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Exploring MINT: Part 2 - Indonesia

In the second of a series of posts focusing on each of the ‘MINT’ markets, I take an in-depth look at the opportunities and challenges for pharma in Indonesia, with a focus on the impact of its planned roll-out of a universal healthcare system.
The Southeast Asian island nation of Indonesia has attracted a lot of attention in recent years due to its rapidly growing economy and burgeoning middle class. In fact, back in 2009, long before the coining of ‘MINT’, Morgan Stanley suggested the ‘BRIC’ acronym should be changed to ‘BRIC’ to incorporate this bright economic prospect.

Within the Research Partnership’s Emerging Markets team, we consider the opportunity for pharma in Indonesia to be driven more by the increasing ability of the vast population to afford healthcare rather than the government’s ambitious plans to reform public sector healthcare. In the following sections I will discuss the reasons why, by reviewing the country’s demographic opportunity, developing private sector and broadening public sector coverage.

Demographic opportunity

Indonesia’s young population is a key driver for economic growth. While countries like China are greying rapidly, with a median age of 35, Indonesia has a median age of only 29. The influx of young Indonesians to urban areas is driving increased productivity. Interestingly, the younger age profile does give the country a different disease profile to that of ‘older’ nations. The high prevalence of smoking among the young, for example, results in smoking-related diseases being one of Indonesia’s leading causes of death. Air pollution in urban areas is responsible for a high burden of respiratory disease.

Indonesia’s sheer size also means that it has the potential to be a huge market for pharma. Home to approximately 250 million people, it is the world’s fourth most populous nation, behind only China, India and the US. While only a small proportion of Indonesia’s population are currently able to afford premium-priced pharmaceuticals, in absolute terms this still translates into large sales volumes given its total population is almost 10 times the size of its more affluent neighbour – and fellow ASEAN nation – Malaysia.  As the prosperity of Indonesia’s population rises and the proportion of middle class increases, it is anticipated that it will become one of the major sources of the ‘next billion patients’, along with its ‘BRIC’ predecessors China and India. However, with around 18,000 islands, approximately 6,000 of which are inhabited, Indonesia’s population is spread across a huge geographic area. The pharma industry remains focused on the islands of Java and Sumatra. The world’s most populous island, Java has a population similar to that of Russia and includes the major urban centres of Jakarta, Surabaya and Bandung. 

Improving private sector facilities

In recent years, we have seen that Indonesians with the means to pay for private healthcare often prefer to seek treatment overseas. This is primarily because they do not consider domestic healthcare facilities– private or public – to be of a sufficiently high standard. They are currently spending over US$1 billion per year on healthcare overseas. I was amazed to learn that some top-of-the-range insurance policies include emergency medical evacuation by helicopter to the more highly-regarded facilities of Singapore or Malaysia. This may be set to change as more international ‘world class’ private hospitals open, particularly in the capital, Jakarta. Private hospital groups are expanding their presence year-on-year in an attempt to meet the rising demand of the urban middle classes for high quality, trusted healthcare. 

Broadening public sector coverageWhile the middle class consider private healthcare to be their best option, as in many emerging markets, the concept of private healthcare insurance is not yet well established in Indonesian culture. Less than 4% of the population currently have private health insurance. This means most private healthcare spending remains an out-of-pocket expense. Private healthcare operates in parallel to three main public healthcare schemes:
  • Jamsostek is a state scheme which provides health insurance for private sector workers. Despite being technically mandatory, Jamsostek suffers from a high opt out rate on the part of employers, meaning it only covers about 2% of the population.
  • Askes social health insurance covers civil servants and their dependents – about 6% of the population.
  • Jamkesmas is a scheme designed for the poor which provides basic coverage to about 32% of the population.
These schemes offer different levels of benefits, with Jamsostek offering access to both private and public healthcare providers, while citizens covered by Askes or Jankesmas are largely restricted to the public network. The majority of the population has hitherto slipped through the net as the informal sector accounts for almost two thirds of Indonesia’s workforce.

However, universal healthcare coverage is one of the government’s top priorities. They have set up a National Social Security Body to work towards integrating the various public schemes to provide coverage for the whole population by 2019. The first stage of implementation of this scheme, referred to locally as JaminanKesehatanNasional or JKN, got underway earlier this year.  Once operational, this is expected to form the world’s largest single payer healthcare system. However, to date the roll out of this scheme has faced some challenges. These include the difficulty in providing access to healthcare facilities in more rural or isolated areas, the limited number of physicians available and the need for employers to contribute towards mandatory premiums. 

Limited public sector opportunities despite expanded coverage

While the extent to which the government will achieve its ambitious objective remains to be seen, it certainly has the potential to be ground-breaking. But not necessarily for pharma. According to Health Minister NafsiahMboi, in order to contain costs, physicians participating in the JKN will have to adhere to a government formulary, which consists of 92% generics. This suggests that the greatest beneficiaries are likely to be local manufacturers of commodity generics.

Therefore, in a trend similar to that seen in the recent expansion of Seguro Popular in Mexico, the limited funding available in the public sector’s newly created JKN may mean the burgeoning private sector will continue to represent pharma’s greatest opportunity in Indonesia. 

Restrictive regulatory environment

Finally, it will be important for pharma to monitor the future evolution of Indonesia’s regulatory environment.  There are currently greater barriers to market entry compared to Mexico. All foreign companies must have a manufacturing plant in Indonesia in order to distribute their products, and the approval process for new products remains drawn out and difficult.

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12th August 2014



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