Population growth is the key driving force for any country's healthcare services, which help in giving shape to the system and attract investments. According to a report by Global Investment House, a regional asset management & investment banking firm headquartered in Kuwait with offices in major capital markets in the MENA region, Kuwait's healthcare system is not sufficient for the needs of the current population; an above average population growth will likely lead to a collapse of the system if adequate investments are not made today which we believe underpins an exceptional opportunity. Kuwait's population expanded at a CAGR of 2.8% over the past five years to 2015, supported mainly by a large influx of expatriates. Citing IMF data, Kuwait's population is projected to rise at the same rate from 2015 to 2020. Low infant mortality and high expected life expectancy have collectively also been instrumental in leading to high population growth, which essentially means that since more children being born are surviving and people are living longer, the addition to the population is faster and the reduction from the population is slower. These health indicators for Kuwait have improved considerably due to sustained focus on healthcare, amongst other things, which has reduced the mortality rate among infants and the crude mortality rate. The average life expectancy at birth in Kuwait in 2015 was about 74 years for males and 76 years for females, far higher than the global life expectancy of 71.4 years (73.8 years for females and 69.1 years for males). Moreover, it is a noteworthy improvement from just 60 years estimated in 1960. Kuwait witnessed a decrease in the infant mortality rate (from 10.7 to 7.6 per 1,000 live births) during 2009–13. The crude mortality rate decreased during the same period (from 1.8 to 1.5 per 1,000 people). Infant Mortality rate which used to be 2.2 per 1000 population under the age of five years in 2005 also improved drastically to 1.7 in 2014. Due to a higher survival rate, a greater number of infants today need healthcare facilities than was required before which seems true for the other end of the age-spectrum as well. The longer the population survives, the more the dependency on the system. In Kuwait, 30% of the total population falls in the age group of 40 and above. Hence, the resultant increase in this category (which usually spends more on medical care) is likely to transform into higher spending related to healthcare services. We believe that while the average age of the population has been shifted upwards to around 75 years, those crossing the mid-60 age are more likely to be extensively and frequently dependent on the healthcare system. A large chunk of population will cross the 40 mark within the next decade. Albeit, a massive portion of the population (about two-thirds) in Kuwait is concentrated in the young and working age category i.e. between ages 15 and 49 in June 2016, Population below the age of 15 years accounted for 20.3% of the total population in June 2016. Population above the age of 40 comprises 29.7% of the total population which is the age when people need healthcare the most. In absolute terms, this segment amount to 1.3mn people. Also, 0.6mn people are expected to cross into the 50 years age limit with another 1mn turning 40 within the next 10 years. Kuwait is an oil-rich country with a population of about 4.1mn. With around 102 billion barrels of oil in reserves, Kuwait boasts a per capita income of $28,985 in 2015 ($43,594 in 2014). More than half of Kuwait's national income and around 80% of government revenues come from oil exports. Declining oil prices led Kuwait into a deficit after 16 consecutive years of surpluses in FY2015-16; recorded at KWD4.6 billion ($15.3 billion). The Kuwait government is therefore considering alternative ways to encourage employment, reduce expenditure and increase income generation. Encouraging private players will reduce the government's burden significantly while at the same time, help diversify its economy, offer employment opportunities and offer a quicker solution (as against a slow red-tape anchored government initiative) to the burgeoning healthcare demand issue in Kuwait. It therefore comes as no surprise that the Kuwait Direct Investment Promotion Authority (KDIPA) has highlighted the healthcare sector as one of its major destinations for investment opportunities as found it its latest guide to investment opportunities in Kuwait. Moreover as a much needed step, Kuwait has formed a separate organization, Kuwait Authority for Partnership Projects (previously known as Partnerships Technical Bureau), to facilitate its PPPs. Non Communicable Diseases (NCDs) – a major cause of mortality The changes brought about by the demographic and epidemiologic transition has had a profound impact on health patterns in Kuwait and the overall GCC region. Chronic diseases such as cardiovascular, diabetes, cancer and respiratory conditions are rising dramatically in Kuwait and in the GCC region driven primarily by lesser physical activity and dietary habits further complemented (and perhaps complicated) by high income generation. NCD's were