GCC healthcare sector to continue robust growth

Dubai / Emirates Business

The healthcare industry in the GCC
is expected to continue its robust growth propelled by demographic
and macroeconomic factors in the
region; said a market analysis report that was recently released by Al Masah Capital Limited.
Given the demand for specialized services amidst an ageing population and prevalence of lifestyle diseases, the GCC healthcare sector is fast developing into a robust system. Governments are increasing focus on quality, while introducing regulatory changes to improve efficiency and quality of services. Even though GCC governments continue to lead in healthcare expenditure, increased participation by private players has been seen in the GCC healthcare industry. With programs such as mandatory insurance, there is an increasing reliance on the private healthcare sector to expand rapidly to create capacity for their growing markets. Numerous new facilities are planned in almost all GCC countries making the healthcare sector a vital allocation for many institutional investors in their overall investment strategy.
Despite the slowdown in broader economy, the region’s healthcare spending has not shown any signs of pullback in spending as it has been one of the primary sectors of government’s long term vision. On the other hand, the sector continues to witness robust growth, which is aided by strong demographic profile coupled with favourable regulatory environment. Moreover,
regional healthcare companies are
also focusing on growing revenues through organic and inorganic expansion along with focus on operational
efficiencies. As a result of rising uncertainty and slowing economic activity, the soft infrastructure led sectors, especially the ones that are part of government’s thrust, remain very attractive amongst the investors.
M&A activity in the regional healthcare space during the last five years has seen a continuous upsurge with deal value going more than USD 3,032 million (as per disclosed values) during 2006-16. A total of 62 deals were announced from 2006-16. The healthcare M&A value soared to the highest in 2011 with more than USD 1,113 million, followed by deal value of USD 930 million in 2015.
In terms of volume, 2015 recorded the highest number of healthcare M&A deals (14 deals), including some of the mega deals such as acquisitions by Alnoor Hospital, NMC Health and Amanat Holdings. The UAE with 28 deals accounted for 45.2% of the total number of deals from 2006-16. It was closely followed by Saudi Arabia with 18 deals (29%), Kuwait with 13 deals (21%), and Oman with 3 deals (4.8%). Moving on to Private Equity, as many as 57 transactions worth USD 697.2 million were struck during 2006-16. The number of PE exits in the region has been small, primarily due to the young age of the GCC PE industry and most of the funds still being in their deployment stage. There have been a total of 6 PE exit deals in GCC healthcare sector during 2006-16, mainly concentrated in UAE and Saudi Arabia.
Opportunities in specialized healthcare services have also seen an upward trend as a growing number of healthcare providers in GCC are focusing on clinics, laboratories, and ambulatory centres due to their lower capital requirement and quick return on investment. Since healthcare is becoming more expensive, even for marginalized sections of society, with welfare net for expatriates shrinking further; it has opened up opportunities for low-cost clinics, health establishments to capitalize on disenfranchised customers.
The report also analysed the rise in home healthcare services and cited that given the shortage of skilled doctors and nurses in the region, these services hold the potential to provide convenience of care and reduce the burden on hospitals. In the past five years, the GCC has witnessed the emergence of home health care service providers such as Manzil Home Services in Abu Dhabi and Home Care Centre (HCC) in Qatar.
Moreover the development of Long-Term and Post-Acute Care Rehabilitation (LTPAC) is likely to grow significantly owing to the rising prevalence of chronic diseases alongside an anticipated increase in ageing population. The role of LTPAC in the evolution of healthcare services in the GCC is deemed to be critical, encouraging new service providers to offer comprehensive care with better health outcomes for their patients.
GCC policymakers are also taking keen interest in building a sustainable and well-developed private health insurance system so as to ease its burden of managing a costly public healthcare system. They are now implementing reforms and changes to bring the private sector into health-care delivery in order to manage the burgeoning demand and provide a better quality of care in a more efficient manner.
Regional governments are increasingly making health insurance mandatory in a bid to reduce costs and improve healthcare standards which are at different phases of implementation in the GCC countries. It is expected to be fully implemented in most of the GCC countries by 2020, which would be a significant driver of investment and expansion of health services in the private sector as out-of-pocket expenditures decrease.
GCC governments have also begun to take efforts to attract private sector participation and are attempting to create an effective regulatory system that will allow for private sector investment in healthcare and the production and distribution of pharmaceuticals and medical supplies; and cultivate a favourable atmosphere to attract private healthcare providers and investors.
The healthcare industry has emerged as one of the most ‘critical sectors’ for pursuing economic diversification in the region. Healthcare spending in the GCC reached USD 64 billion in 2014 from USD 16.9 billion in 2004, growing at a CAGR of 14.3%, while the per capita healthcare spend has multiplied by 2.5x to USD 1,243 over the last decade. Spending growth from 2004-14 in the GCC was higher than the global average of 6.2%, and MENA average of 13.2%. Consequently, awareness about preventive measures rather than curative methods, growth potential in pharmaceutical manufacturing, demand for healthcare professionals and consistent growth in healthcare infrastructure; all reflect towards a robust growth of the sector in the GCC.
Going forward the sector project immense growth as realizing the need for increased healthcare services, governments across the GCC region are investing heavily in healthcare infrastructure using their large budget surpluses from oil revenue. The report also suggested Medical Tourism as a major growth indication for the Healthcare sector with the UAE reigning its premier position for being the most preferred destination for specialized healthcare services.