President Joko ‘Jokowi’ Widodo has led a push for more foreign investment and a loosening of bureaucratic reins in a number of key sectors in the growing Indonesian economy. While big ticket industries, like oil and gas and tourism, have led the charge an increasing number of investors and market watchers are picking an unlikely sector as the safest bet for strong, sustainable growth – healthcare.
A massive population, infrastructure development and a burgeoning middle class have made Indonesia an attractive locale for some of the world’s top healthcare firms, according to a recent report from international banking firm BNP Paribas.
“A favourable macroeconomic environment, a rising middle class and relatively low healthcare market penetration and spending should lead to greater demand in this sector. Indonesia has an underserved healthcare market, with low hospital bed and doctor ratios relative to the size of the population,” the report, entitled Indonesia’s healthcare: the next fast-growing industry, said.
The Economist Intelligence Unit went a step further in its global healthcare sector white paper released earlier this year in June, suggesting that for countries which suffer from high incidents of public corruption – like Indonesia, but also Thailand and Rwanda – private investment can often prove to be both the cheaper and more effective method of providing healthcare.
The Economist spoke with Yalis Ilyas, a leading professor at the University of Indonesia’s School of Public Health, who suggested the government would do better in supporting primary healthcare for the country’s poorest people, rather than spreading itself too thin in expanding basic services to the 250 million strong population.
“We need more money, but we need it for community health,” Ilyas said. “The most important thing is the quality of care.”
A study from Ernst and Young Indonesia looked at the top four ways a foreign investor could best tap the potential of the health market.
“One of the major obstacles to creating a quality healthcare system for the whole country is the severe lack of qualified specialists and nurses, especially in rural areas,” the report found.
“Several hospital operators interviewed for this study concurred that the shortage of qualified personnel is a huge problem, especially in high-skill fields such as radiology.”
With the introduction and integration of the ASEAN Economic Community, Ernst and Young expects plenty of space for investment in training and education in the coming years.
Secondly, the report tips ‘innovative solutions’ as a huge untapped source. Citing evidence of a decrease in in- and out-patient numbers amid high costs and lengthy treatments, Ernst and Young predicts smart and savvy innovations in the medical treatment field will create better outcomes for patients and investors.
Management expertise, like many sectors in Indonesia, is also eyed as a possible opportunity for investors.
“The Indonesian healthcare sector is also struggling with a shortage of good management teams. This is where foreign investors can add real value and increase profitability: negotiating better deals (volume discounts and payment terms) and having a more efficient model to manage costs and working capital can have a significant impact on the bottom line,” the report found.
Finally, the sheer size of the potential market should be incentive enough alone for foreign investors, the report revealed.
“According to the 2015 Frost & Sullivan Healthcare Outlook, the Indonesian healthcare sector is expected to triple from US$7 billion in 2014 to US$21 billion in 2019.”
Likewise, BNP Paribas points to an increase in government spending in pharmaceuticals and a reform which now allows full foreign ownership of pharmaceutical firms as a massive incentive for foreign investors to enter the market.