estimated to account for 73% of the total deaths in Kuwait in 2014, according to a report by the World Health Organization. NCDs are incident primary on the working age population, which is a serious concern given that this segment forms the largest portion of the age distribution of Kuwait in particular and the GCC in general. As per World Health's Survey Report 2013, Kuwait has one of the highest percentages of obesity in the world; nearly 40% of the population is obese. In absolute terms, this number is alarming, considering a total population of nearly 4.1mn. The high prevalence of obesity can be ascribed to lifestyle changes, foremost being the high consumption of fast food. This combined with very high summer temperatures and a sheer lack of outdoor activities makes physical activity a difficult task for a great part of the year. According to a news report by Bariatricnews.net, only 12% of Kuwait's population is below the healthy body mass index (BMI) of 25. This means that effectively 88% of Kuwait's population is overweight, if not obese. The country witnessed nearly 6,700 bariatric surgeries from 2007 to 2012. Kuwait now has 25 bariatric surgeons to perform stomach stapling surgeries and this number is expected to increase based on demand. The cost of NCDs forms a major chunk of the total government spending in Kuwait and the overall GCC region. Despite the healthcare budget increasing, NCDs are gradually accounting for a considerable share of the public health expenditure. According to PWC's global strategy consulting team, individual GCC country studies show NCDs account for 9 – 30% of the public healthcare spending. Diseases of the circulatory system were the primary cause of deaths in 2013 which were responsible for 42% of the total deaths in 2013. Kuwait's per capita income stands well above that of many other emerging and developed countries in the world. However, spending on healthcare as a percentage of the GDP remains relatively modest. Kuwait's healthcare spending is just 3% of its GDP whereas the advanced economies of the world spend more than 9% of GDP on healthcare. This shows Kuwait's inadequacy in terms of healthcare spending or in other words, healthcare expenditure in the GCC as a whole and Kuwait in particular is very low by international standards. According to the WHO database, Kuwait spent $5.2 billion on health in 2014, a 15.5% increase compared to the previous year. Also, health expenditure per capita in Kuwait witnessed two-fold growth in the last two decades to $1,385.8 in 2014 from just $618.5 in 1995. This figure is however significantly lower than the average $3,531 per capita spent by OECD countries. In fact only 2 of the 34 OECD countries spend below $1,500 per capita on healthcare with US standing out as the leader with a per capita expenditure of $9,532. The same conclusion is derived when comparing Kuwait's health expenditure to the total yearly expenditure of the country. Kuwait's figures stand humbled at just 5.8% in front of towering figures like 15.2% for the developed world and 11.7% for the world as a whole. Kuwait in fact barely meets the regional average of 7.6%. Kuwait's government spending as a % of total healthcare expenditure stands the second highest in the GCC region, with Oman leading the pack. Government health expenditure accounts for the vast majority of the total healthcare expenditure, accounting for more than 85.9% of the total health spending in 2014, which grew from 79.8% in 2005. Considering these factors, in the recent past, the government began implementing a number of reforms, which are aimed at expanding the country's healthcare infrastructure and placing importance on controlling lifestyle-related diseases. Resultantly, the share of private sector expenditure on healthcare as a proportion of total healthcare expenditure decreased from 20.2% in 2005 to 14.1% in 2014. In terms of private health expenditure as a percentage of the total, Kuwait stood markedly behind its local peers (ranking 5th) with Bahrain's private sector spending the most (36.7%) on healthcare as compared to its peers in the GCC. Even though Kuwait's government funds more than 85% of its total expenditure on healthcare, it is still far behind when it comes to the world economies in terms of government's pie on healthcare expenditure of its total expenditure. We believe that while the government wrestles with its expenditures given the prevalent oil prices, it will be quite open to welcome private contribution to healthcare. We see a reversal in this trend going forward as the government mulls foreign and local investments into this sector especially through its PPP initiatives. At the current (2014) level of expenditure, every 10% increase in proportion of private sector expenditure amounts to an amount in the vicinity of $500mn. Come 2017 and increase in the pie size owing to meeting the healthcare needs, this figure could be much larger. Treatment abroad, a drain on the national kitty As per the State Audit Bureau, the overall bill remains significant, with the Kuwaiti government spending KWD441mn ($1.5 billion) to fund 11,000 medical trips abroad in 2014. Kuwait is also planning