In 2018, the total market value of the national medical devices industry was estimated to be USD 3.5 billion or an increase of 25% from the USD 2.8 billion in the previous year. It is a sector that has been growing at around 12% annually - the substantial growth in the demand for medical devices in Indonesia largely being fueled by the government’s implementation of the National Health Insurance (Jaminan Kesehatan Nasional, or JKN) program. These figures underline the attractiveness of Indonesia as a trade and investment market destination for both local and foreign companies.
Indonesia’s population will have reached 275 million by the end of 2019, the world’s fourth largest. Statistics tell us that in 2019, the country will have 15.4 million people aged 65 or older. This group is expected to continue to grow by over 40% by 2025, which will make the nation one of Asia’s most rapidly-aging countries. This will have an enormous impact at an economic and social level, particularly in the healthcare sector with a marked increase in demand for medical devices.
At present, imported products still dominate the market. These mainly comprise of technologically advanced medical instruments and infrastructure such as lasers, CT scan and other diagnostic equipment. Indeed, many high-tech medical devices such as units for radiotherapy, cardiotocography, electrical mucus suction, mobile X-ray, mammography, digital panoramic, dental X-ray, cryosurgery, dental elevator, etc., have yet to be produced in Indonesia.
Aside from being an importer of high-tech equipment, Indonesia is also an importer of basic medical devices such as tweezers and scissors for eye surgery. However, domestic medical device producers do already manufacture many basic items such as surgical gloves, bandages, orthopedic aids, hospital furniture (e.g. patient beds and drawers), wheelchairs, portable sterilizers, disposable gowns, anesthesia machines, coronary stents, medical needles and surgical thread. According to data from the Ministry of Health, the growth of the national medical equipment industry in early 2018 was showing an upward trend.
Among the updates on regulation are the new digital signature system for medical device registration, ASEAN Medical Device Directive harmonization (AMDD) and the Presidential Instruction (Inpres) No. 6 of 2016 regarding the Acceleration in the Development of the Pharmaceutical and Medical Devices Industries. The obstacles to overcome in this business are the lengthy process to obtain a license, competitive pricing, local content rules, as well as the scarcity of suitable infrastructure and skilled workforce.
Source: Indonesia Medical Council (KKI) 2018
As the above pie chart shows, in 2018, the doctor/patient ratio is 131,378: 260,000,000 or 1 doctor for every 1,979 people. Compared to the WHO recommendation of a doctor/patient ratio of 1:600, the condition of the healthcare system in Indonesia is still one of the lowest in the Southeast Asia region.
Indonesia Health Expenditure (% of GDP) Year 2000-2015
|Current health expenditure (% of GDP)||3,35%|
|Current Health Expenditure per capita (current USD)||111.762|
|External health expenditure per capita, PPP (current international $)||2.257|
|Domestic general government health expenditure per capita (current USD)||42.689|
|Domestic general government health expenditure (% of current health expenditure)||59.249|
|Domestic general government health expenditure per capita, PPP (current international $)||178.373|
|Per capita total expenditure on health (2014)||USD 299|
Source: World Health Organisation Global Health Expenditure Database
According to WHO, the national health expenditure of Indonesia has generally increased from 2000 to 2015. Exceptions have occurred, including in 2008 when it dropped to only 2.808% (previously, in 2007, it was 3.075%) and in 2015 when it fell slightly to 3.347% from 3.440% in the previous year of 2014. Meanwhile, according to Healthcare Asia Magazine, Indonesia's healthcare spending is to dramatically increase to USD 47.1 billion by 2022. This means the national healthcare expenditure will gradually increase as a percentage of GDP, rising from 2.98% in 2017 to 3.29% by 2027. On a per capita basis, healthcare spending will be more than doubled, from USD 114/person in 2017 to USD 269/person by 2027.
Source: Indonesian Hospital Association 2018
With a total of 2,820 units, hospitals in Indonesia consist of those for general public patients and those exclusive patients who are employees of the institution. The growth of the former over the past six years has not been as rapid as that of the latter, the average growth of hospitals for the public being 0.4%, while those for private were 15.3%
According to the latest Business Monitor International (BMI) report, the medical device market in Indonesia is currently valued at USD 747.3 million, and is expected to rise to USD 1,197.2 billion by 2019. This rise is projected at a compound annual growth rate (CAGR) of 14.6%. By individual product area, the CAGRs are expected to range from 20.8% for dental products to 8.9% for consumables.
The challenges that industry players must face include a rather long licensing chain, tight price competition, compliance to local content regulations and tricky infrastructure and human resources availability. The major challenge to face, however, is that around 92% of medical products circulating in health facilities, both private and government-owned, are imported. This results from the urgent nature of medical needs. Moreover, with the enactment of National Health Insurance, the demand for medical equipment, especially disposable equipment, is rapidly increasing.
