Healthcare facilities in the Gulf Cooperation Council (GCC) are inadequate currently to meet the growing pressure from population growth, an aging population and increasing health hazards. It is time for government and the people to open their eyes to international insurance players who could manage and finance healthcare facilities.
The GCC has been a very attractive region from an investor perspective, until only recently escaping the wider impact of the global credit crunch.
Despite a predicted slowdown in growth (falling to 3.5% this year, from 6.8% last year) analysts agree that the overall prospects for the region remain good with a conservative approach to the management of wealth created in the recent boom creating scope to absorb current pressures.
One of the keys to sustainable economic growth for such a resource rich region will be to diversify and develop the environment for international cooperation. With this in mind GCC members are making far-reaching economic reforms to improve their business climates to attract investors.
The development in the financial sector has attracted much media coverage but with investment in healthcare expected to soar we consider the background to this phenomenon below, the opportunities it presents to international private players and how they can be realised.
OVERVIEW
Set up in 1981 by six founding members Bahrain, Kuwait , Oman, Qatar, the UAE and Saudi Arabia, the nations (to whom the term “Gulf” is frequently applied) though independent have a strong sense of common purpose and economic intent.
While dependence on oil and gas varies within the region, increasing energy prices and export revenues have been the key driver of growth from $30 per barrel in early 2003 to a peak of $130 by mid 2008.
With a total of over 36 million inhabitants (around 24 million excluding immigrants) per capita gross domestic product (GDP) is over $20,000 – on a par with many western economies. It is therefore noteworthy that these economies are still classified as “developing” by some, including the International Monetary Federation.
Perhaps part of the reason is that despite increases in spending, investment in infrastructure proceeds from a low base historically and even now local economic policies remain conservative with much of this revenue windfall saved. Development strategies as part of a move to both diversify economies and address social needs vary by country, although execution in each involves a cooperative effort between the government and private sectors.
HEALTHCARE IN THE GCC
Healthcare has been identified as an underexploited sector with the total cost of delivery in the GCC expected to reach $60bn by 2025, five times the 2007 figure.
This growth is fuelled by an increase in demand for health services in the region, predicted to rise by 240% over the next two decades thanks to a mixture of population growth, rising life expectancy and higher rates of chronic diseases.
With the over-65s the fastest-growing age group in the GCC, the need to increase bed capacity and build more hospitals is clear: four-fifths of a person’s healthcare needs typically come after retirement.
Alongside this changing demographic is the challenge presented by the explosion in so- called “ailments of affluence” among the GCC’s indigenous populations. Coronary illness and obesity-related diseases are, in turn, generating a need for specialist hospitals. For example, levels of diabetes are due to triple by 2030, with the UAE the worst affected in the region suffering the second-highest rate of type 2 diabetes in the world. Also, the obesity rate for GCC nationals stands at 40%, one of the highest in the world.
These challenges mean governments across the region will have to rethink their health policies to deal with the predicted rise in demand and costs.
While GCC governments have made investments in facilities and approaches to disease, on average just 2-4% of GDP was devoted to the health sector in 2007, compared with an average of 8% in Europe and 11.3% in the US, the largest spender globally.
Of this, the government currently shoulders 75% of the cost burden, however investment in healthcare needs to grow at the same rate as the expected cost to avoid a scenario where even the most affluent would be unable to afford even basic healthcare in 20 years.
Clearly, the private sector will need to share this burden to bring about change.
Currently, only 25% of all healthcare spending in GCC finds its way to the private sector as public care is free for nationals and the lack of subsidisation leads to very few takers of private services with lower revenues.
However an example of the long-term strategy to transfer healthcare funding from the public to the private sector is the way in which compulsory health insurance has spread across the GCC.
Saudi Arabia was the first GCC nation to demand medical insurance for expatriates when in January 2006 a law was passed requiring that all employers of more than 500 expatriate workers secure private health cover. This was then extended to firms with more than 100 expatriate employees, and in 2008 extended yet further to firms with more than 50 international employees.
In the remainder of this series we go on to consider further opportunities for private players and how they can be realised in the context of the local regulatory framework.
Look out for second and third parts of this analysis online and in future issues.