al masah mena healthcare 2014

Al Masah Capital: MENA Healthcare Sector

April 2014

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MENA Healthcare Sector

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 2020. 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 2011. The GCC healthcare market, covering six

countries, is projected to be worth USD69 billion by 2020. The private sector’s share is

expected to reach 33% by 2020.

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 2010–20, 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.

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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 2010–20;

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 2020. 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 2004–

13, 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 2004–13 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.

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MENA ECONOMY

Overview of last year’s performance

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 2012. GDP growth of

non-GCC oil exporting countries also slowed down to 0.2% in 2013 vis-à-vis 5.6% in 2012.

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 2013.

Exhibit 1: GDP growth across some of the MENA countries (%)

Source: IMF, Al Masah Capital Research

2.1 4.8 4.4 3.3

11 12 13 14E

Bahrain6.3 6.2

0.8 2.6

11 12 13 14E

Kuwait

4.5 5.0 5.1 3.4

11 12 13 14E

Oman

13.06.2 5.1 5.0

11 12 13 14E

Qatar

8.65.1 3.6 4.4

11 12 13 14E

Saudi Arabia

3.9 4.4 4.0 3.9

11 12 13 14E

UAE

1.8 2.2 1.8 2.8

11 12 13 14E

Egypt5.0 2.7 5.1 3.8

11 12 13 14E

Morocco

2.6 3.3 3.1 3.7

11 12 13 14E

Algeria

2.62.8 3.3 3.5

11 12 13 14E

Jordan

The MENA region grew 2.1% in 2013 compared to 4.6% in 2012

Oil importing economies were affected by rising political uncertainty and delays in reforms

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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 2013. Continued

government spending is likely to lend impetus to the non-hydrocarbon sector, which is

slated to contribute ~17% to total export earnings in 2015.

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 2014. 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 2013. 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.

Qatar is expected to report GDP growth of 5.0% in 2014, almost unchanged from 5.1% in

2013. 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 2013.

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 non-

hydrocarbon segment.

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

The new cabinet would provide Kuwait a jumpstart in 2014

GDP growth in Qatar is expected to remain stable even in 2014

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GENERAL OVERVIEW OF THE MENA HEALTHCARE

SECTOR

Global healthcare sector

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 2000. The Africa,

Southeast Asia, and Eastern Mediterranean regions continued to spend the lowest on

healthcare as a percentage of GDP.

Exhibit 2: Healthcare spending across the globe

Source: WHO, Al Masah Capital Research

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

6.2%

3.8%

4.5%

4.0%

6.4%

3.5%

9.2%

9.3%

14.3%

89

135

182

329

579

920

941

2,217

3,373

2010

2000

Region of the Americas

European Region

Global Average

Western Pacific Region

Eastern Mediterranean Region

Southeast Asia Region

African Region

5.3%

4.3%

6.0%

12.4%

28

72

384

4,828 High Income

Upper Middle Income

Lower Middle Income

Low Income

Per capita spend (USD)Healthcare spend as % of GDP

MENA Region

GCC Region

The global healthcare sector was worth USD5.9 trillion in 2010

Healthcare spending in mature and high-income economies was much higher than that in the lower-middle-income and low-income nations

In 2010, the US spent 17.6% of its GDP on healthcare compared to 4% by MENA

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person. Healthcare spending in GCC stood at 3.5% of the GDP (about USD40 billion), or

USD920 per person, in 2010.

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

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)


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

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).

83% 80% 76% 73%64% 60% 56%

46%

17% 20% 24% 27%36% 40% 44%

54%

0%

20%

40%

60%

80%

100%

UK Japan Germany GCC MENA Global China US

Government Private

Governments in MENA bear ~64% of the total healthcare costs in the region

MENA per capita healthcare expenditure of USD329 is lower than the global average of USD941

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Exhibit 4: Expenditure on healthcare in MENA is low (2010)


Nearly two-thirds of all hospitals in MENA 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 government-

owned 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

Source: Al Masah Capital Research

8,510

4,656 3,967 3,543

941 920 329 222

17.6%

11.5%9.2% 9.6% 9.2%

3.5% 4.0% 5.0%

US Germany Japan UK Global GCC MENA China

Expenditure per capita (USD)

64% 36%

Government owned hospitals Privately-owned hospitals

6%

3%

5%

5%

6%

12%

12%

52%

Others

Oman

Libya

Tunisia

Morocco

Algeria

Saudi Arabia

Egypt

4%

5%

5%

5%

11%

12%

15%

43%

Others

UAE

Libya

Jordan

Lebanon

Saudi Arabia

Algeria

Egypt

Healthcare needs of the people in MENA is currently met through 3,300 hospitals, 64% of which are government owned

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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

In 2013, Bloomberg conducted a study to ascertain the efficiency of healthcare systems

of countries1 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

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

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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

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 2011.