The government has encouraged domestic industries to produce medical equipment through Inpres No. 6 of 2016 concerning the Acceleration of the Development of Pharmaceutical and Medical Devices Industry. Through this Inpres, the government hopes that, by 2030, at least 25% of medical products will be domestic brands. According to Gakeslab, only 10 of its total of 411 members have built production factories in order to operate in the medical industry. Currently, domestically produced medical devices are largely confined to wheelchairs, patient beds, coronary stents, anesthesia machines, needles, and surgical threads. The challenge for the government, and indeed investors, is there are still many medical products that could be cultivated domestically. These products are non-high technology products such as scissors and IV tubes in particular. Yet problems still exist. For example, the infusion hose uses plastic seeds, the raw materials of which must be of medical grade. To date, no chemical company in Indonesia produces this level of quality, thus it is obtained through import.
Besides requiring capital and investment, the medical equipment industry is very much bound by many regulations. There are also difficulties in sourcing raw materials (let alone the technology) to produce medical devices as well as obtaining the necessary licensing to build a manufacturing plant. One report alleges bringing a medical equipment factory into operation can take as long as 24 to 36 months from its construction to operation.
The pricing of products might also be a challenge for some new entrants to the sector. While the Indonesian medical industry has a preference for high-quality imported products from Europe, USA, and Japan, the pricing of the product is important. Chinese and Korean products can directly satisfy specific segments as they provide a satisfactory price alongside reasonable quality. Favorable payment terms also play a role in the decision, and inflexibility in terms of sales, payment schedules and length of contract can raise a barrier for Indonesian buyers.
Then there is the rule of compliance in fulfilling local content (TKDN). A number of domestic medical device manufacturers have been able to provide TKDN of up to 53%. However, some organizations from the medical devices industry still feel this government policy is rather ineffective. The fact that a number of domestic medical device manufacturers are the main suppliers of global brand products means that business players have adhered to the provisions. Apart from the absence of technical provisions such as government regulations, the failure of the TKDN provisions on medical devices can also be laid at the failure of Presidential Instruction No. 2/2009 to legislate sanctions for those government institutions that do not implement TKDN.
Finally, a lack of infrastructure is hindering Indonesia’s development in some areas. The lack of a stable and continuous electricity supply can raise problems in the healthcare sector, for instance, in that vaccines requiring constant refrigeration might be damaged as a result of power outages. An initial shortage of medical personnel for the introduction of new technology is another potential problem. This could well mean a lack of qualified professionals who can operate, maintain and calibrate the devices, thus meaning that training operators and their related staff may be an essential part of a company’s after-sales service.
In brief, Indonesia presents excellent opportunities for investors who wish to develop a manufacturing capability for medical equipment within the country. Government incentives are continuously improved to attract investors to this prospective market. The large size of domestic consumers in the country also remains a lucrative prospect for exporters and suppliers to market the products throughout the vast archipelago.
No restrictions exist on the import of medical equipment other than that importers must consider the local content (TKDN) requirement for government procurement. There is, however, one exception in that the Indonesian government, in general, prohibits the import of used equipment. The distribution of nearly all medical equipment and supplies requires a license from the Indonesian Ministry of Health, which needs to be obtained before the goods are imported. At the same time, the local distributor must possess a license as a distributor. For tender offers, compliance to Indonesian and AMDD standardization procedures is essential.
In the main, domestic manufacturers only produce basic hospital equipment, such as hospital beds, wheelchairs and disposable supplies. Overseas companies still account for a great majority of total supplies, including the more sophisticated medical and surgical instruments and infrastructure. The most valuable business opportunities in the medical devices market lie in surgical equipment, diagnostics, and medical imaging equipment. Lucrative sub-markets exist in regard to dental equipment such as devices for scaling and polishing, bleaching, and for orthodontics. There are prospects in providing laboratory equipment too. These include tests kits for hepatitis and infectious diseases, and for instruments related to clinical chemistry, hematology, and immunology.
Regardless of the varied requirements that different opportunities demand, investors are advised to invest time and effort in finding a good and reliable local partner. Serving the huge Indonesian market requires cooperating with Indonesian investors, agent and/or distributor who have valuable knowledge to offer in terms of negotiating with local clients. Additionally, talking to individual practitioners requires a different approach than business-to-business channels, as would be the case in dealing with large private hospitals. Attending conferences and events is a good strategy for meeting equipment importers, agents and distributors.
In conclusion, healthcare is indeed a priority in Indonesia’s national development agenda and thus service providers, medical device manufacturers/distributors, pharmaceutical companies, and medical technology firms have a solid opportunity to tap a large market while assisting the nation to improve its healthcare system. Indonesia’s large population and consistent economic growth present excellent opportunities for foreign companies. For now, the country will remain heavily reliant on imports to meet the demands for equipment in its fast-growing healthcare sector and the Indonesian market will continue to grow with little competition from local manufacturers.
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