Al Masah Capital: MENA Healthcare Sector

Transcription

1 Al Masah Capital: April 2014

2 EXECUTIVE SUMMARY It is often said that a healthy body bears a healthy mind. This saying holds great significance for the MENA region, where several countries are targeting to become knowledge-driven economies in their bid to sustain/enhance growth. However, in order to become a knowledge-driven economy, MENA countries need to focus on the health related aspects of the general populace. Countries like Hong Kong, Singapore and Japan are perfect examples of how health and economic prosperity go hand in hand. A Bloomberg survey ranked these countries, which have firmly marked their place on the developed world map, the top three based on the efficiency of their healthcare systems. Bloomberg rated the healthcare systems using three criteria: (1) average life expectancy; (2) relative per capita cost of healthcare or percentage of GDP per capita; and (3) absolute per capita cost of healthcare. Basing our case on the above, we construe that if MENA countries wish to be counted among the leaders of tomorrow, they need to ensure that their healthcare systems function properly and the healthcare needs of their residents are satisfactorily met. The MENA region spends about 4.0% of its GDP (or USD329 per person) on healthcare, compared to 14.3% (USD3,373) by the Americas and 9.3% (USD2,217) by Europe. On an average, the region allocates 8% of government expenditure toward healthcare, lower compared to developed countries like the US (20%), Germany (19%), Japan (18%) and the UK (16%). Within MENA, allocation toward healthcare is high, particularly in Jordan, Tunisia, Bahrain, and the UAE. Unfortunately, the results so far have not been very encouraging for most countries, except the UAE, which has been exhibiting good progress. In the MENA region, provision of healthcare is generally perceived as the responsibility of governments, reducing the role of the private sector to a large extent. The WHO data suggests that governments in MENA bear ~64% of total healthcare costs in the region. According to our research, MENA is a huge untapped healthcare market. We forecast the MENA healthcare market to be worth USD144 billion by The government/public sector is likely to continue being the dominant force, holding 58% of the market. The private sector healthcare market is forecasted to be worth USD61 billion in 2020, more than double the size in The GCC healthcare market, covering six countries, is projected to be worth USD69 billion by The private sector s share is expected to reach 33% by MENA has several positives, particularly its demographic profile. The healthcare needs in the region are likely to increase significantly, led by a growing and ageing population. As per the World Bank estimates for the 10-year period , the elderly population (defined as people over 65 years of age) in the MENA region is likely to witness the quickest growth of 4.1% per annum, much higher than that in East Asia and Pacific (3.9%), Southeast Asia (3.6%), Latin America and the Caribbean (3.3%), Sub-Saharan Africa (3.1%), and Europe and Central Asia (1.4%). The rise in the elderly population means more business for healthcare providers, as the elderly generally seek more medical care and have more expensive health profiles than the younger populace. 2

3 Prevalence of lifestyle related problems like diabetes and heart ailments is high in the region. Incidence of Type 2 diabetes, particularly within GCC, has been found to be unusually high relative to the rest of the world. According to the WHO, one in three adults in the UAE is obese, and one out of five people live with diabetes. Additionally, rising purchasing power in the MENA region, especially GCC, has positively impacted healthcare spending. Per capita GDP in MENA is projected to grow 5.1% over ; this is likely to further drive healthcare spending in the region. The MENA healthcare market also has supply side attractiveness in the form of inadequate healthcare infrastructure. The region lags behind developed countries in terms of bed count. Taking the US as the benchmark, calculations indicate that the MENA region would need to add nearly 360,000 beds by MENA is also far behind the developed economies such as the UK, Germany, the US and Japan in terms of the availability of doctors and healthcare professionals. Our calculations indicate that the region is short of nearly 128,000 physicians, 294,000 dentists, and 1.6 million nurses and midwifery personnel. By 2020, this shortage would rise to 150,000 physicians, 326,000 dentists and 1.8 million nurses and midwifery personnel. Moreover, as mentioned earlier, private sector participation in healthcare is low in MENA. The region has nearly 3,300 hospitals with a capacity of 380,000 beds. Government-owned hospitals form 64% of the total hospitals and 82% of the bed capacity, leaving the private sector with 36% of the total number of hospitals and just 18% of the overall bed capacity. Several western healthcare companies have taken note of the above and are increasing presence in MENA. Within the region, countries like the UAE and Saudi Arabia already offer world class health facilities through the presence of brand names like Johns Hopkins, Mayo Clinic, Cleveland Clinic, Harvard Medical International, Bumrungrad International, Bourn Hall Clinic, Moorfields Eye Hospital, VAMED and Medical University of Vienna International. Healthcare opportunities have attracted private equity firms to the region. Over , the MENA healthcare sector witnessed 44 private equity buys worth USD1.59 billion (disclosed value) at the rate of about 4 5 deals each year. During the period, Al Masah Capital and Abraaj Group were the most active private equity firms in terms of the number of buy deals. Al Masah Capital reported eight deals, while Abraaj completed six. The UAE was the hub of private equity deal activity in the healthcare sector. Nearly 40% of all deals announced in the MENA during were with companies based in the UAE. The pharmaceuticals and diagnostics segments garnered the maximum number of private equity deals during the period. Given the favorable demographics, rising government support, higher per capita income, we feel the MENA healthcare sector would witness higher private equity interest, going forward. 3

