Significant expansions in Indonesia鈥檚 medical device and lab equipment industry presents clear growth opportunities for foreign investors.
The Indonesian medical device and lab equipment industry continues to grow significantly. According to data from the International Trade Administration at the US Dept. of Commerce, the market size of the Indonesian medical device and lab equipment is expected to reach US$3.85 billion in 2022 from $2.85 billion in 2019. The International Trade Administration calculates market size by adding the amount of imported medical devices with the amount of devices produced locally, and then subtracting the total with the amount of devices that are exported.
That estimate is further supported by data from the Ministry of Investment, also known as the Indonesian Investment Coordinating Agency or BKPM, which recorded a marked increase in the number of medical device and equipment production facilities 鈥� from 193 in 2015 to 891 in 2021, or a 361.6% increase in just 5 years.
One reason for this development is the implementation of a national health insurance scheme known as Jaminan Kesehatan Nasional, or JKN. Introduced in 2014, the JKN aims to include all of Indonesia鈥檚 270 million citizens 鈥� the world鈥檚 fourth largest population 鈥� under its wings. As of 2020, an estimated 83% of that population has been covered by JKN.
Another possible reason for the rapid expansion is the COVID-19 pandemic. While the pandemic has had an adverse effect on various sectors, the global medical device and lab equipment sector experienced double-digit growth 鈥� as much as 38% in 2020, according to data from the WTO.
Alongside these developments, Indonesia has aspirations of producing its own advanced medical technologies. The country has traditionally been an importer medical technologies such as dental x-ray machines, CT-scanners, and ventilators. Some 94 percent of medical device circulating in the country are imported, as stated in a 2020 Ministry of Health report. In 2021, Indonesia imported Rp 12.5 trillion worth of medical devices and equipment, according to the Indonesian Coordinating Minister of Maritime Affairs and Investment Luhut B. Pandjaitan. Domestic production is mostly oriented toward disposable items such as surgical mask, gloves and hospital bed.
In this regard, the Indonesian government continues to encourage the development of the local medical device industry, most recently with the issuance of Presidential Instruction (Inpres) No. 2/2022 on accelerating the utilization of domestically produced goods for government tenders. Through this Inpres, the government expects local manufacturers of medical devices to eventually produce middle-class medical technology and healthcare devices by 2035 to meet domestic demand.
Resilient opportunities for foreign investors
For the foreseeable future, the Indonesian market will continue to grow with relatively low competition from local manufacturers and the country will remain heavily reliant on imports for its medical devices. On the other hand, medical device manufacturers/distributors, pharmaceutical companies, and medical technology firms can tap into a large market while helping Indonesia to improve its medical facilities.
Indonesia has acknowledged the need to work with foreign investors by easing regulatory hurdles to give foreign investors a larger stake in certain sub-sectors of the medical device and equipment industry, especially for raw materials production for hospitals and pharmaceuticals, as well as technologically advanced medical devices. Additionally, Indonesia now allows 100% foreign ownership of medical device subsidiaries. This was stated in Presidential Regulation No. 10 of 2021 on "Investment Business Fields" issued in February 2021.
Indonesia鈥檚 large population and consistent economic growth present excellent opportunities for foreign companies. These opportunities have already attracted various leading foreign medical device companies such as Siemens Healthcare Indonesia and GE Healthcare Indonesia to the archipelago. Furthermore, the Indonesian medical device regulatory and importation requirements has become more transparent in recent years. These conditions, as well as the numerous tax incentives available to foreign middle and small sized medical device businesses, means that there are significant business opportunities for foreign companies when they enter the Indonesian market.