Implications of New Indonesian Government’s Priorities on the MedTech Industry

Indonesia is expected to undergo significant political and policy shifts following the victory of Prabowo Subianto and Gibran Rakabuming Raka in the general elections earlier this year in February. Their inauguration is scheduled for October 20th, 2024 with the announcement of the new cabinet expected shortly thereafter.

Indonesia’s transition period is likely to proceed smoothly, though political dynamics are intensifying in the country, marked by coalition-building, power bargaining, utilizing the upcoming regional elections as a testing ground, and efforts to ensure the outgoing president’s leverage remains strong in the new administration.

As Indonesia closes the chapter on the Jokowi era, what are the key policy areas and shifts to lookout for in the Prabowo administration?

For the Prabowo administration, the health sector looks to be a key priority area. Prabowo’s Asta Cita manifesto and political campaign have highlighted several notable health-related initiatives, including:

• The establishment of 300 medical faculties and the modernization of hospitals and health facilities across all regencies.
• The development of an independent national medicine and vaccine industry.
• The reduction and eventual elimination of import duties on certain medical devices not yet produced domestically by reclassifying them as non-luxury goods.
• Ensuring the availability of medicines and the rational use of medicines in health service facilities (hospitals and Community Health Centers).

It remains to be seen how the incoming administration will finance their ambitious health policies, as the recently proposed 2025 health budget of IDR197.8 trillion or USD12.9 billion, a minimal 5.95% increase from 2024, will likely be insufficient to advocate for or accelerate the government’s priorities under Asta Cita.

But given Prabowo’s tendency to appoint highly specialized and technically skilled individuals to key ministries, it is likely that he will select a Health Minister with a strong medical background, signalling a shift toward more specialized leadership in critical sectors. The incoming Minister of Health will play a crucial role in translating and fine-tuning Prabowo’s vision and mission into concrete policies and priorities.

While it is too early to determine whether Prabowo’s objectives in the health sector will significantly reshape the healthcare industry, his focus on easing investment and relaxing regulations on advanced healthcare technologies, as outlined in the Asta Cita, offers a positive outlook to the industry.

Room for growth for Indonesia’s MedTech industry

The new administration appears to value innovation and high-tech development in Indonesia’s health sector, prompting cautious optimism for the MedTech sector in Indonesia to grow again, following several stagnant years due to strict restrictions and regulations.

Indonesia initially rode on the healthcare innovation boom during the early days of Covid-19 pandemic, but as the pandemic subsided, the Indonesian government chose a more inward-looking approach for its health sector. The Domestic Component Level (TKDN) policy caused total imports in 2022 to drop to USD1.86 billion, limiting the technology and innovation that Indonesia’s MedTech industry needed to help it grow.

With over 90% of the population (around 270 million Indonesians) covered under BPJS-Kesehatan (National Health Insurance) but served by only approximately 3,000 hospitals and 10,000 Puskesmas (primary health care centres), the need for advanced and modern medical devices and solutions will grow continue to grow urgently, as will the need for effective and efficient treatments. The incoming government may look towards encouraging more open and collaborative investment and trade policies in the healthcare and MedTech sector to accommodate this growing need.

Barriers to entering the Indonesian market

While there is a strong demand for MedTech solutions and space for opportunities and growth in the industry, there are several policy developments that could pose a challenge to entering or operating in Indonesia for MedTech companies.

1. Omnibus Law on Health (Law No. 17/2023) / Draft Minister of Health Regulation (RPMK) on Security and Management of Health Supplies

The Omnibus Law on Health (Law No. 17/2023) sets out detailed requirements for various aspects of the healthcare sector, including medical devices, health technology, telehealth, and telemedicine. Complementing the Omnibus Law on Health is a draft regulation on Security and Management of Health Supplies (RPMK), which covers further requirements and procedures for quality assurance in the production and distribution of health supplies, as well as standards for labeling, promoting, and advertising healthcare products and imported medical devices. These regulations reflect the government’s ongoing efforts to modernize, strengthen and increase the quality of the healthcare sector, paving the way for increased investment and innovation.

2. Health Industrial and Localization Policies

Medical devices are recognized as a priority sector under the TKDN policy, reflecting Indonesia’s commitment to reducing reliance on imported medical devices and fostering local industry growth. Currently the required TKDN value for certain medical devices is about 25%, with experts suggesting that the government is set to expand them further.

Yet this 25% magic number is already difficult to achieve for producers. While many upstream industries in Indonesia are capable of producing medical-grade raw materials, the lack of economic scale and small market demand make these industries reluctant to manufacture the necessary raw materials and components for medical devices. There are also substantial compliance costs on companies for certification.

3. Halal Requirements for Medical Devices

In Indonesia, there are stringent requirements to certify medical devices, medicine, biological products and health equipment as Halal. But the Halal certification process for MedTech products is still unclear, with the cost of certification varying depending on factors such as the type of product, the number of raw materials used, the total number and location of factories, and additional costs associated with changes to factory layouts or special labeling requirements.

Although Mutual Recognition Agreements (MRA) on Halal certification are acknowledged among global Halal bodies, the mechanism for these agreements lacks clarity, especially for halal certification of imported finished products, and these uncertainties pose significant challenges for the MedTech industry.

Going forward – where are the opportunities?

Amidst this political transition in Indonesia, policies such as TKDN, import restrictions, quotas, licensing challenges, and Halal certification, are expected to continue under the new administration.

Additionally, local presence and investment in Indonesia are likely to become increasingly important under Prabowo’s leadership. As such, companies may want to explore establishing an official presence in the country to ensure their concerns are heard effectively. This opens doors for collaboration and partnerships between global and homegrown companies.

With the change of leadership, there will be a fresh perspective that could provide an opportunity to advocate for a more open and inclusive approach to revitalizing the health and MedTech sectors in Indonesia.