4 MENA ECONOMY Overview of last year s performance The MENA region grew 2.1% in 2013 compared to 4.6% in 2012 The MENA region is estimated to have grown 2.1% in 2013 compared to 4.6% in 2012, as lower-than-expected performance of oil exporting countries weighed on the region s economic growth. These countries were affected by weak global demand for oil amid an increase in non-conventional oil production in the US and relatively little change in the price of oil despite supply disruptions in some parts of the MENA region. The oil-rich GCC region grew 3.7% in 2013 compared to 5.2% in GDP growth of non-gcc oil exporting countries also slowed down to 0.2% in 2013 vis-à-vis 5.6% in Oil importing economies were affected by rising political uncertainty and delays in reforms Increasing political uncertainties and delays in reforms affected the oil importing MENA economies. Despite this, oil importing economies are expected to have registered a GDP growth of 2.8% in 2013 on small improvements in tourism activity (especially in the first quarter) and a recovery in exports in some countries. Expectations for 2014 Despite significant headwinds due to a fragile political scenario in some of the major regional economies like Egypt and Tunisia, the IMF projects the MENA region s GDP to grow 3.8% in 2014, higher than the 2.1% growth experienced in Exhibit 1: GDP growth across some of the MENA countries (%) Jordan E 6.3 Kuwait Bahrain Algeria E E E 13.0 Qatar E UAE Morocco E Egypt E Saudi Arabia E Oman E E Source: IMF, Al Masah Capital Research 4

5 2014 looks promising due to high oil prices and a steady flow of government spending on development The UAE is basking in the glory of winning the hosting rights for EXPO 2020, among others GDP growth in 2014 would largely be driven by the oil exporting countries, including the GCC nations, which are likely to witness higher GDP growth of 4.1% in 2014 on high oil prices and a steady flow of government spending on development. Growth in non-gcc oil exporting countries is estimated to be 3.9% versus 0.2% over the same period. Saudi Arabia, the largest economy in MENA, is projected to grow 4.4% in 2014, led by an increase in oil production as well as growth in its non-oil sectors. This indicates a significant increase from the 3.6% growth projected by the IMF for Continued government spending is likely to lend impetus to the non-hydrocarbon sector, which is slated to contribute ~17% to total export earnings in The UAE is expected to report a GDP growth of 3.9% in 2014, mainly driven by increased investments, a favorable demographic profile (rapidly growing population base), stable political environment, and improved trade relations with neighboring GCC states. Hospitality, manufacturing, trade, and logistics would be the primary drivers of growth in the non-hydrocarbon sector during Preparations for the Dubai EXPO 2020 are also expected to accelerate growth. Egypt s economy is expected to grow 2.8% in 2014 versus 1.8% in The country s economy has been projected to recover, following relative stability on the political front. Economic assistance from Saudi Arabia, Kuwait, and the UAE helped ease pressure on the economy s fiscal position. The three GCC countries have pledged a total aid of USD12 billion to boost Egypt s economy. GDP growth in Qatar is expected to remain stable even in 2014 The new cabinet would provide Kuwait a jumpstart in 2014 Qatar is expected to report GDP growth of 5.0% in 2014, almost unchanged from 5.1% in Despite saturation in the hydrocarbon sector, growth is likely to be strong in cement and metal production, driven by increasing construction activity and the rapidly growing manufacturing sector. Moreover, the USD140 billion spend on infrastructure projects, including construction of airports, roads and stadiums, partly in preparation to host the World Cup in 2022, would facilitate growth. Kuwait is expected to report 2.6% GDP growth in 2014, aided by quick decisions from the new cabinet, expansion of the non-hydrocarbon segment, increase in government expenditure, rising domestic consumption, and higher foreign direct investment. Political wrangling, lower crude output, and lack of economic progress had hurt growth in GDP growth for Oman has been set at 3.4% for 2014 due to lower oil revenue. However, rising government expenditure, a robust banking system (with a system-wide capital adequacy ratio of 16% and gross non-performing loans at 2.1%), coupled with the government s efforts to expand the labor-intensive SME sector, would drive growth of the non-oil economy. Bahrain s economy is expected to grow 3.3% in 2014, due to strong performance by the non-hydrocarbon sectors like tourism & leisure and finance. Increase in government spending, coupled with aid received from GCC states, is likely to boost the nonhydrocarbon segment. 5

6 GENERAL OVERVIEW OF THE MENA HEALTHCARE SECTOR Global healthcare sector The global healthcare sector was worth USD5.9 trillion in 2010 Our workings on data available from the World Health Organization (WHO) indicate that the global healthcare sector was worth USD5.9 trillion in 2010, accounting for approximately 9.2% of the global GDP, or per capita healthcare spend of USD941. Healthcare spending in mature and high-income economies was much higher than that in the lower-middle-income and low-income nations. In high-income economies (taken as a group), total health expenditure increased to USD4,828 per capita in 2010 from USD2,567 per capita in 2000, a compound annual growth rate (CAGR) of 6.5% vis-à-vis the global average of 6.9%. In contrast, over the same period, health expenditure in upper-middle-income countries increased at 12.8% per annum to USD384 per capita from USD115. In high-income economies (taken as a group), total healthcare expenditure stood at 12.4% of GDP in 2010 compared to 9.9% in The Africa, Southeast Asia, and Eastern Mediterranean regions continued to spend the lowest on healthcare as a percentage of GDP. Healthcare spending in mature and highincome economies was much higher than that in the lower-middleincome and lowincome nations Exhibit 2: Healthcare spending across the globe Healthcare spend as % of GDP High Income 12.4% Upper Middle Income 6.0% Lower Middle Income 4.3% Low Income 5.3% Per capita spend (USD) 4, Region of the Americas European Region Global Average GCC Region Western Pacific Region MENA Region Eastern Mediterranean Region Southeast Asia Region African Region 9.3% 9.2% 3.5% 6.4% 4.0% 4.5% 3.8% 6.2% 14.3% ,217 3, Source: WHO, Al Masah Capital Research In 2010, the US spent 17.6% of its GDP on healthcare compared to 4% by MENA The Americas (comprising 35 countries, including the US, Canada and Brazil), led the regions in terms of healthcare spend as % of GDP and on a per capita basis. However, country-wise, the US was the world s largest healthcare market; in 2010, it spent 17.6% of its GDP on healthcare. In comparison, the MENA healthcare market is small and underdeveloped. In 2010, the MENA region spent 4.0% of its GDP (about USD72 billion) on healthcare, or USD329 per 6

