MENA Healthcare Soars

The regional pharmaceutical and healthcare industry is set to boom with a new $125 billion investment injection.

The region’s healthcare sector is entering a golden age as nationals and expatriates become more demanding about their health needs and pharmaceutical firms grow their bases in the region. MENA region spending on healthcare is now likely to hit $125 billion in 2015, up from $65.6 billon in 2009, according to Al Masah Capital research.

As the GCC’s standard of living continues to benefit from high oil prices, it is clear that attainment of “Western” style standards of healthcare today do not match progress in other lifestyle areas. The US allocates four times as much in GDP spending to healthcare as the GCC, while per capita health spending is dwarfed by American spending levels that are eight times as high.

Taking MENA as a whole, per capita health spending is less than a twentieth of that in the US. There are three US hospital beds for every two in the GCC and only one physician in the region for every two in the US.

Speaking to reporters last month, Amitava Ghosal, partner at Al Masah Capital Management, said investing in healthcare was bound to increase. “On the demand side, high population growth rates, at two per cent for the last 10 years, exceeded global rates of 1.3 per cent. Life expectancy was also up, with lower mortality thanks to new medical techniques. There were also more older people in the region’s growing population.”

“Awareness about healthcare facilities has increased among locals, who are demanding higher quality services. And healthcare insurance is also undergoing massive change. We lag behind. Some 200,000 new beds are needed in the region,” he said.

The belated decision by Dubai’s Ruler, Sheikh Mohammed, in May to appoint his wife, Princess Haya, to take over the reins at Dubai Healthcare City as Chairwoman of the DHC Authority, is another sign of the reassessment of health priorities. In tacitly endorsing a refocusing of the City’s strategy away from real estate and back onto turning Dubai into a healthcare tourism hub, there seems to be recognition at the highest political level that excellence in healthcare cannot be compromised.

Investor opportunity

Nimble private equity companies committed to fast venture creation have capitalised on the opportunity. According to Al Masah, almost $900 million was invested by regional houses in 13 healthcare ventures in the region between 2005 and 2010. The UAE’s openness saw it win six of the projects and just over half of the total investments, while Saudi Arabia, with its booming economy and Egypt, with a population approaching 80 million people, the rest.

Gulf Healthcare International (GHI), set up in Dubai Healthcare City in 2009 as a joint venture by Kuwaiti private equity players Global Capital Management and the Varkey Group, which was later bought out by JP Morgan, owns a total of 19 business units with interests in diagnostic laboratories, polyclinics and occupational health clinics.

“The UK has a ratio of 23 per cent obesity and seven per cent diabetes. In most of the Middle East, obesity is above 50 per cent while diabetes is at 23 per cent,” says Mark Adams, GHI’s CEO. “In Saudi Arabia, 50 per cent of those over age of 40 exhibit full-blown diabetes. These diseases involve huge costs to the healthcare system, involving cancer, heart disease, strokes and limb amputation if not treated.”

Abraaj Capital’s healthcare portfolio invested in a number of transactions, mainly in 2008. Through its funds, it bought a 90 per cent stake in Egyptian medical business Al Borg Laboratories. It has also invested in Acibadem Healthcare Group, a Turkish hospital chain, and in Tadawi Group, the largest wholesale pharmaceutical chain in Saudi Arabia. Through its funds, Abraaj Capital maintains a 50 per cent stake in Acibadem and a 49 per cent stake in Tadawi.

“The long-term situation for GCC healthcare is simple: the outlook is very strong as everything in the region is coming from a very low base,” says Ahmed Badreldin, senior partner at the firm. “For example, the average number of diagnostic tests done per person per year totals to around 15-20 in Western Europe. In Egypt, the figure is 3.5 tests per person, 5-6 in Jordan and the same in the GCC.”

The Al Masah report says that diagnostic centres, offering a range of services from X-rays, MRI and pathology, and high-street pharmacy chains are attractive to private equity players. With lower overheads than hospitals and clinics, which are still the major preserve of government health authorities in the region, the potential for expanding revenues is good. “Diagnostics business offers attractive profit margins,” it said.

Meanwhile, the historical development of the healthcare sector via government vehicles and free service to local nationals has meant that the private sector has traditionally been underrepresented in the sector. Al Masah research puts the government share of total spending in healthcare in the MENA region at 64 per cent. Clearly, as costs rise, GCC governments want to allocate a part of the infrastructure spending to the private sector to free up valuable spending for other targets.

Ghosal says several initiatives are taking place at government level to bridge the gap between public sector provision and private sector entry. Paradoxically, the Arab Spring has seen government expenditure levels rise significantly. “The private sector is now being welcomed by the government to invest in a big way. Public-private partnerships are increasing in popularity. As a private equity player, we feel there are immense opportunities to come in,” he says.

Medicine for the masses

“The GCC countries are likely to experience a sharp increase in healthcare needs in coming years, primarily led by a growing and ageing population and a rise in chronic non-communicable ‘lifestyle’ diseases,” a research report published by Alpen Capital in December said. “This, coupled with favourable government policies, would drive growth in the pharmaceuticals sector in the region.”

GlaxoSmithKline, which had the largest pharmaceuticals market share in the UAE in the last 12 months, has seen 17 per cent growth in its Middle East markets, which include the GCC, Jordan, Iraq, Syria and Lebanon in the past five years, according to marketing manager, Ghandi Gharaibeh.

“[Regional] development is taking place very quickly,” says Gharaibeh. “Authorities and private providers are improving, and there are now centres in Dubai, Ajman, Qatar and Bahrain. It’s evolving. Screening for cancer could be better in the region. Epilepsy treatment needs to improve. Infrastructure is good but equality of care needs attention, so you tend to find varying quality in training of medical staff and treatment guidelines.”

The local industry is starting to see growth in pharmaceutical companies in Abu Dhabi, RAK and Dubai. There are six big companies in Saudi Arabia and GlaxoSmithKline expects all of them to grow. Oman boasts two companies and products there are cheaper, with innovative new remedies. Overall, Gharaibeh expects higher prices, more volume and higher-cost care.

“It looks to us as if people in the region are going to get older, to settle longer,” he says. “We have already started to see people retire to Dubai. They are using products for hypertension, asthma, cholesterol, and obesity. The number of children is rising, and more kids need care and preventative vaccines. The average child needs 30 shots of vaccine in his first three years.”

One frequently cited statistic is the around $15 billion leaving the region as patients travel to the US, Europe, India and the Far East to receive treatment. As a flagship player in Dubai Healthcare City, Adams wants to see the city turn into a centre for inbound healthcare tourism. And although the vexed issue of health insurance is complicated by the disparity of incomes in the UAE, “It is highly unlikely that you will end up with a national health service that is trying to provide the same [level of service] to everyone,” he says.

“Healthcare always inflates: it’
s like property,” says Gharaibeh. “There are always things people want to treat, they wish to live longer, and get more secure. As time goes on the list of products they require will only grow.”