With a population of 270 million people, should you invest in the Indonesian Orthotics and Prosthetics market?

Indonesian Medical Device Market

Indonesia, the 4th most populous country in the world. It’s GDP over a trillion USD, 3 times that of neighboring Singapore or Malaysia. Healthcare spending is estimated to rise above US$40 billion by 2022. With such a large population, it has the world’s largest Universal Healthcare Program and in recent years has seen an unprecedented increase in demand and supply of hospitals, healthcare facilities and medical professionals. Indonesia’s healthcare industry presents a potentially lucrative investment opportunity for domestic and foreign healthcare and medical technology companies.

Recently, to encourage more foreign healthcare and medical technology companies to invest in Indonesia, the government has removed significant restrictions in the country’s Negative Investment List, allowing 100% foreign ownership of businesses such as Pharmaceutical Manufacturing, Hospitals, Medical Device Manufacturing and Distribution. Setting up a, foreign owned healthcare, business in Indonesia has never been easier.

More than 9% of population have a disability and the need for assistive devices is steadily increasing.

Historically, the definition of “disability” and its sub-groups varied widely in Indonesia. The number of people with disabilities or number of users of assistive devices, such as Orthoses or Prostheses, can sometimes be contradicting and misleading. Culturally, people with disabilities are embarrassed of their condition, they often shy away from the public and do not disclose their disabilities. Furthermore, resources are often insufficient to cover areas outside major cities or reach smaller remote villages. Therefore, numbers may be erroneously extrapolated from small samples taken only from major cities and hospitals.

Fortunately, surveys have since improved as the country recognizes the importance of reporting accurate data in the global context. In March 2019, the Indonesian National Socio-Economic Survey (SUSENAS), found that more than 9 per cent of Indonesia’s population have a disability (approximately 23.3 million people). Of that, 2.2 per cent (approximately 5.7 million people) experience severe disability. Referencing preceding years’ data, this number is steadily increasing. Interestingly, this data corresponds with The World Health Organization’s estimates that about 10% of the world’s population have some form of disability.

More specifically, of the 23.3 million disabled persons, it is estimated that 1.5 million people need a medical device, such as a Prosthesis or an Orthosis.

10.7 million adults in Indonesia have Diabetes

In 2019, the International Diabetes Federation reports that 6.2% of the population in Indonesia have diabetes. Relatively low rate compared to neighboring countries, such as Malaysia with 16.8%, Singapore with 14.2% and Thailand with 8.3%. However, when you consider that there are 172 million adults in Indonesia, that’s approximately 10.7 million people with diabetes in 2019. Recent reports have also shown that approximately two thirds of amputations in Indonesia are the result of diabetes. This is a significant change from the past, where trauma from road traffic accidents and industrial accidents, were the main causes of amputations.

Access to medical care. Universal Healthcare Program, BPJS-Kesehatan

Indonesia is the largest archipelago in the world. There are approximately 17,000 islands of which 6,000 are inhabited. More than 10% of the population live below the poverty line. Under the universal healthcare program, BPJS-Kesehatan, all Indonesians have access to healthcare. In reality, this is not quite the case. In major cities, such as Jakarta or Surabaya, there are good healthcare facilities, both in the public and private sectors. However, in rural areas, medical services are often limited and road access can be challenging. Self-employed, low-income workers, who make up a significant proportion of the working population, often are unable to afford the lowest premiums to access the system.

The Orthotics and Prosthetics sector has over 40 service providers across the Indonesian islands. Majority of service providers are located in major cities on the island of Java. The Universal Healthcare Program, BPJS-Kesehatan, includes the provision of Orthoses and Prostheses from workshops run by public hospitals. However, the Program’s reimbursement amount to workshops is often insufficient to cover fabrication costs; leaving some workshops little choice but to charge the patient in order to cover costs. Furthermore, many disabled people living outside major cities, are either unable to afford the travelling cost to a workshop, unable to use public transport or cannot be away from home or work for long periods.

Summary

The Indonesian Medical Device Producers Association (ASPAKI) estimates the medical devices and equipment market size to increase to over US$3.5 billion after 2021. A growing elderly population accompanied by increasing prevalence of strokes, ischemic heart disease and diabetes will push healthcare expenditure even higher in the near future. For foreign investors, total imports of medical devices grew from US$1.5 billion in 2019 to an estimated US$2.3 billion in 2021. The numbers describe a market with great potential. The truth is, it probably is. However, investors must be prudent and also understand the market dynamics on the ground. The Indonesian population is large, but how many have real access to the market? 10% may live below the poverty line, however can the first 20% above the poverty line afford your products? It has been reported that Indonesians spend an estimated US$ 7 billion on medical services abroad. Could it be because these are specialty medical service unavailable in Indonesia? Possibly, but there is also a common belief that medical services overseas, such as Singapore or United States are better than local services. Even if in reality they are the same. So, should you invest in the Indonesian Orthotics and Prosthetics market? The answer is yes and there is a high and growing demand, but investors should not only read the big numbers and jump in. Understanding factors, such as local market dynamics, stakeholders’ behaviors and ground intelligence are keys to creating a customized strategy to navigate around a complex market.