The GCC healthcare market, covering six countries, is obviously smaller, and is projected

to be worth USD69 billion by 2020. The private sector’s share is expected to reach 33%

by 2020.

Exhibit 6: MENA and GCC healthcare market by 2020

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 2011. 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.

83

52

61

29

2020

2011

(in USD billion)

46

34

23

13

0 25 50 75 100 125 150

2020

2011

Government

Private

MEN

A

GCC

The MENA healthcare market is forecasted to be worth USD144 billion by 2020

The GCC healthcare market is projected to be worth USD69 billion by 2020

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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.

According to the World Bank estimates for the 10-year period 2010–20, 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 2010–20, 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%).

Exhibit 7: Rise in population (CAGR %) over 2010–20


Life expectancy (at birth) for the MENA region has increased past 70 years from as low

as 47 years in 1960. Similarly, mortality rates in the region have dropped to below 25

infants per 1,000 live births from 260 in 1960.

0.2%

2.4%

1.0%

1.0%

0.5%

1.4%

Europe and Central Asia

Sub-Saharan Africa

Latin America and the Caribbean

Southeast Asia

East Asia and Pacific

Middle East and North Africa

1.4%

3.1%

3.3%

3.6%

3.9%

4.1%

Overall Population (CAGR) Elderly Population (CAGR)

The elderly population in MENA is likely to grow 4.1% over 2010–20

The population growth rate in MENA is among the highest globally

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There is high prevalence of lifestyle related problems like

diabetes, heart ailments in the MENA 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 30–70 age group due

to cardiovascular diseases and diabetes for GCC stands at 339 per 100,000, nearly 2.5x

that of the US.

Exhibit 8: Mortality rates among adults due to cardiovascular diseases and diabetes


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

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 2009.

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 1995–2010 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.

339

273

245

199

137

102 91

68

0

100

200

300

400

GCC MENA Global China US Germany UK Japan

(per 100,000 population)

Lifestyle related diseases have become common in the region

Mortality rates due to cardiovascular diseases and diabetes in MENA are quite high

MENA countries have increased their budgetary spend on healthcare

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Exhibit 9: Government expenditure on health as % of total government expenditure


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

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

2014.

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


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.

0%

4%

8%

12%

16%

20%

1995 1998 2001 2004 2007 2010

Jordan

Tunisia

UAE

Kuwait

Saudi Arabia

Morocco

Saudi Arabia makes mandatory health insurance for all residents

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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

Jordan, Tunisia, the UAE, and Kuwait have increased allocations toward healthcare

Health insurance has become mandatory in Saudi Arabia and the UAE

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MENA healthcare benefits from high per capita income, leading

to improved literacy and increased healthcare expenditure

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 2000.

Per capita GDP in MENA is projected to grow 5.1% over 2010–20; 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 country2.

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.

Exhibit 11: Number of JCI accredited hospitals in MENA

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

2

2

3

3

5

10

49

50

- 10 20 30 40 50 60

Kuwait

Oman

Egypt

Lebanon

Qatar

Jordan

UAE

Saudi Arabia

Per capita expenditure on healthcare in MENA has grown in tandem with the rise in per capita income

The UAE is trying to promote itself as a hub for medical tourism

There are over 100 JCI accredited hospitals in MENA

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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.

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


There is also a shift from curative to 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 2010. 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

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.

Western healthcare companies like Johns Hopkins, Mayo Clinic, Cleveland Clinic are present in MENA

Governments across the globe are realizing the importance of preventive care

Technology is changing the face of healthcare

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16


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.

The UAE is also promoting the use of mHealth

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KEY ISSUES AND CHALLENGES FACING THE HEALTHCARE

SECTOR

MENA suffers from inadequate healthcare infrastructure

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 2020.

Exhibit 13: MENA has lesser number of hospital beds for its population


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

Malaysia3.

There is 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

137

82

39 30 30 30

21 18

0

25

50

75

100

125

150

175

Japan Germany China US Global UK GCC MENA

(Beds per 10,000 population) - Last available

Others

UAE

Saudi Arabia

Algeria

Morocco

Egypt

MENA would need to add 360k beds by 2020

MENA has 18 beds per 10,000 people compared to the global average of 30 beds

MENA would need to add nearly 360,000 beds by 2020

Countries like India, Thailand and Singapore offer medical care for a fraction of the prices in the UAE

MENA also faces scarcity of doctors and healthcare professionals

xxxxxxMENS

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


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.

Exhibit 15: By 2020, MENA would largely need additional healthcare personnel in five countries


Findings reveal that by 2020, most of the healthcare personnel requirements would exist

in Morocco, Algeria, Tunisia, Saudi Arabia and Egypt.

