Worldwide, over the past 40 years, health care expenditure has grown at least 50 percent faster than the rest of all economic sectors in most modern economies. The ability to provide high quality healthcare services, a cornerstone for any developed nation, has of late become a pressing priority in the Middle East, which has been plagued by lower-than-average health indicators. Governments in the region have began announcing major development plans to ‘beef up’ their local healthcare infrastructure, including the UAE, Bahrain, Syria, Algeria, Yemen, and others. Some have ambitious plans to build ‘healthcare cities’ that provide all services relating to health from preventive medicine to hospitals to education, while others merely wish to improve the quality of their health care services through better hospitals and clinics. All agree that the current state of the health care infrastructure is in dire need of improvement in order to meet the population’s current and upcoming health needs.
The health care industry is in fact undergoing a major transition throughout the region. Traditionally, this sector was considered to be a state subject, and some hospitals received significant state subsidies and grants, while others were fully built and operated by various ministries and government departments. Very little attention was paid to the operational efficiency from a business perspective, as the governments were concerned primarily with providing their people with much-needed quality health care, regardless of their ability to pay for it. With one of the highest population growth rates in the world though, and the population boom that has taken place since the 70’s, the sustainability of this government backed model has been called into question. There has thus been a gradual shift since the 1980’s and 90’s whereby governments increasingly have tried to involve the private sector in the provision of first class medical services.
Today, major Middle Eastern governments are facing a serious challenge in maintaining the quality of care in state-run hospitals, as this requires continuous and heavy spending. The first movers in the private sector, on the other hand, have developed key insights into the profitable operation of hospitals and provision of health care services.
It has indeed become apparent that allowing the private sector to provide healthcare services is far more efficient and profitable than assigning such a task to the government or specific ministries. In other words a nation could conceivably spend less on health care, yet provide services to more people, by using the private sector as an intermediary to build, operate, and manage profitable hospitals.
Considering the recent announcement of compulsory medical insurance schemes in Saudi Arabia, also being discussed by Kuwait, Bahrain and the United Arab Emirates, it becomes clear that the health care industry over the coming years will be an issue of major national concern. With the introduction of these schemes for expatriate workers initially, an expected volume of $2.4 billion to $4.0 billion will be injected into the health care industry per year in the Gulf region. Coupled with the expected 25 million Gulf nationals who will have to join such national medical insurance programs in the following 10 years, this will result in an additional inflow of approximately $6.7 billion into the GCC. Effectively, health care will thus become the 2nd largest investment sector in the region.
For these reasons, over the coming years, the regional health care industry is bound to be a preferred area for prudent investors with vision and a sense of social responsibility, and governments will continue to encourage private sector involvement. There are some important considerations to be taken when contemplating investing in such a field though, as it is a complicated business area with specific revenue models that are usually developed over years of experience and know-how. In addition, offering the highest quality medical services often means high capital investment, and continuing capital expenditures to maintain the minimum required levels of advanced equipment. An investor or group that ventures into this business area without the proper level of expertise may have far more to lose than gain.
Accordingly, individuals and companies wishing to take advantage of the visible opportunity to participate in the development of a regional health care infrastructure, while minimizing their risk profiles and maximizing chances of success, may want to associate themselves or partner with experienced parties who have an established track record.
The best way to share in an industry’s growth potential is to invest in that industry, preferably with a company who is already performing well and has proven its ability to deliver.
In this way, investors who can see the upcoming opportunity without being able to take advantage of it themselves due to a lack of experience can safely join hands with an established player.
This sort of partnership would indeed benefit all, as the private sector would be able to further expand and improve its services, the government would be able to rely on the private sector for the provision of healthcare and thus reach more people with the same budget allocation, investors would be able to take advantage of the financial rewards provided by this industry, and finally the local economy would reach higher levels of efficiency.
In closing, there appears to be a wide regional market opening in the area of high quality medical services, pushed onward by governments that have realized the inefficiency of providing the services themselves, by some of the highest population growth rates in the world, and by a region that is still greatly lacking in quality medical care. Those best poised to take advantage of this opportunity will be the firms and investors who are able to form key partnerships and associations built on a proven and established business model, thus bringing together expertise and financial resources.
(Karim Samra is a financial adviser at Swicorp (www.swicorp.com), an investment advisory firm specializing in facilitating investment and providing sound, structured investment opportunities in the Middle East and Africa.)
Arab News Business 21 April 2003