7 person. Healthcare spending in GCC stood at 3.5% of the GDP (about USD40 billion), or USD920 per person, in Healthcare is one of the fastest growing sectors worldwide. The healthcare business comprises clinics, laboratory and diagnostic facilities, pharmaceutical manufacturers and retailers, hospitals, medical equipment manufacturers and health insurance companies. Healthcare in MENA is largely provided by the government Governments in MENA bear ~64% of the total healthcare costs in the region Healthcare markets in MENA and GCC are predominantly driven by governments, which account for a major share of total healthcare expenditure. Our workings on the data available from the WHO indicate that governments in MENA bear ~64% of the total healthcare costs in the region, higher than the global average of 60%. However, the government s share of healthcare expenditure in MENA is lower than that in the UK (83%), Japan (80%), and Germany (76%). Exhibit 3: Government share of healthcare spend (2011) 100% 17% 20% 24% 27% 80% 60% 36% 40% 44% 54% 40% 83% 80% 76% 73% 20% 64% 60% 56% 46% 0% UK Japan Germany GCC MENA Global China US Government Private Source: WHO, Al Masah Capital Research In Saudi Arabia, the largest economy in the MENA region, the government (through the Ministry of Health) finances 69% of total healthcare costs. The government s share in healthcare expenditure is high in Kuwait (82%), Oman (81%), Algeria (81%), Qatar (79%), and the UAE (74%). Expenditure on healthcare in the region is low by global standards MENA per capita healthcare expenditure of USD329 is lower than the global average of USD941 Healthcare expenditure in the MENA region is low in terms of percentage of GDP and on per capita basis. The region spends 4% of its GDP on healthcare, lower than the global average of 9.2% and that of the developed countries like the US (17.6%), Germany (11.5%), Japan (9.2%), and the UK (9.6%). Healthcare expenditure on per capita basis in the MENA region stands at USD329, lower than the global average of USD941 and that in some of the developed countries like the US (USD8,510), Germany (USD4,656), Japan (USD3,967) and the UK (USD3,543). 7

8 Exhibit 4: Expenditure on healthcare in MENA is low (2010) 8,510 Expenditure per capita (USD) 4,656 3,967 3, % 11.5% 9.2% 9.6% 9.2% 3.5% 4.0% 5.0% US Germany Japan UK Global GCC MENA China Source: WHO, Al Masah Capital Research Nearly two-thirds of all hospitals in MENA are government owned Healthcare needs of the people in MENA is currently met through 3,300 hospitals, 64% of which are government owned Our workings indicate that the healthcare needs of the people in MENA are currently met through 3,300 hospitals with a capacity of 380,000 beds. The share of governmentowned hospitals (which form 64% of total hospitals in MENA) is the most in countries like Egypt, Algeria, and Saudi Arabia. Approximately 80% of the government-owned hospitals in MENA are located in Egypt (52%), Saudi Arabia (12%), Algeria (12%), and Morocco (6%). Similarly, 80% of the privately-owned hospitals in the region are located in Egypt (43%), Algeria (15%), Saudi Arabia (12%), and Lebanon (11%). Exhibit 5: Most of the hospitals in MENA are government owned Government owned hospitals Privately-owned hospitals 64% 36% Egypt 52% Egypt 43% Saudi Arabia 12% Algeria 15% Algeria 12% Saudi Arabia 12% Morocco 6% Lebanon 11% Tunisia 5% Jordan 5% Libya 5% Libya 5% Oman 3% UAE 5% Others 6% Others 4% Source: Al Masah Capital Research 8

9 In terms of patient bed capacity, government hospitals (which are generally thrice as big as private hospitals) account for 82% of the overall beds. Government hospitals in Kuwait, Qatar and Bahrain are relatively big in terms of the number of patient beds. Within the private hospitals category, average number of beds is on the higher side in countries like Tunisia, Morocco, and Saudi Arabia. The healthcare system of two MENA countries is ranked much above that of the UK and US Hong Kong has the most efficient healthcare system in the world Healthcare systems of Libya and UAE came ahead of the UK, Canada, France, Germany and the US In 2013, Bloomberg conducted a study to ascertain the efficiency of healthcare systems of countries 1 worldwide. It released a final list ranking 48 countries using three criteria: (1) average life expectancy; (2) relative per capita cost of healthcare or percentage of GDP per capita; and (3) absolute per capita cost of healthcare. Hong Kong, with an efficiency score of 92.6, topped the list based on an average life expectancy of 83.4 years, a relative cost of healthcare of 3.8% of GDP, and healthcare expenditure per capita of USD1,409. Singapore and Japan came second and third, with efficiency scores of 81.9 and 74.1, respectively. Two countries from the MENA region Libya and UAE with ranks 12 and 13, respectively, came ahead of developed countries like the UK, Canada, France, Germany and the US. Despite large spending, the US was found to have one of the least efficient health systems in the developed world. 1 Bloomberg only considered countries with a population of at least five million, a life expectancy of at least 70 years, and a GDP of at least USD5,000 9

