Gulf citizens are spending more than ever on their health, leading to opportunities for investors in the healthcare sector, says Global Investment House.
The healthcare industry in the Gulf is growing, driven by demographic changes, an ageing population, new lifestyle risk factors – a consequence of an increase in household income – and the increasing prevalence of non-communicable diseases.
Major investments in healthcare by Gulf Cooperation Council (GCC) countries over the past few decades have resulted in significant improvement in the region’s health status. However, there is still room for growth.
Although investment has increased over the past few years, healthcare spending as a proportion of GDP in the Gulf is less than half that of developed countries.
At 5%, Bahrain’s healthcare expenditure as a proportion of GDP is the highest among the GCC countries. In contrast, Qatar’s healthcare expenditure as a proportion of GDP was 2.1%.
Together, the GCC spent $64.4 billion on healthcare in 2014, compared with $58.3 billion in 2013, indicating an increase of more than 10% in a year.
Per capita, Gulf healthcare spending is higher than the world average but lower than that of developed economies, which indicates room for growth.
Population growth is a driving force for any country’s healthcare services. The population of the GCC was around 53 million in 2015, a figure that has risen roughly 4% a year over the previous decade, a much faster rate than the world average of 1.2%. An influx of expatriates, alongside high birth rates and a longer life expectancy, have caused the growth.
Life expectancy in the GCC has also improved to an average of 76.4 years in 2014, according to the World Bank, compared with 62 years in 1970. People are living longer, which creates demand for specialised old age health centres and pain management centres.
Typically, four-fifths of a person’s healthcare costs are incurred after retirement.
Previously, a wide gap existed between the GCC and developed nations with regard to under-five mortality rates, but this has significantly narrowed.
To meet the growing demand for healthcare and reduce the burden of healthcare expenses on the public sector, some GCC countries have introduced mandatory health insurance. This initiative has increased the private sector’s share in health infrastructure, establishing facilities growth in private care, which has led to expansion in health service utilisation.
Saudi Arabia took the lead in implementing mandatory health insurance for the private sector, benefiting both locals and expatriates. Qatar and UAE have also implemented mandatory health insurance, while Bahrain has had a compulsory health insurance scheme for nationals since 2003 and is planning to roll out a mandatory insurance policy for expatriates. In Kuwait, expatriates must have health insurance to receive a residency permit, but this does not provide them access to Kuwaiti private health providers. Things will change when the Dhaman scheme is implemented through a public-private partnership model that will require higher premiums but give expatriates access to a modern hospital system.
Health insurance is expected to drive demand for medical services as out-of-pocket expenditures decrease, which in turn is expected to draw private investment into the healthcare sector.
One of the major health challenges in the Gulf is that sedentary lifestyles and the move away from traditional diets have caused an increase in diabetes, hypertension, obesity, cancer, heart conditions and other lifestyle-related diseases.
In 2015, every GCC nation except Oman was in the top ten of countries most affected by adult diabetes, according to the International Diabetes Federation’s Diabetes Atlas.
Individual GCC country studies show that non-communicable diseases, such as diabetes, account for between 9%-30% of public healthcare spending, according to PwC’s global strategy consulting team.
In Qatar, non-communicable diseases account for 22% of healthcare spending per capita. In contrast, Oman spends 6% of its total healthcare expenditure on non-communicable diseases.
NEEDS FOR BEDS
The GCC had 600 hospitals in 2008, which grew to 684 by 2013. Together, they provide 1.7 hospital beds per 1,000 people, far below the world average of 3.
The GCC region lacks local healthcare professionals and depends on expatriates to fulfil demand. In terms of physicians per 1,000, the GCC (at 2.1) is better than the developing world (1.3) but is below the average for the developed world (3.4) and the world average (2.4). The GCC has 5.7 nurses per 1,000 people, compared with 8.9 in the developed world.
The public sector finances between 60%-90% of healthcare expenditure across GCC countries. However, in the current economic scenario, where the region is witnessing a drop in crude oil prices, the model seems unsustainable in the long term. Hence, governments need to apply a methodology to encourage private sector investments to curb costs, improve service quality and provide access to expertise.
As per a Frost & Sullivan study, public-private partnerships (PPPs) have enabled governments globally to cut their healthcare costs by as much as a quarter. PPP deals can be seen across the GCC, particularly in Saudi Arabia and the UAE, evident from the large number of international hospitals in these countries. The Abu Dhabi government has formed PPPs with major international hospitals such as Johns Hopkins, Cleveland Clinic and Bumrungrad.
Kuwait has formed a separate organization, the Kuwait Authority for Partnership Projects (previously known as the Partnerships Technical Bureau), to facilitate PPPs.
The healthcare construction market in the GCC appears to be growing at a steady rate as various high-value construction projects are developed in the region. According to the BNC Project Intelligence Database, there are approximately 709 healthcare construction projects underway with a combined estimated value of $65 billion, of which 133 healthcare projects are each worth over $100 million. However, there are also many healthcare projects on hold, including Dubai Healthcare City in the UAE ($1.8 billion), Bahrain Health Oasis in Bahrain ($1 billion) and King Faisal Medical City in Saudi Arabia ($1 billion).
Based on current growth rates, we estimate the healthcare market in the region will be worth between $90 billion and $130 billion by 2020. The outlook for the sector remains positive, given the rising demand for healthcare services and government efforts to promote healthcare led by a mix of public and private initiatives. Lifestyle-related disease, favourable demographics and changing socio-economic conditions will only increase demand for these services.
Global Investment House is an investment firm based in Kuwait
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