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 favorable 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. Portfolio managers have clearly preferred the Healthcare sector to balance their portfolios as well as a hedge against cyclical sectors which have remained under pressure since 2014. Giving insights on the industry's IPO activities, the report mentioned that the IPO of several healthcare facilities in the recent past have been successful and more are to follow in the coming years. Apart from the regional listings of healthcare companies, there were IPOs of two GCC-based healthcare companies (UAE based NMC Healthcare and Al Noor Hospitals) on London Stock Exchange (LSE) in the recent pasts which have turned out to be immensely successful. A number of companies in the GCC are now planning to list shares overseas owning to easier listing rules and the LSC's intrinsic values towards fair and competitive capital markets. M&A activity in the regional healthcare space during the last five years has seen a continuous upsurge with deal value going more tha$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 $1,113 million, followed by deal value of $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 $697.2 million were struck during 2006-16. Moreover, the number of healthcare deals each year has increased steadily since 2009 with some slowdown witnessed since 2015 due to the weak oil prices leading to an economic uncertainty, pulling back some investor confidence. A closer examination of the PE activity in the last ten years reveals that deals have been largely concentrated in the UAE, Saudi Arabia and Kuwait. In terms of value, the UAE recorded the highest contribution with $481 million from 37 deals during 2006-16. Saudi Arabia and Kuwait witnessed 9 and 10 deals respectively in the last decade. 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 the 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 centers due to their lower capital requirement and quick return on investment. Since healthcare is becoming more expensive, even for marginalized sections of society, with the welfare net for expatriates shrinking further, it has opened up opportunities for low-cost clinics and health establishments to capitalize on disenfranchised customers. The report also analyzed 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. This segment is also witnessing growing M&A activity, as leading providers are working toward developing an integrated network of facilities offering different types of health services. With GCC's aging population, the growing number of investments in home health care facilities within the region is increasing; therefore there is significant opportunity in the home health care market that is yet to be tapped. 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 favorable atmosphere to attract private healthcare providers and investors. They are providing infrastructure support and financial incentives to attract private players to the healthcare sector, for instance, the support offered by the Dubai Healthcare City. As a result, PPPs are already budding in the region and are likely to grow further. Such partnerships are typically structured on the build, operate, and transfer (BOT) model, helping the GCC governments fill the gaps in terms of capital, infrastructure, workforce, and the quality of services. 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 $64 billion in 2014 from $16.9 billion in 2004, growing at a CAGR of 14.3%, while the per capita healthcare spend has multiplied by 2.5x to $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. Also, a key demand driver for healthcare in GCC has been the region's increasing per capita income over the last few years. The affluent population coupled with expatriate community is demanding quality healthcare services and therefore, will continue to drive healthcare market in the near future. Governments across the GCC region are investing heavily in healthcare infrastructure using their large budget surpluses from oil revenue. The GCC region currently has about 153 projects under various stages of development (on-going and on-hold, and delayed) worth more than $42.92 billion to be completed by 2021, of which 65 projects are more than $100 million each and 87 of them coming up in Saudi Arabia alone. Around 71% of the new projects by value are coming up in Saudi Arabia (47%), and the UAE (24%), alone. The largest project by value in the GCC is the construction of King Abdullah Medical City in Makkah, undertaken by the MoH of Saudi Arabia. The project entails the construction of 1,500 bed hospitals along with a mosque. However, a major part of the project is currently on hold, which was supposed to be completed by November 2015. The second-largest project, Sheikh Khalifa Medical City, based in Abu Dhabi, UAE, involves the construction of three hospitals with 838 beds and is expected to be completed by Q2 2016. The project is being undertaken by JV of Abu Dhabi General Services and Abu Dhabi Health Services Co. P.J.S.CA. 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. Al Masah's study reveals that the GCC healthcare industry has grown by leaps and bounds given the need to address health service capacity gaps and improve the quality of health infrastructure. High population growth and growing spending power coupled with changes in demographic profile, dietary habits and lifestyle has led to high prevalence of chronic diseases among the region's inhabitants, which are exerting pressure on the existing healthcare system and thus forcing government to make it a center stage of its budget. The GCC governments are also injecting huge funds as well as encouraging private sector participation to build hospitals and clinics, upgrade the existing infrastructure and match the quality of services offered in developed countries. Most countries are also investing heavily in technologies such as the digitization of patient records such as electronic health records (EHRs) and e-visits. The rollout of mandatory health insurance schemes in all the countries is further accelerating the growth of the sector. — SG