10 GCC MENA xxxxxxmens THE MENA HEALTHCARE MARKET IS EXPECTED TO BE WORTH USD144 BILLION BY 2020 The MENA healthcare market is forecasted to be worth USD144 billion by 2020 The MENA healthcare market is forecasted to be worth USD144 billion by The government/public sector is likely to continue being the dominant force, holding 58% of the market. The private sector healthcare market is forecasted to be worth USD61 billion in 2020, more than double the size in The GCC healthcare market, covering six countries, is obviously smaller, and is projected to be worth USD69 billion by The private sector s share is expected to reach 33% by The GCC healthcare market is projected to be worth USD69 billion by 2020 Exhibit 6: MENA and GCC healthcare market by (in USD billion) Government Private Source: WHO, The World Bank, Al Masah Capital Research The market size estimation was carried out using data on population, healthcare expenditure (both in terms of % of GDP and on per capita basis), ratio of government and private expenditure on healthcare, GDP and inflation. Being conservative, we maintained healthcare expenditure by governments (in terms of % of GDP) at 2.4%, as was in However, for private sector expenditure on healthcare, we used our estimate of private per capita spend on healthcare of USD242 in 2020 and multiplied the same with the population of 253 million during the year. Refer appendix for country-wise market size details. 10

11 GROWTH DRIVERS FOR THE HEALTHCARE SECTOR MENA enjoys favorable demographic conditions The MENA region is likely to experience a sharp increase in healthcare needs, primarily led by a growing and ageing population. The rise in elderly population means more business for healthcare providers, as the elderly generally seek more medical care and have more expensive health profiles than the younger populace. The population growth rate in MENA is among the highest globally According to the World Bank estimates for the 10-year period , the MENA region is likely to witness a population growth rate of 1.4% per annum, much higher than the growth rates experienced in Southeast Asia (1.0%), Latin America and the Caribbean (1.0%), East Asia and Pacific (0.5%), and Europe and Central Asia (0.2%). Only Sub-Saharan Africa is projected to achieve a higher population growth rate of 2.4% over the period. In addition, given the improvements in life expectancy and decline in mortality rates, demographic profile of the MENA region is likely to undergo a shift. As per the World Bank estimates for the 10-year period , the elderly population (defined as people over 65 years of age) in the MENA region is likely to witness the quickest growth of 4.1% per annum, much higher than that in East Asia and Pacific (3.9%), Southeast Asia (3.6%), Latin America and the Caribbean (3.3%), Sub-Saharan Africa (3.1%), and Europe and Central Asia (1.4%). The elderly population in MENA is likely to grow 4.1% over Exhibit 7: Rise in population (CAGR %) over Overall Population (CAGR) Elderly Population (CAGR) Middle East and North Africa 1.4% 4.1% East Asia and Pacific 0.5% 3.9% Southeast Asia 1.0% 3.6% Latin America and the Caribbean 1.0% 3.3% Sub-Saharan Africa 2.4% 3.1% Europe and Central Asia 0.2% 1.4% Source: WHO, Al Masah Capital Research Life expectancy (at birth) for the MENA region has increased past 70 years from as low as 47 years in Similarly, mortality rates in the region have dropped to below 25 infants per 1,000 live births from 260 in

12 There is high prevalence of lifestyle related problems like diabetes, heart ailments in the MENA region Lifestyle related diseases have become common in the region Lifestyle related diseases like hypertension, diabetes, cancer and heart ailments an outcome of sedentary lifestyle and unhealthy diet have become a common feature in the region. Prevalence of Type 2 diabetes, particularly within GCC, has been found to be unusually high relative to the rest of the world. According to the WHO, one in three adults in the UAE is obese, and one out of five people live with diabetes. The WHO report also states that the number of deaths among the age group due to cardiovascular diseases and diabetes for GCC stands at 339 per 100,000, nearly 2.5x that of the US. Mortality rates due to cardiovascular diseases and diabetes in MENA are quite high Exhibit 8: Mortality rates among adults due to cardiovascular diseases and diabetes 400 (per 100,000 population) GCC MENA Global China US Germany UK Japan Source: WHO, Al Masah Capital Research Countries within MENA with high mortality rates among adults due to cardiovascular diseases and diabetes include Oman (504), Jordan (418), Saudi Arabia (401), Libya (320), and Egypt (303). Governments are offering support Governments have increased spending on healthcare MENA countries have increased their budgetary spend on healthcare Of late, MENA countries have increased their budgetary spends on healthcare. Aided by large budgetary surpluses, GCC governments, in particular, have been allocating large sums to improve their healthcare infrastructures. Saudi Arabia, for instance, upped its 2014 budgetary allocation for healthcare to USD28.8 billion from USD7.9 billion in The Kingdom is building 34 new hospitals and healthcare centers, in addition to continuing work at 132 hospitals and five medical cities currently under construction. The five medical cities are expected to add 6,200 new hospital beds in the Kingdom. Looking at the period, it is easy to conclude that several of the MENA countries like Jordan, Tunisia, Saudi Arabia, Morocco, Kuwait and Egypt have been allocating higher percentage of their budgetary spend toward healthcare. 12

13 Jordan, Tunisia, the UAE, and Kuwait have increased allocations toward healthcare Exhibit 9: Government expenditure on health as % of total government expenditure 20% 16% Jordan Tunisia 12% 8% 4% UAE Kuwait Saudi Arabia Morocco 0% Source: WHO, Al Masah Capital Research However, despite this progress, MENA countries need to boost their budget allocations for healthcare to make it comparable with the developed countries like the US (20%), Germany (19%), Japan (18%) and the UK (16%). Mandatory health insurance Health insurance has become mandatory in Saudi Arabia and the UAE Earlier this year, Sheikh Mohammed bin Rashid, Vice-President and Ruler of Dubai, signed a new law requiring compulsory health insurance for all the residents of Dubai. The law will be applicable in phases. In the first phase, all companies with 1,000 or more employees would be required to provide their workers with health insurance by October Similar directives were issued in Saudi Arabia and Abu Dhabi in 2005 and 2008, respectively. Exhibit 10: Health insurance timeline across Saudi Arabia and the UAE Saudi Arabia makes mandatory health insurance for all residents Abu Dhabi makes mandatory health insurance for expatriate workers Abu Dhabi extends the law to all expatriates Abu Dhabi extends the law to all nationals Dubai makes health insurance mandatory for all expatriate workers Dubai makes health insurance mandatory for all residents Source: Al Masah Capital Research Health insurance is known to have several benefits: it not only reduces/cuts the burden on governments and/or the population but also helps enhance the quality of health services. 13

