Wednesday 14 May 2014

Middle East healthcare spending surges as demand soars

Healthcare is a major growth area in the Middle East, with public and private investment in the sector forecast to exceed US $150 billion in 2016. In the GCC in particular, governments are allocating ever‑increasing budget shares to healthcare, to meet soaring demand fuelled by high population growth rates, longer life expectancy and the extension of compulsory health insurance, as well as the spread of lifestyle diseases and chronic illness. 

Private hospital in Jiddah, Saudi Arabia

By Peter Feuilherade

This article was first published in The Middle East magazine, London, April 2014 issue

Former British health minister Lord Darzi, a keynote speaker at the January 2014 Arab Health Exhibition in Dubai, noted that the Middle East has some of the highest per capita levels of obesity and associated chronic illness like diabetes and cardiovascular disease. “It has a rapidly changing demography, both in terms of population growth and an increasing life expectancy. These are necessitating an increased level of spending on healthcare and the rapid expansion of provision. There is also a heavy reliance on imported human and material healthcare resources; and a significant level of overseas spending on healthcare due to a lack of local specialist healthcare provision,” he added.

International healthcare technology providers like General Electric Healthcare and Philips, whose US and European sales have dipped because of budget constraints, are hopeful of double-digit percentage growth in the Middle East, not just in the established markets of the GCC but also in emerging or post‑conflict markets like Iraq.

Across the Middle East and North Africa (MENA) region, non-communicable diseases like obesity, diabetes and cardiovascular diseases are widespread, while smoking‑related respiratory diseases are on the increase. The scale of the health challenges is vast. Cardiovascular disease is responsible for 45% of deaths in the Middle East; four GCC countries are in the global top 20 for obesity; and there is a high and rising incidence of major depressive disorders and anxiety.

A September 2013 survey by the World Bank and the Seattle-based Institute for Health Metrics and Evaluation found that “potentially preventable risk factors such as poor diets, high blood pressure, high body mass index (an indicator of obesity and overweight), and smoking are contributing to the growing burden of non-communicable diseases in the region.” Another factor is lack of exercise, particularly among women.

At the same time, poorer Middle East countries, including Iraq, Yemen and Djibouti, continue to struggle with a high level of communicable diseases, while the outbreak of polio in Syria has prompted a massive immunization campaign across the Middle East.

Saudi “bonanza” for foreign firms

GCC governments are making significant investments to meet growing demand for healthcare and bring the sector up to international standards. Saudi Arabia, whose economy and population make up approximately half that of the GCC states collectively, is seen as leading the way.

Total healthcare expenditure in the six GCC states is expected to rise to US $79.2 billion by 2015, while the GCC’s combined pharmaceutical and healthcare market is set to exceed US $133 billion in 2018, according to the Frost & Sullivan business consultancy.

Although GCC healthcare spending is expected to increase at a compound annual growth rate (CAGR) of 11.4% until 2015, a shortage of medical graduates and other skilled staff is making countries heavily dependent on expatriates to fill healthcare jobs and poses a big challenge to be tackled, global consultants Ernst & Young note.

Recruitment ad for Saudi private hospital

A growing number of GCC governments are also enforcing mandatory medical insurance.

In response to discontent about overcrowded hospitals and shortages of medicine, healthcare infrastructure in Saudi Arabia is accelerating at a rapid rate, funded by an annual healthcare budget of US $27 billion. Stock market listings planned by two of the Kingdom’s biggest private hospital operators reflect the boom in its healthcare industry. Several new healthcare cities are under construction, and the number of hospitals is expected to increase by more than 100 within the next three to five years.

According to Reuters, “this could make Saudi Arabia the world’s fastest-growing major healthcare market over the next few years, helping to diversify the economy beyond oil and providing a bonanza to foreign companies selling medicines, equipment and services.”

In the UAE, Dubai’s recent move to make health insurance mandatory for all workers would be a catalyst for private investment in the emirate’s healthcare sector, in the same way that a similar law in Abu Dhabi was in 2005, said Michael Bitzer, CEO of Daman, the UAE’s largest health insurer with over 2.4 million subscribers.

The law will make employers responsible for providing at least an “essential benefits package” for every worker and will come into effect in several phases by 2016, said the Dubai Health Authority. The government will remain responsible for the coverage of local citizens, who are estimated to make up less than a fifth of the population.

The UAE’s healthcare budget is around US $12bn, and spending on healthcare as a percentage of GDP is the third highest in the Gulf at around 3.3%, after Bahrain and Saudi Arabia. About 36% of UAE hospitals are owned and operated by the Ministry of Health, while the private sector catered to 64% of the whole population in 2011.

According to the Oxford Business Group, medical tourism in Dubai looks set to grow beyond the US $1.69 billion in revenue earned in 2012, and a number of health and pharmaceutical groups are eyeing Dubai as a regional centre, owing to its well-developed transport and communication links and continuing advances in technology and research.

Qatar is set to launch the second phase of its compulsory health insurance scheme in April 2014, when all Qatari citizens will be brought under the new system. And Oman, which built its last major hospital 20 years ago, plans to open the first phase of a US $1 billion International Medical City in Salalah in 2016. A population expanding at 4% a year is putting increasing strain on healthcare in the Sultanate, despite a 32% increase in the sector’s budget from 2012 to 2013.

“Strong returns” for private equity

The growing number of mandatory health insurance programmes in the GCC is increasing reliance on the private healthcare sector. Across the wider MENA market, private equity firms see significant room for expansion, particularly in services such as long-term care, specialized care and rehabilitation.

“Experienced private equity investors know that the MENA healthcare sector presents significant opportunities and strong returns for those who can get the balance right, by bringing international experience and global insight to the local market,” argues Dr Helmut M. Schuehsler, chairman of TVM Capital Group, a European private equity fund. He points out that because individuals from the MENA region spend US $15 billion a year travelling abroad for medical care, “governments and private companies will both benefit from providing more focused, high quality care locally”.

To meet rising expectations across the Middle East for expanded and better quality health services that are on a par with international standards, expenditure on healthcare as a percentage of GDP will need to be raised further. Training local doctors and medical staff and establishing research and clinical trial centres in the region should also become a top priority.

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