Healthcare Sector Outlook

Boosted by higher healthcare spending

Indonesia’s healthcare spending is currently way behind the average for both developed countries and ASEAN countries as the system is still unable to provide adequate service for its population which more than 250 mn. Healthcare expenditure in Indonesia stays at 3.0% of GDP lower compared to the ASEAN countries and developed markets which are 4.0% and 12.4% to GDP respectively. We saw this condition was due to a lack of hospital beds, a qualified doctors and nurses. Besides all of that, the government will spend more for healthcare industry by around 10% of state budget 2016. Thus, we foresee there is headroom to grow for healthcare business going forward.

Rising middle income and healthy lifestyle awareness to support demand

Rising middle-class income in Indonesia has grown rapidly and expected that 8-9 mn people will enter the middle class each year and reach more than 120 mn people in five years. Indonesian middle class has become a primary focus as its purchasing power has encouraged upgrading their standard of living which should lead to healthy lifestyle awareness and willing to pay a premium for better-quality healthcare service. A growing middle-income class will also lead to move in the type of health-care service that will be needed. According to the healthcare experts, more people lives in urban areas means there will be a sharp growth in non-communicable ailments such as cardiovascular diseases, cancer and age-related illnesses including arthritis and diabetes.

Indonesia’s healthcare industry is facing an early stage of its cycle

According to the research by Frost & Sullivan, healthcare industry in Indonesia is presently facing an early stage of its cycle with a significant imbalance between supply and demand. While, India which has similar healthcare patterns is a few years ahead of Indonesia and currently they are experiencing a slowdown growth and profitability. However, the healthcare sector in Indonesia has just begun to grow rapidly, ever since the introduction of JKN and BPJS programs by the government. Since then, most of hospitals operator is planning to add 25-35% bed capacity in the next couple years. We expect impatient and outpatient volume will significantly increase by around 50-200% at hospitals that are participating in the JKN and we expect inpatient and outpatient to grow at 44% and 33% CAGR during 2013 – 2019.