With the health challenges raised by the ongoing COVID-19 pandemic in Indonesia, the government seems more committed than ever to fully reforming of the sector.
The COVID-19 pandemic is testing Indonesia鈥檚 healthcare industry. With 169,195 confirmed cases and 7,261 deaths as of August 29, Indonesia has had to face the challenge of managing an extremely transmissible virus for a country of 265 million. That the country鈥檚 2,925 hospitals have yet to buckle under the duress may already be a feat unto itself. Nevertheless, Indonesia could do a lot to improve upon its healthcare sector.
The Indonesian government is aware of this and seems more committed than ever to carrying a full reform of its healthcare industry.
Pharmaceuticals
鈥淭he events [unfolded] by this pandemic means that we must accelerate the fundamental reforms in our healthcare sector,鈥� President Jokowi said at the annual plenary meeting of Indonesia鈥檚 Consultative Assembly in Jakarta this August, as quoted by Kompas Daily. 鈥淲e must massively increase the resilience and the capacity of our health services.鈥�
To the Indonesian government鈥檚 credit, the country was already on a path of a massive healthcare reform. It introduced, in 2014, a universal healthcare program, which has since grown into the world鈥檚 largest, covering over 200 million people.
To further improve the country鈥檚 healthcare infrastructure, in 2017, the country had also made amendments to its Negative Investment List, giving foreign investors a larger stake in certain sub-sectors of its healthcare industry, such as in hospitals, specialized clinics, and medical equipment.
This has led to a healthy, if somewhat below-potential, growth of the country鈥檚 healthcare industry. Indonesia鈥檚 pharmaceutical industry, in particular, experienced annual growth between 10 and 13% due to the national health insurance program in the last five years.
Indeed, amidst the significant economic contraction caused by the COVID-19 pandemic, the chemical, pharmaceutical, and traditional medicine sectors still managed to grow 8.65% in the second quarter 2020, and 5.59% throughout the first half of the year.
These sectors carry significant potential for foreign investors, as some 90% of the raw materials used in the production of drugs are imported. Additionally, the government has already amended the Negative Investment list to allow foreign investors 100% ownership of factories that produces these essential raw materials.
Medical devices
Indonesia鈥檚 medical device industry is worth an estimated US$2.4 billion in 2019, with the majority (US$2.8 billion) coming from imported products, according to a report by consulting firm Dezan-Shira. Due to the COVID-19 pandemic, the number of imports is set to grow even higher, with the country setting aside Rp 695.2 trillion towards funding its national economic recovery program. As much as Rp 169.7 trillion, or 6.2% of the total state budget, have been allocated to the Ministry of Health.
As part of the government鈥檚 COVID-19 response, the Ministry of Health has been tasked with procuring the COVID-19 vaccine, laboratory equipment and facilities, as well as research and development in addition to conducting the vaccination process itself.
Currently, the government has eased various import restriction on medical devices in its effort to combat the COVID-19 pandemic. If the Indonesian government continues its regulatory reforms to improve its Ease of Doing Business ranking, which President Joko Widodo has pledged to do, the ability of foreign manufacturers to import medical devices should become less cumbersome.
Opportunities for foreign Investors
Amidst a downturn in all other economic activity, German medical technology export to Indonesia increased. As reported by GTAI, Germany exported medical devices worth US$52.2 million, 22.2% more than a year earlier. This is reflective of the potential the Indonesian healthcare industry bears for German investors.
In the long-term, the healthcare industry will experience significant growth as the Indonesian middle-class grows and demand increases for products to treat common and even niche conditions. In this regard, foreign investors may also take notice of the growth of Indonesia鈥檚 digital healthcare as the use of healthcare apps is also transforming the local market. Local healthcare app, Alodokter, recorded more than 30 million active users since March 2020. The Indonesian government is also invested in these so-called telehealth firms. The Ministry of Health partnered with Halodoc, as well as local ride-hailing giant Gojek, to provide COVID-19 diagnostics in remote areas.