Foreign direct investment (FDI) in the healthcare industry of Indonesia rose steeply in the first half of 2017 after the government opened up the general hospital sector to foreign investment by revising the Negative Investment List (in Indonesian: Daftar Negatif Investasi) in 2016.
While in 2015 and 2016 foreign investors only invested USD $0.8 million and USD $0.2 million, respectively, in Indonesia's hospital industry, the figure rose to USD $14.3 million in the first half of 2017.
The difference is that before 2017 foreigners were only allowed to invest in specialist hospitals, not in general hospitals. However, after the government (through Presidential Regulation No. 44/2016) allowed foreigners to have a maximum stake of 67 percent in general hospitals (for ASEAN investors the maximum figure is 70 percent) investment started to rise rapidly.¹
An official at Indonesia's Investment Coordinating Board (BKPM) said the Netherlands contributed most to investment in the hospital industry in H1-2017 by investing USD $10 million in a new hospital in Jakarta. Although few details were given it possibly involves an eye hospital in Menteng (Central Jakarta). This was already discussed when Dutch Prime Minister Mark Rutte took a Dutch trade mission to Indonesia in November 2016. However, also investors from the United States and South Korea have started to invest in Indonesia's hospital sector.
Mus Aida, Chairman of International Relations and Health Tourism at the Association for Indonesian Private Hospitals (in Indonesian: Asosiasi Rumah Sakit Swasta Indonesia, or ARSSI), said foreign interest in Indonesia's hospital industry primarily originates from Asia (Malaysia, Singapore, Thailand, India, and Vietnam). Aida added that partnerships between local Indonesian hospitals and foreign counterparts can also give rise to rapid development of Indonesian hospitals.
Besides having been given room to invest in Indonesia's hospital sector, foreign investors are also interested in the lucrative prospects of Indonesia's healthcare industry.
Opportunities and Challenges in Indonesia's Hospital Sector
During the years 2011-2014 the number of new hospitals that came online in Indonesia grew by an average of nearly 11 percent per year. Most of these were hospitals developed by the (domestic) private sector. However, Indonesia's bed-to-patient ratio (0.9) remains among the lowest in the ASEAN region. Meanwhile, the nation's doctor-to-patient ratio per 1,000 people is also among the lowest in the region at 0.3. Why is Indonesia's hospital sector promising (attractive for investment) and what are the challenges?
• The government's National Health Insurance program, which targets to provide universal healthcare to all Indonesians by the year 2019, is a major opportunity for Indonesian hospital operators and pharmaceutical companies as the customer base will be enlarged significantly. However, there remain concerns about the financial sustainability of this ambitious government program.
• Indonesia is the world's fourth-largest country in terms of population size. Presently there are more than 260 million Indonesians. Although the Indonesian population is known for being "young" (with around halve of the population being below the age of 30 years), it is estimated that by 2020 there will be 17 million Indonesians aged over 65 years and - most likely - in need of medical services. It is estimated that by 2020 there will be 184 million of Indonesians between the age of 15 and 64 years.
• Robust economic growth and rising per capita GDP of Indonesia give rise to increasing purchasing power and higher disposable income. This implies that the rising middle class segment has more money to spend on healthcare services. Indonesia's annual disposable income is expected to reach USD $750 billion by 2020, up 53 percent from 2013. However, the challenge is to make Indonesians more aware of the benefit of spending on health. Historically, growth of spending power in Indonesia does not automatically lead to growth of health spending.
• Although Indonesia's healthcare sector is developing (including a growing number of internationally accredited hospitals) the richer segments of Indonesian society still prefer to visit Singapore in case they need hospital services. However, this figure should decline as healthcare service improve in Indonesia. This trend may already have started. In 2015 a total of 850,000 Indonesians went to Malaysia for medical treatment, down 3.6 percent from the figure in the preceding year.
Indonesia's Largest Hospital Operators:
|Company||Hospital Name||Number of
|Sejahtera Anugrahjaya||Mayapada Hospital||2 units||50 units|
|Sarana Meditama Metropolitan||Omni Hospitals||2 units||2 units|
|Siloam International Hospitals||Siloam||20 units||50 units|
|Mitra Keluarga Karyasehat||Mitra Keluarga||12 units||18 units|
|Ciputra Development||Ciputra Hospital||3 units||7 units|
¹ Foreign investment in general hospitals in the cities of Manado and Makassar (on Sulawesi) is still banned