Healthcare to flourish with government help

Feature: Investment in health-care infrastructure and development across the Middle East will continue to grow despite the financial crisis and tight debt markets.

Rashid Hospital in Dubai: government backing will ensure a roll-out of medical facilities in the region.

Investment in health-care infrastructure and development across the Middle East will continue to grow despite the financial crisis and tight debt markets, thanks to large cash allocations by regional ­governments. The estimated US$14 billion (Dh51.42bn) of health-care projects across the region are expected to remain on track, industry sources say, largely because of increased government spending. However, questions remain over the private sector's ability to deliver the boutique-type projects needed to lure medical tourism here from Asian countries. The way forward for the sector in uncertain economic times is private public partnerships (PPP), according to analysts and health-care professionals. The scarcity of finance to launch projects and complete those in the pipeline could be met through PPP deals, in which private and public entities forge long-term equity and management partnerships. "There could be so many ways PPP deals could be structured but this is surely one way of overcoming the shortage of funds for the health-care industry," says Ali Hashemi, the principal for global health at Booz and Company. Mr Hashemi says Abu Dhabi is a prime example of where the PPP model is being implemented. By dividing the General Authority of Health Services into the role-specific Abu Dhabi Health Authority, the health insurance firm, Daman, and Seha, the corporate entity that owns and manages hospitals, Abu Dhabi has laid foundations for the PPP model to work. "Management partnerships with international hospitals like Vamed, John Hopkins and Bumrumgrad for the hospitals owned by Seha is the first step of moving towards PPP models," Mr Hashemi says. "The next logical step could be more equity partnerships within the region." A shift in regional investment trends is already being seen, with equity players considering long-term projects that offer slower but more assured returns, such as health-care establishments, as safer bets, says Dhiraj Joshi, the associate director of business performance services at KPMG Advisory. "We have been approached by many regional investors who got their hands burned in real estate investments seeking quick returns," he said. On average, health-care projects begin to make profits in seven to eight years, however under current market conditions, and with a consistent decline in property valuations, investors are keener to play safe and broaden their portfolios instead of seeking quick returns. About 70 per cent of hospital beds in the Middle East are owned by governments, and their intention to increase spending means the growth in the health-care sector is far more assured than other areas that have been hit by the recession. "In my opinion, a lack of funds could be a short-term obstacle but not a long-term deterrent to investors," Mr Hashemi adds. Mr Joshi predicts that health-care spending in GCC countries could quadruple in the next 12 to 15 years, a point also highlighted in McKinsey and Co's 2007 GCC health-care spending report which says the health-care cost in the region could increase five-fold by 2025 to $60bn. In the Emirates alone, visits to hospitals have risen far above the normal average observed in other parts of the world, according to Mr Joshi. "This is an indication that there is still is a lot of room for investment in the country's health-care sector," he adds. Governments in the region are poised to increase their health-care infrastructure investment, particularly in Saudi Arabia, the largest market in the GCC, and in the Emirates. This is proving a lure for medical-equipment and services-supply companies such as Siemens Healthcare and GE Healthcare to expand aggressively in the region. "We have not seen any sign of slowdown in the region," says Maurice Faber, the vice president of Siemens Healthcare, Middle East and West Asia. Mr Faber was positive about the growth prospects of the sector and expansion of his firm's operations. "We were negotiating deals before and after the slowdown, but nothing in the region has changed in health care," he adds. While Siemens and some other corporate giants are cutting jobs around the world to minimise losses, the firm's regional arm is looking to expand. "We have 4,300 people in the region and we are looking to enhance this number," Mr Faber says. "It is a big commitment from us for this region." He says the company is firmly focused on the region and funding is available to maintain growth, adding that earnings from the Middle East are helping to compensate for losses in other markets. GE Healthcare, one of the world's largest suppliers of medical equipment and health-care imaging technologies, expects industry spending to double in the Middle East in the next decade. "Health care is increasingly on the agenda for governments across the region. Today, whether you are in Saudi Arabia, the UAE or Turkey, health care is a national priority," says Richard di Benedetto, the president and chief executive of GE Healthcare International EAGM (eastern and Africa growth markets). According to Mr di Benedetto, the emergence of sustained government funding is one the key drivers of change in the health-care sector, along with regional government's efforts to encourage investments by the private sector. The lure of the regional market is proving global, with firms from as far away as New Zealand moving to enter the market. Two years ago New Zealand had only two medical-equipment and services operators in the Middle East, however its presence in the regional health-care sector has grown rapidly, with 15 more firms preparing to do business. "This is potentially a big growth area for us. And the way governments [in the Middle East] are spending on health-care infrastructure, we don't see a slowdown happening in this market," says Richard Laverty, the regional director of EMEA New Zealand Trade and Enterprise. [e-mail]