14 MENA healthcare benefits from high per capita income, leading to improved literacy and increased healthcare expenditure Per capita expenditure on healthcare in MENA has grown in tandem with the rise in per capita income Rising purchasing power in the MENA region, especially GCC, has positively impacted healthcare spending. Over the past decade, overall income levels in the region have surged substantially. In 2010, MENA and GCC had a per capita income of USD8,180 and USD26,197, respectively, compared to USD3,727 and USD12,782 in the beginning of the decade. Over the same period, per capita expenditure on healthcare in MENA and GCC jumped to USD329 and USD920, respectively, from USD127 and USD439 in Per capita GDP in MENA is projected to grow 5.1% over ; this is likely to further drive healthcare spending in the region. Some of the MENA countries are targeting medical tourism Medical tourism is defined as the process of patients travelling abroad for medical care and procedures, usually as certain medical procedures are less available or less affordable in their own country 2. The UAE is trying to promote itself as a hub for medical tourism Governments in the MENA region are realizing the strong potential of medical tourism and rendering the required support to the industry. The UAE, particularly Dubai, is trying to promote itself as a hub for medical tourism so as to attract foreigners to its hospitals and specialized clinics. Joint Commission International (JCI) in the US, one of the world's leading accreditation organizations, has accredited nearly 100 hospitals in Saudi Arabia and the UAE. JCI accreditation assures that a healthcare organization meets the highest international benchmarks. There are over 100 JCI accredited hospitals in MENA Exhibit 11: Number of JCI accredited hospitals in MENA Saudi Arabia UAE Jordan 10 Qatar 5 Lebanon Egypt 3 3 Oman Kuwait Source: JCI accessed in March 2014, Al Masah Capital Research In a bid to attract foreign patients, the UAE recently announced a new three-month medical tourist visa, which can be extended twice. 2 Dr. Cornelia Voig, Adjunct Research Fellow, Curtin University 14

15 KEY TRENDS IN THE HEALTHCARE SECTOR Western healthcare companies are increasing presence in MENA Within MENA, especially countries like the UAE and Saudi Arabia, offer world class health facilities through the presence of brand names like Johns Hopkins, Mayo Clinic, Cleveland Clinic, Harvard Medical International, Bumrungrad International, Bourn Hall Clinic, Moorfields Eye Hospital, VAMED and Medical University of Vienna International. Western healthcare companies like Johns Hopkins, Mayo Clinic, Cleveland Clinic are present in MENA Baltimore-based Johns Hopkins is currently associated with six hospitals in the MENA region, including three in the UAE (Al Rahba Hospital, Corniche Hospital, and Tawam Hospital); two in Saudi Arabia (Johns Hopkins Aramco Healthcare and King Khaled Eye Specialist Hospital) and one in Lebanon (Clemenceau Medical Center). Exhibit 12: Western healthcare companies in MENA Source: Al Masah Capital Research There is also a shift from curative to preventive care Governments across the globe are realizing the importance of preventive care Governments across the globe are paying due attention to the age old saying prevention is better than cure. A rise in healthcare costs is forcing most countries to shift focus from curative care to preventive care. Curative care refers to the health care practices that treat patients with the intent of curing them and promoting recovery. Preventive care involves measures taken to identify and minimize risk factors for disease and screening for early detection of disease. Let us take an example. Cardiovascular disease is known to be the world s leading killer disease, accounting for 30% of deaths in Preventive care can help reduce the risk of cardiovascular disease among the population. If people are made to cut their smoking habits, improve diets and take other primary precautions, a major chunk of this population and their money could be saved. MENA has increased focus on medical technology Technology is changing the face of healthcare Globally, there have been substantial advancements in the field of healthcare service delivery. From the maintenance of electronic medical records to the use of robotics in medical procedures, technology is changing the face of healthcare. The UAE is trying to keep pace with these advancements. In an interview with Zawya, the CEO of Saudi German Hospital-Dubai said that the UAE is solidifying its reputation for healthcare excellence. The use of highly sophisticated world-class technology in its health system is resulting in faster, smarter and safer treatments, leading to shorter waiting times and reduced recovery periods for health ailments. 15

16 The UAE is also promoting the use of mhealth The UAE is also promoting the use of Mobile health (or mhealth), which uses mobile technologies for health research and healthcare delivery. Having launched the use of Android tablets in hospitals and specialty centers, the Dubai Health Authority (DHA) is targeting to include the Electronic Medical Records system. The system would keep updated patient record on a medical network, which could be used by doctors to check on patients past records and provide better diagnosis. 16

