ASEAN’s Imports of Pharmaceutical Products from India: Why is Vietnam an Outlier?

ASEAN’s imports of pharmaceutical products from the world have grown at the compound annual growth rate (CAGR) of 8 per cent during 2005-2016. Whereas the imports from India have grown at the rate of 13 per cent (see Figure 1). Due to the recession of 2007-2008, the growth rate of ASEAN’s pharmaceutical imports dropped significantly between 2005-2009 and 2010-2016: the rate in case of the world fell from 16 per cent to 3 per cent and in case of India the rate fell from 23 per cent to 4 per cent.

One of concurrent developments in the Asia-Pacific region is its growing share of the global middle class. The share was about 46 per cent in 2015 and is projected to be 65 per cent in 2030, that is, in about a decade from now. An expanding global middle-class would imply growing demand for goods, particularly food products, fuels and healthcare products, among others. ASEAN, home for nearly 647 million people, constitutes 10 developing economies including the highly advanced Singaporean economy. These economies are structurally diverse and their stages and the means of economic development are multifarious.

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Contrasts within ASEAN

The contrasts in demand for pharmaceutical products among ASEAN economies are remarkable as shown in Figure 2. For instance, Vietnam’s imports of pharmaceutical products from India rose steadily at the CAGR of 17 during 2005-2015. Also, on an average (2005-2015), 12 per cent of Vietnam’s total imports of pharmaceutical products are sourced from India. Similarly, Thailand, on an average (2006-2015), sourced about 16 per cent of its total imports from India. Recently, while acknowledging ‘a big gap between demand and domestic supply of pharmaceuticals and medical equipment’ Thailand sought India’s partnership in pharma. Further, Vietnam and Thailand are ageing societies of ASEAN. Their old-age ratios (percentage of working population, 15-64 years old)  are 10.2 and 15.9, respectively, in 2017. The economies will experience a rapid increase in their population share of elderly people (65 years and above). To facilitate healthy ageing, the need for necessary medical products and health technologies will grow in the future.

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Interestingly, in case of Myanmar pharmaceutical products alone, on an average (2009-2015), constitute nearly 20 per cent of total India’s exports to Myanmar. Also, pharmaceutical products, on an average (2009-2015), constituted 84 per cent of India’s exports under chemicals category (product groups 28-38, HS 1988/92 classification). India is world’s largest exporter of generic medicine. Notably, during 2010-2016, on an average, India held 35 per cent of Myanmar’ market share of pharmaceutical products. The share was 16 per cent in 2001.

The growth rate of imports of pharmaceutical products of other ASEAN countries from India also have been remarkable during the last decade (2006-2016): the Philippines (29 per cent); Brunei (25 per cent); Indonesia (11 per cent); Malaysia (10 per cent); Cambodia (8 per cent); while the growth is negative (2010-2016) in case of Singapore (minus 2 per cent) and Laos (minus 11 per cent).

Why is Vietnam an Outlier?

As demonstrated by Figure 2, Vietnam is an outlier (see Figure 1): One, out of ASEAN’s total imports of pharmaceutical products from the world, India’s share on an average (2005-2015) is 6 per cent, whereas the share is 12 per cent in case of Vietnam. Two, the annual growth rate of the imports from India is 14 per cent (2006-2015) in case of rest of ASEAN (excluding Vietnam), whereas the growth rate is 17 per cent in case of Vietnam. Three, since year 2004 Vietnam has held an average share of 28 per cent share of the total imports of pharmaceuticals by ASEAN.

Why is Vietnam an outlier? Below are some of the reasons:

First, though Vietnam began trade liberalization in 1986 through The Renovation (Đổi Mới), the process was interrupted during the Asian financial crisis in 1997. Since year 2001 onwards, Vietnam rigorously liberalized its trade regime. As a result the Vietnamese state-owned enterprises were permitted to engage in free trade, registration of new domestic enterprises saw an upsurge, thus, trade in general grew.

Second, the Vietnamese per capita income increased at the annual growth rate of 5.64 per cent during 1991-2016. An expansion of the middle-class, particularly concentrated in urban areas, increases consumption of healthcare products, among others, induced by lifestyle changes associated with increasing household income.

Third, Vietnam is one of the rapidly ageing economies of ASEAN (after Singapore and Thailand). Vietnam’s old-age dependency ratio is projected to be 26.0 in 2040 and 34.9 in 2050. The impact of ageing population on healthcare expenditure is not straightforward. However, the provision of healthy ageing and long-term health care to elderly people would sustain the growing demand for essential medical products and services.

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Fourth, Vietnam‘s health care expenditure (as per cent of GDP) was 7.1 per cent in 2017, the highest among ASEAN economies. Fifth, though Vietnam, in comparison to many Asian countries, allocates much higher on health care sector, the domestic pharmaceutical industry is observed to be “sluggish” and “seems to be in its early stage of growth.” This is due to lack of long-term strategy, low domestic value addition, higher dependence on external inputs, distorted pricing and distribution network, ineffective quality control and supervision. During 2005-2015, 96 per cent of Vietnam’s domestic demand for pharmaceutical products was met with imports (see Figure 3). Other reasons include tariff reduction facilitated by ASEAN-India Free Trade Agreement, affordability of generic drugs produced in India, among others.