that it took six years before Viva Pharmaceutical was able to build its facilities, in part due to bureaucratic slowdowns. He further added that Brunei does not have high-quality infrastructure, which impedes the expansion of manufacturing facilities.
|Relatively Open Business Environment|
|Ease Of Doing Business In Brunei By Sub-Indicator Ranking (2014)|
Competition From Malaysia And Indonesia
According to a 2010 Pew Report, approximately 51.9% of Brunei's population (or 211,000) people are Muslims. Indonesia is home to the largest Muslim population globally (204.8mn people), while Malaysia has 17.1mn. Both Indonesia and Malaysia are also interested in the halal pharmaceutical industry. In October 2012, Malaysia released the Malaysia Standards (MS) 2424:2012 Halal Pharmaceuticals - General Guidelines, which aims to address halal integrity in the pharmaceutical supply chain from manufacturing through to distribution, and even the storage and display of medicines and health supplements. According to the Deputy Minister of the Ministry of Science, Technology and Innovation, Fadillah Yusof, the guidelines will outline basic requirements for halal pharmaceuticals in Malaysia.
Similarly, in August 2011, the Indonesian government stated that it aims to become a global hub for halal-labelled products, as it seeks a greater share of the industry. Previously, the halal concept was applied to food only, but other goods and services, such as clothing, pharmaceuticals, cosmetics and financial services, can also now be certified as halal. Hatta Rajasa, the coordinating minister for the economy, has stated that the country should respond constructively to the demand for halal products to strengthen the economy.
With larger populations and accordingly, larger pharmaceutical markets, both Malaysia and Indonesia will compete directly with Brunei for investors interested in the halal pharmaceutical market. In addition, the two countries have fairly developed domestic pharmaceutical industries, and their existing expertise gives them an advantage in the production of halal medicinal products.
More critically, the global population of over one billion Muslims is dispersed and fragmented. Consequently, in order to market halal pharmaceuticals, companies will have to abide by the regulations (halal regulations and normal pharmaceutical regulation in terms of efficacy, safety and quality) as set by each respective country.
In addition to the dispersed and fragmented Muslim population, the halal pharmaceutical sector is still in its nascent state, with various countries coming up with their own guidelines or halal pharmacopoeia. To properly capture the potential of the halal industry, BMI believes that there is a need for a standardised set of regulatory guidelines. However, should each country create its own halal guidelines, it will increase technical bureaucracy and application costs for pharmaceutical firms, reducing incentives to develop halal medicinal products.