17 KEY ISSUES AND CHALLENGES FACING THE HEALTHCARE SECTOR MENA suffers from inadequate healthcare infrastructure MENA has 18 beds per 10,000 people compared to the global average of 30 beds The MENA region lags behind developed countries in terms of bed count. The bed density of 18 (beds per 10,000 people) in MENA is really low compared to that of developed nations like the US, Germany and Japan. It is also well below the global average of 30 beds per 10,000 people. Taking the US as the benchmark, calculations indicate that the MENA region would need to add nearly 360,000 beds by MENA would need to add nearly 360,000 beds by 2020 Exhibit 13: MENA has lesser number of hospital beds for its population 175 (Beds per 10,000 population) - Last available MENA would need to add 360k beds by Egypt Morocco Algeria Saudi Arabia UAE 75 Others Japan Germany China US Global UK GCC MENA Source: WHO, Al Masah Capital Research Countries like India, Thailand and Singapore offer medical care for a fraction of the prices in the UAE Cost of medical treatment in the region is high Several Asian countries such as India, Thailand and Singapore offer medical care for a fraction of the prices in the UAE. According to Farouk Mohamed, Managing Partner, Grant Thornton UAE, the average cost of a heart bypass surgery in the UAE stood at USD44,000 compared with an average of USD18,500 in Singapore, USD11,000 in Thailand, USD10,000 in India and USD9,000 in Malaysia 3. There is scarcity of doctors and healthcare professionals MENA also faces scarcity of doctors and healthcare professionals The MENA region is far behind the developed economies such as the UK, Germany, US and Japan in terms of availability of doctors and healthcare professionals. The average number of physicians per 10,000 people in the MENA region is 21, much lower than that in the developed economies such as the UK (28), Germany (27), and the US (24). Even the number of dentists per 10,000 people, and the number of nursing and midwifery 3 High cost of healthcare leading to competitive disadvantages in UAE, Grant Thornton 17

18 personnel per 10,000 people in the MENA region is much lower than in developed economies. Exhibit 14: MENA is behind developed countries in terms of availability of healthcare personnel The number of physicians per 10,000 people in MENA is below the global average (Physicians per 10,000 population) - Last available UK Germany US GCC Japan MENA China Global 16.3 (Dentists per 10,000 population) - Last available US Germany Japan UK MENA GCC Global China (Nurses and midwifery per 10,000 population) - Last available Germany US UK Japan GCC Global MENA China Source: WHO, Al Masah Capital Research Taking the US as the benchmark, calculations indicate that the MENA region is short of nearly 128,000 physicians, 294,000 dentists, and 1.6 million nurses and midwifery personnel. By 2020, this shortage would rise to 150,000 physicians, 326,000 dentists and 1.8 million nurses and midwifery personnel. By 2020, MENA would need to add 150,000 physicians, 326,000 dentists and 1.8 million nurses and midwifery personnel Exhibit 15: By 2020, MENA would largely need additional healthcare personnel in five countries 100% 80% Others UAE 60% Egypt Saudi Arabia 40% Tunisia Algeria 20% Morocco 0% Physicians Dentists Nurses & midwifery Source: WHO, Al Masah Capital Research Findings reveal that by 2020, most of the healthcare personnel requirements would exist in Morocco, Algeria, Tunisia, Saudi Arabia and Egypt. 18

19 Private sector participation is low in MENA healthcare Private sector owns 36% of total hospitals and 18% of the overall bed capacity in MENA As mentioned in the earlier part of the report, MENA has nearly 3,300 hospitals with a capacity of 380,000 beds. Government-owned hospitals form 64% of the total hospitals and 82% of the bed capacity, leaving the private sector with 36% of total number of hospitals and just 18% of the overall bed capacity. Exhibit 16: Private sector participation in the healthcare sector is low in oil exporting countries Private sector participation was found to be low in oil exporting countries Oil exporting countries 19% 81% Oil importing countries 25% 75% 0% 20% 40% 60% 80% 100% Private Sector Government Source: WHO, Al Masah Capital Research Participation of the private sector was found to be low in almost all countries, except Lebanon and Jordan, which are categorized as oil importers by the IMF. The major reason for this can be the fact that the governments of hydrocarbon-rich nations (or oil exporters, as per the IMF) have taken the responsibility of providing healthcare to its populace, ignoring the need to seek private sector participation. 19

20 PRIVATE EQUITY DEALS IN THE HEALTHCARE SECTOR Deal activity in MENA s healthcare sector has gained momentum Over the last 10 years, 44 private equity buys worth USD1.59 billion took place in MENA s healthcare sector Over , MENA s healthcare sector witnessed 44 private equity buys worth USD1.59 billion (disclosed value), at the rate of about 4 5 deals a year. Deal activity during the last four years indicates that PE interest in the healthcare sector has increased, with the number of PE buy deals expanding to about seven a year. Two large deals in the healthcare sector, for which investment values were available, are discussed below. In 2010, Ithmar Capital invested USD272.3 million to acquire an undisclosed stake in Al Noor Medical Group, the largest integrated private healthcare service provider in Abu Dhabi. Ithmar Capital made the investment through IthmarFund II. In 2012, Abraaj Capital bought a large stake in Egypt-based Al Mokhtabar Laboratories for USD204 million. Al Mokhtabar Laboratories is engaged in providing diagnostic laboratory services, and pathological and clinical tests for medical communities. It has branches in Egypt, Sudan and Saudi Arabia. The rate of PE buy deals in the MENA healthcare sector has expanded during 3 4 years Exhibit 17: PE activity in the MENA healthcare sector picked up during the last 3 4 years Disclosed value (USD mn) NA Deal count (No. of deals) Source: Zawya, Thomson Banker, Al Masah Capital Research Al Masah Capital and Abraaj Group were the most active private equity firms in the sector Al Masah Capital and Abraaj Group were the most active PE funds/firms in the sector Al Masah Capital Limited (eight deals) and Abraaj Group (six) accounted for the maximum number of buy deals announced during Al Masah Capital Limited mostly bought stakes in UAE-based companies like Conceive Gynecology & Fertility Centre, Mussalla Medical Centre, National Hospital, New National Medical Center Pharmacy, Reem Medical Group, and Specialist Orthopedic Surgery & Physical Rehabilitation Clinic. The PE firm also bought a medical laboratory in Kuwait and 20