to promote medical tourism in its own country by developing superlative healthcare and hospitality facilities. These massive developments within Kuwait's healthcare sector will have a coupling effect for public finances of the Kuwaiti government; firstly focusing on medical tourism would possibly attract patients from across the globe and secondly reduce the foreign visits of locals for specialized treatment. In Kuwait the major infrastructure is managed by public players and the overall healthcare infrastructure does not meet the standards set by the developed world. Going forward with a number of projects worth billions of dollars underway in Kuwait, we can expect private players to strengthen their infrastructure base when compared with the public sector in the oil-rich region and perhaps help plug that deficit. As per latest comparable data available on World Bank for 2012, the hospital beds in Kuwait stand low at 2.2 beds per 1000 population as compared to the world average of 3 beds per 1000 people and developed markets average of 5 beds per 1000 people. Moreover, the physician density in Kuwait stands at 2.7 per 1000 people for 2012 as compared to the developed markets average of 3.4 physicians per 1000 people. Noteworthy, as per the Central Statistical Bureau for 2014, there are in total 9,789 physicians (7,640 MOH and 2,149 Private) in Kuwait which translates into 2.4 physicians per 1000 population in Kuwait. Similarly, as per comparable data available on World Bank for 2010, the nurses and midwives density in Kuwait stands at 4.6 per 1000 people as compared to the developed markets average of 8.9 per 1000 people as well as GCC average of 5.7 per 1000 people. Noteworthy, as per the Central Statistical Bureau for 2014, there are in total 23,710 Nurses (18,075 MOH and 5,635 Private) in Kuwait which translates into 5.9 nurses per 1,000 people in Kuwait. This deficit highlights supply side issues and paves the way for growth opportunities available in terms of Kuwait's healthcare infrastructure requirements. Kuwait will require a significant addition of healthcare workforce and infrastructure to cater to its growing healthcare demand. Hence, a supply demand gap analysis has been worked out wherein requirements for numbers of beds, nurses have been estimated based on the last 3 year average growth rate and it has been then compared with the OECD average rate for 2014. This then brings up the surplus/deficit which might arise in the years to come. As per our crude calculations, if OECD were to adopt standards maintained by OECD countries, it would have an average backlog of ~6,000 beds and nurses each year despite the number of beds and nurses it has been adding each year over the past few years based on the yearly average growth figure. If Kuwait were to maintain its 2.06 per thousand bed average, it would have a shortage of ~6,300 beds by 2020. There are currently nine entities developing 21 large scale mega healthcare projects in Kuwait. The total value of these projects is approximately $11 billion which will add almost 11,200 beds; the completion time of most of these projects is however not known at this moment in time. If Kuwait were to maintain its current average of 5.9 nurses per thousand, it would have a shortage of ~4,900 nurses by 2020. As per IMF, Kuwait's population is projected to grow at a CAGR of 3.4% to reach 4.7mn in 2020 from 4mn in 2014 whereas the average inflation rate in the region is expected to range between 3.4% and 3.6% during the forecast period of 2015-20. Kuwait reported a health inflation growth of 1.9%YoY for Sep-2016. Kuwait healthcare expenditure was approximately $5.2 billion in 2014 and it is expected to grow at a CAGR of 7.5% up to 2020 to $8 billion considering the population growth and the average inflation growth rate forecast by IMF for the forecast period (5.8% up to 2020 to $7.3 billion considering the population growth and the latest health inflation growth rate reported for Sep-2016). As per AON Hewitt's Global Medical Trend Rates 2016 Survey report, Kuwait Average Net Medical Trend Rate (Net Medical Trend is the combination of the change in cost (generally an increase) of a medical service or product times the rate of utilization or consumption of the service or product less country inflation) is estimated to have risen by 8.4% in 2016 while the same was 8% for 2015. Hence, we have considered the 2016 growth rates for the entire forecast period. Despite the drastic decline in oil prices and the ensuing economic setbacks, healthcare spending remains a priority for the government. Kuwait awarded projects worth $11 billion in the construction of new infrastructure for healthcare, as it seeks to prioritize the transformation of its healthcare sector. Realizing the need for facilities that cater to life-threatening diseases that earlier required Kuwaitis to fly out of the country for treatment, several construction projects are booming in the country. The country has 40 upcoming healthcare projects, accounting for 6% of the total upcoming projects in the GCC region. However, in terms of project value, Kuwait accounts for nearly 17% of the total value of upcoming projects.
