New Negative List Introduces Changes to Health Investment in Indonesia

By Ira A. Eddymurthy and Alvin S. Suryohadiprojo

The Indonesian Government has released a new list of business fields that are closed to investment and business fields that are conditionally open to investment. The long-awaited New Negative List, issued under Presidential Regulation No. 39 of 2014, increases allowed foreign ownership levels in several key industries, including the health sector.

Under the New Negative List (DNI), foreign ownership in the pharmaceutical manufacturing industry, either for raw material drug manufacturers or finished drug manufacturers, is capped at 85% (previously 75%).

Despite the increase, foreign investors had been pressing for 100% foreign ownership to secure the intellectual property of their products. The long-term nature of drug manufacturing means foreign investors are also in the position that they will likely have trouble finding domestic partners.

One of the most common questions is whether a foreign investor can establish a hospital in Indonesia under the New Negative List. The New Negative List preserves the foreign ownership limitation in specialist/sub-specialist hospital services at 67%. Such limit also applies to specialist medical clinics and dental clinics. However the New Negative List removes the 200-bed minimum requirement for specialist/sub-specialist hospital services under the previous DNI.

The New Negative List eases foreign investment restrictions in certain situations for investors from member countries of the Association of Southeast Asian Nations (Asean). For Asean investors in the specialist/sub-specialist hospital services sector, the ownership cap is 70% for investments in certain regions of Indonesia (all provincial capitals of eastern Indonesia except Makassar and Manado).

Nursing services are open to 51% foreign ownership from Asean countries if such investment is in Makassar and Manado, and up to 70% if the investment is in all provincial capitals of eastern Indonesia (except Makassar and Manado).

This special treatment for Asean investors is in preparation for the Asean Economic Community (AEC) that is schedule to come into effect in 2015. The AEC is designed to remove economic and trade barriers across the Asean region and is expected to increase Asean investment in the Indonesian health sector, which after years of under-investment could be poised for significant growth.

The Indonesian Government also hopes to develop eastern Indonesia by easing foreign investment caps for Asean investments in the provincial capitals of eastern Indonesia. Makassar and Manado are the exceptions because these two capitals are seen as being more economically developed than the rest of eastern Indonesia.

One of the aims of the Indonesian Government in issuing the New Negative List was to lift foreign investment. Whether it will have such result in the health sector remains to be seen. With regard to investors from Asean countries, the New Negative List gives such investors the chance to tap directly into the Indonesian market, instead of simply catering to Indonesian health tourists who travel overseas for health care.

This article is intended for informational purposes only and does not constitute legal advice. This article should not be acted upon in any specific situation without appropriate legal advice.