21 some of the NMC Group hospitals. Al Masah Capital acted through Healthcare MENA Limited, its healthcare arm. The Abraaj Group bought stakes in Al Borg Laboratories (Egypt), Al Mokhtabar Laboratories (Egypt), E3 FZ LLC (UAE), Opalia Pharma (Tunisia), Saudi Tadawi Healthcare Co (Saudi Arabia) and Unimed (Tunisia). It acted through Infrastructure and Growth Capital Fund and Al Kantara Fund. Other private equity firms that displayed high levels of activity in the MENA healthcare sector included Global Investment House (four deals), TVM Capital (three), and Gulf Capital (two). Global Investment House, TVM Capital, and Gulf Capital were the other firms active in the sector Exhibit 18: Most active PE funds/firms in the MENA healthcare sector ( ) Source: Zawya, Thomson Banker, Company, Al Masah Capital Research Countries attracting most investments The UAE led the region in terms of private equity deal activity in the healthcare sector. Nearly 40% of all deals announced in the region during involved companies based in the UAE. It was followed by countries like Egypt, Tunisia and Saudi Arabia. UAE was the largest recipient of PE deals in the healthcare sector Exhibit 19: UAE was the largest recipient of PE deals in the MENA healthcare sector ( ) Number of Deals Value* UAE Egypt Tunisia Saudi Arabia Others Note: *In USD million and includes disclosed value of deals Source: Zawya, Thomson Banker, Al Masah Capital Research 21

22 Pharmaceuticals and diagnostics segments garnered maximum attention from PE investors Pharmaceuticals and diagnostics segments witnessed high demand from PE investors Pharmaceuticals and diagnostics segments witnessed a large count of private equity deals during Although the deal count for the pharmaceuticals segment has been quite steady, the numbers in the diagnostics segment seem to be improving. Over the last five years, MENA-based private equity firms have bought stakes in diagnostics companies such as Advanced Laboratory Services (Saudi Arabia), Al Mokhtabar Laboratories (Egypt), Cardio Diagnostics (Lebanon), Diagnostic Center (Libya), Medray Open MRI Center (Jordan), Reem Medical Group (UAE), Royal English Laboratory (Kuwait), and Technoholding Group (Egypt). Diagnostics segment seems to have attracted PE investors interest over the last few years Exhibit 20: Pharmaceuticals & diagnostics garnered the maximum number of deals ( ) Number of Deals Value* Pharmaceuticals 11 4 Diagnostics Hospitals Pharmacy Others Note: *In USD million and includes disclosed value of deals Source: Zawya, Thomson Banker, Al Masah Capital Research MENA healthcare has witnessed a few private equity exits The healthcare sector has also witnessed some large PE exits There were just about five private equity exits in the MENA healthcare sector during the last 10 years. Some of the major exit deals have been discussed below. In 2011, Foursan Capital Partners sold its entire stake in Jordan-based Hikma Pharmaceuticals for an undisclosed amount. Foursan had received stake in Hikma Pharmaceuticals through its investment in Arab Pharmaceutical Manufacturing Company, which was acquired by Hikma in In 2013, Abraaj Group sold its entire stake in Opalia Pharma to Recordati, an Italy-based pharmaceutical company. Abraaj had originally invested in Opalia in 2009 through the Al Kantara Fund. No financial terms were disclosed. In 2013, Ithmar Capital completed a partial exit from its investment in Al Noor Medical Company, the largest integrated private healthcare service provider in Abu Dhabi, through an initial public offering (IPO) on the London Stock Exchange. In 2010, Ithmar Capital had invested USD272.3 million in Al Noor Medical Company. Ithmar currently holds ~25% stake in Al Noor Medical Company. 22

23 COMPANIES IN THE HEALTHCARE BUSINESS MENA healthcare sector has several publicly listed entities The MENA region has about publicly listed healthcare companies There are about healthcare companies listed on various bourses across the MENA region. With a market capitalization of USD1.5 billion, Saudi Pharmaceutical Industries and Medical Appliances Corp (SPIMACO) happens to be the most valuable healthcare company on the regional stock exchanges. Considering all MENA healthcare companies with a foreign listing, UAE-based Al Noor Hospitals Group is the most valuable, with a market capitalization of USD1.8 billion. SPIMACO, which was established nearly three decade ago, is engaged in production of medicines and medical appliances for local consumption and export. The company operates through 18 subsidiaries across Saudi Arabia, Ireland, Egypt and Algeria. SPIMACO reported a net profit of USD71 million on revenues of USD346 million. In terms of valuation, the company is available at a price-to-earnings multiple of 19.1 and a priceto-book multiple of 1.5. Al Noor Hospitals Group, which went public in 2013, is a leading healthcare provider in Abu Dhabi. The company reported a net profit of USD61 million on revenues of USD365 million. In terms of valuation, the Al Noor Hospitals stock (listed on the London Stock Exchange) is available at a price-to-earnings multiple of 26.6 and a price-to-book multiple of 9.8. Exhibit 21: Healthcare companies listed on the various stock exchanges in MENA Company Country Market Cap Price-to-Earnings Price-to-Book EV-to-EBITDA USD million TTM Last TTM SPIMACO Saudi Arabia 1, Astra Industrial Group Saudi Arabia 1, Mouwasat Medical Services Saudi Arabia 1, Dallah Healthcare Holding Saudi Arabia 1, Gulf Pharmaceutical Industries UAE National Medical Care Saudi Arabia Egyptian Int. Pharmaceuticals Industries Egypt Medicare Group Qatar Advanced Technology Co Kuwait N/A Gulf Medical Projects Co UAE Marocaine Ste de Therapeutique Morocco YIACO Medical Co Kuwait Medical Union Pharmaceuticals Co Egypt Promopharm Morocco Safwan Trading and Contracting Co Kuwait Average Source: Thomson Reuters, Data as of Mar 19, 2014 Our data points that the Egypt Stock Exchange (CASE) has the highest number of healthcare companies listed on the bourse. The six healthcare companies have a combined market capitalization of ~USD850 million. Saudi Arabia (Tadawul) follows next, with five companies worth ~USD5.6 billion. 23

