The formation of the ASEAN Economic Community or AEC is a major initiative of the Association of Southeast Asian Nations (ASEAN). It seeks to integrate Southeast Asia’s diverse economies into a single market and production base, so as to create a regional bloc that is highly competitive on the global economic stage. It is hoped that the AEC will be fully integrated into the global economy and become a region where equitable economic development among member countries can take place.
The AEC's formation is expected to unleash sweeping changes across industries, including the healthcare sector in ASEAN member countries. These changes will no doubt have enormous impact and will potentially disrupt the way that healthcare is practised across the ASEAN region. Let us look at the three broad elements which are going to be critical to the healthcare sector, namely:
1. Free flow of capital
2. Free flow of goods and services
3. Free flow of skilled labour
Free Flow of Capital
There is a wide diversity in the state and standard of healthcare across the ASEAN nations; from those that are highly developed to those that are downright primitive. The AEC integration will lead to freer flow of capital and likely to result in increased private sector investments and, in consolidation of the industry through mergers and acquisitions. To a certain extent, integration is already taking place. Private healthcare players in Singapore, Malaysia and Thailand are leading the pack. For instance, IHH Healthcare, Bumrungrad International Hospital and Bangkok Hospital have all expanded their hospital network beyond their home countries, either on their own through green-field investments or acquisitions, or through joint ventures. Among the three, IHH Healthcare’s hospital network is the most expansive, with presence in countries including Turkey and China.
In the emerging ASEAN economies, there are also many opportunities that may be attractive to healthcare investors. For example, the 1.2M Indonesians who are traveling abroad every year for medical treatments (mostly to Singapore, Malaysia and Thailand) are clearly a symptom of the tremendous pent-up demand for healthcare services within Indonesia. The AEC’s formation should make it easier and less risky for foreign private healthcare players to invest and tap into the growth potential of the Indonesian healthcare market.
Free Flow of Goods and Services
A very important element of integration within the AEC is the harmonisation of systems and services. There have been numerous trade hurdles and barriers among ASEAN countries, many of which are technical and protectionist in nature. The formation of the AEC aims to eliminate most of these barriers. For example, the current and ongoing harmonisation process for medical devices will require ASEAN member countries to adopt uniform classification criteria for medical devices. For medical devices companies, this means that they will be able to more easily access a common medical device market that is driven by a 2 trillion dollars regional economy with over 600 million consumers. The ease of access and the economies of scale that can be achieved also present a more compelling business case for these companies to set up direct presence in the AEC. And such direct investments, whether in the form of manufacturing facilities or commercial operations, will bring further economic benefits to the people of ASEAN. The freer flow of healthcare services within the AEC can also bring about benefits to companies and the consumers in ASEAN nations in similar ways.
Free Flow of Skilled Labour
Creating an AEC where there is free movement of skilled labour among member countries is a highly ambitious, if not impossible, goal. Yet, the classic examples of Singapore, the United States in the 70s and other advanced nations are testimonial of economies that have benefited from such moves. The free flow of skilled labour can help address challenges in countries such as Indonesia, Vietnam, and to a lesser extent, Thailand.
Indonesia is an interesting example. It is historically insular nature and the presence of multiple layers of entry barriers have led to a situation where few foreign healthcare players have chosen to enter this huge and largely untapped market. The restrictive manpower regulations, including those related to the import of foreign healthcare professionals, is a major deterrent. Therefore, the changes brought forth by the formation of the AEC will likely to have a profound impact on Indonesian healthcare scene if such restrictions are lifted. On the one hand, we may see more comprehensive and advanced medical care seep into the healthcare system, but on the other hand, it will probably cause short-term disruptions in the system as existing hospitals and healthcare institutes adapt to the changes.
From a different perspective, the free flow of manpower characterised by the AEC can be advantageous to Indonesia. It will require Indonesia to take a long-term view and make a strong commitment to human capital development i.e. the training of many more high quality healthcare professionals. More importantly, it will require the country to see such changes as opportunities rather than threats. With its unique demographics, especially the young and growing population, Indonesia has the human resources to address the chronic shortage of doctors and nurses in the country. The training of more healthcare professionals will enable the expansion of its national healthcare program (BPJS) and even allow it to potentially become a net exporter of healthcare talents to the more advanced ASEAN economies.
Current State of the AEC
The original goal of ASEAN was to establish the AEC by 2015. It is unlikely that the full ambition can be achieved by the end of this year, because most of the ASEAN countries are not yet ready to comply and meet the full requirements of the AEC. ASEAN leaders have tacitly acknowledged that much needs have yet to be done. Nevertheless, the fundamental motivation to form the AEC remains unchanged and much of the groundwork has been prepared. It is therefore my belief, and one shared by many others within the industry, it may take some time but the AEC will eventually come to be.
About the Author
Dr Umapathy Panyala joined Omni Hospitals Group (Indonesia) as its Managing Director in 2014. He was previously the Regional CEO of Apollo Hospitals Group in India. His career at Apollo spanned 17 years and he was instrumental in strategizing and establishing the group's network of hospitals across the state of Karnataka and business development across markets in the US, Europe and South East Asia. Prior to Apollo, he was the CEO of the Rajiv Gandhi Super Specialty Hospital, a public-private partnership -- a joint venture between the government of Karnataka and Apollo. Dr Panyala was a top student from the prestigious Hyderabad Public School. He was also the recipient of the National Merit scholarship, an accolade given by the Indian government to only the top 100 students of the state.