24 Performance during the financial crisis MENA healthcare sector weathered the global financial crisis of The MENA healthcare sector weathered the global financial crisis of relatively well. For instance, during FY 2008, Kuwait-based Advanced Technology Co witnessed a 10.3% jump in revenues and a 6.9% rise in operating profit. Over the same period, Saudi Arabia-based Mouwasat Medical Services Co reported a 13.4% growth in revenues and a 14.7% rise in operating profit. Exhibit 22: Revenue and Operating profit of healthcare companies in MENA Company Revenue (USD million) Operating Profit (USD million) FY 2007 FY 2008 % change FY 2007 FY 2008 % change Advanced Technology Co % % Mouwasat Medical Services Co % % Medical Union Pharmaceuticals Co % % Safwan Trading and Contracting Co % % Kahira Pharma and Chemical Industries % % Source: Thomson Reuters Medical Union Pharmaceuticals Co, Safwan Trading and Contracting Co and Kahira Pharma and Chemical Industries also witnessed double-digit growth in their revenues and operating profit over the period. 24

25 OUTLOOK FOR THE SECTOR Despite major advancement in the health standards, there remains enough room for improvement Rise in budgetary allocations toward healthcare is a welcome change Healthcare in MENA represents a huge opportunity The MENA region has made significant strides in improving the health standards of its populace; however, there remains enough room for improvement, given that the private sector involvement in the healthcare sector is low in the region. Increased private sector participation is likely to help the region achieve its overall goal to improve access and quality of healthcare available to the people. Separately, in light of the rising lifestyle diseases such as hypertension, diabetes, cancer and heart ailments, the MENA governments need to give due importance to preventive care, which is often ignored. The rise in budgetary allocations toward healthcare is definitely a welcome change. However, progress on work completions (particularly, construction of hospitals, healthcare centers and medical colleges) has been rather slow. This needs to be expedited. With the right ingredients of high population growth, increased life expectancy, improved literacy rates, prevalence of lifestyle related diseases, aspiration for better quality medical services and greater awareness of health insurance, healthcare in MENA represents a huge opportunity. We estimate the MENA healthcare market to be worth USD144 billion by

26 APPENDIX Country-wise estimate of the healthcare market s size across the MENA region in 2020 is given below. Exhibit 23: MENA Healthcare market from 2011 to 2020 COUNTRY HEALTHCARE MARKET 2011 HEALTHCARE MARKET 2020 CAGR (%) OVER Saudi Arabia USD 24.7 billion / USD 36.5 billion = 4.4% Egypt USD 11.5 billion / USD 31.8 billion = 12.0% UAE USD 11.7 billion / USD 17.3 billion = 4.5% Algeria USD 7.8 billion / USD 9.8 billion = 2.6% Morocco USD 6.0 billion / USD 10.6 billion = 6.6% Libya USD 1.5 billion / USD 9.8 billion = 23.0% Qatar USD 3.3 billion / USD 5.6 billion = 6.2% Kuwait USD 4.3 billion / USD 5.5 billion = 2.9% Tunisia USD 2.9 billion / USD 5.0 billion = 6.3% Jordan USD 2.4 billion / USD 4.7 billion = 7.5% Lebanon USD 2.5 billion / USD 4.1 billion = 6.0% Oman USD 1.6 billion / USD 2.2 billion = 3.3% Bahrain USD 1.0 billion / USD 1.5 billion = 4.5% MENA USD81.1 billion / USD billion = 6.6% Source: WHO, The World Bank, Al Masah Capital Research 26

27 Al Masah Capital Management Limited Level 9, Suite 906 & 907 ETA Star - Liberty House Dubai International Financial Centre Dubai-UAE P.O. Box Tel: Fax: [email protected] Website: Disclaimer: This report is prepared by Al Masah Capital Management Limited ( AMCML ). AMCML is a company incorporated under the DIFC Companies Law and is regulated by the Dubai Financial Services Authority ( DFSA ). The information contained in this report does not constitute an offer to sell securities or the solicitation of an offer to buy, or recommendation for investment in, any securities in any jurisdiction. The information in this report is not intended as financial advice and is only intended for professionals with appropriate investment knowledge and ones that AMCML is satisfied meet the regulatory criteria to be classified as a Professional Client as defined under the Rules & Regulations of the appropriate financial authority. Moreover, none of the report is intended as a prospectus within the meaning of the applicable laws of any jurisdiction and none of the report is directed to any person in any country in which the distribution of such report is unlawful. This report provides general information only. The information and opinions in the report constitute a judgment as at the date indicated and are subject to change without notice. The information may therefore not be accurate or current. The information and opinions contained in this report have been compiled or arrived at from sources believed to be reliable in good faith, but no representation or warranty, express, or implied, is made by AMCML, as to their accuracy, completeness or correctness and AMCML does also not warrant that the information is up to date. Moreover, you should be aware of the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do not guarantee future performance. We accept no liability for any loss arising from the use of material presented in this report. This document has not been reviewed by, approved by or filed with the DFSA. This report or any portion hereof may not be reprinted, sold or redistributed without our prior written consent. Copyright 2014 Al Masah Capital Management Limited 27