16.3

7.9 7.4 5.3

3.7 3.5 2.6 0.4

US Germany Japan UK MENA GCC Global China

(Dentists per 10,000 population) - Last available

114 98 95

41 31 29 29

15

Germany US UK Japan GCC Global MENA China

(Nurses and midwifery per 10,000 population) - Last available

28 27 24 23 21 21

15 14

UK Germany US GCC Japan MENA China Global

(Physicians per 10,000 population) - Last available

0%

20%

40%

60%

80%

100%

Physicians Dentists Nurses & midwifery

Others

UAE

Egypt

Saudi Arabia

Tunisia

Algeria

Morocco

The number of physicians per 10,000 people in MENA is below the global average

By 2020, MENA would need to add 150,000 physicians, 326,000 dentists and 1.8 million nurses and midwifery personnel

xxxxxxMENS

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Private sector participation is low in MENA healthcare

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


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.

25%

19%

75%

81%

0% 20% 40% 60% 80% 100%

Private Sector Government

Oil exporting countries

Oil importing countries

Private sector owns 36% of total hospitals and 18% of the overall bed capacity in MENA

Private sector participation was found to be low in oil exporting countries

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PRIVATE EQUITY DEALS IN THE HEALTHCARE SECTOR

Deal activity in MENA’s healthcare sector has gained momentum

Over 2004–13, 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.

Exhibit 17: PE activity in the MENA healthcare sector picked up during the last 3–4 years

Source: Zawya, Thomson Banker, Al Masah Capital Research

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 2004–13.

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

1 2

3 2

4 4

6

9

6 7

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

NA 24 531 322 181 40 285 0.7 207 2.2

Disclosed value (USD mn)

Deal count (No. of deals)

Over the last 10 years, 44 private equity buys worth USD1.59 billion took place in MENA’s healthcare sector

The rate of PE buy deals in the MENA healthcare sector has expanded during 3–4 years

Al Masah Capital and Abraaj Group were the most active private equity firms in the sector

xxxxxxMENS

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).

Exhibit 18: Most active PE funds/firms in the MENA healthcare sector (2004–13)

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 2004–13 involved companies

based in the UAE. It was followed by countries like Egypt, Tunisia and Saudi Arabia.

Exhibit 19: UAE was the largest recipient of PE deals in the MENA healthcare sector (2004–13)


7

5

5

10

17

Others

Saudi Arabia

Tunisia

Egypt

UAE 453

900

1.0

238

0.9

Number of Deals Value*

Note: *In USD million and includes disclosed value of deals

Global Investment House, TVM Capital, and Gulf Capital were the other firms active in the sector

UAE was the largest recipient of PE deals in the healthcare sector

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22


Pharmaceuticals and diagnostics segments garnered maximum

attention from PE investors

Pharmaceuticals and diagnostics segments witnessed a large count of private equity

deals during 2004–13. 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).

Exhibit 20: Pharmaceuticals & diagnostics garnered the maximum number of deals (2004–13)


MENA healthcare has witnessed a few private equity 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 2008.

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.

13

3

6

11

11

Others

Pharmacy

Hospitals

Diagnostics

Pharmaceuticals 4

108

284

417

780

Number of Deals Value*

Note: *In USD million and includes disclosed value of deals

Pharmaceuticals and diagnostics segments witnessed high demand from PE investors

Diagnostics segment seems to have attracted PE investors’ interest over the last few years

The healthcare sector has also witnessed some large PE exits

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COMPANIES IN THE HEALTHCARE BUSINESS

MENA healthcare sector has several publicly listed entities

There are about 30–35 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 price-

to-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 1,511.1 19.1 1.5 23.1

Astra Industrial Group Saudi Arabia 1,180.9 15.5 2.3 21.4

Mouwasat Medical Services Saudi Arabia 1,119.9 22.9 4.7 16.5

Dallah Healthcare Holding Saudi Arabia 1,035.2 24.1 3.3 22.4

Gulf Pharmaceutical Industries UAE 869.5 12.3 1.7 13.5

National Medical Care Saudi Arabia 726.5 26.4 3.3 20.9

Egyptian Int. Pharmaceuticals Industries Egypt 536.5 10.4 2.1 7.7

Medicare Group Qatar 517.9 16.5 2.2 14.4

Advanced Technology Co Kuwait 479.6 N/A 3.5 13.3

Gulf Medical Projects Co UAE 403.9 16.1 1.5 15.2

Marocaine Ste de Therapeutique Morocco 300.5 17.6 5.3 11.9

YIACO Medical Co Kuwait 200.0 14.4 1.7 11.8

Medical Union Pharmaceuticals Co Egypt 153.1 6.3 1.2 6.5

Promopharm Morocco 98.9 11.0 2.1 4.4

Safwan Trading and Contracting Co Kuwait 86.1 13.2 1.9 12.9

Average 16.1 2.6 14.4

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.

The MENA region has about 30–35 publicly listed healthcare companies

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24


Performance during the financial crisis

The MENA healthcare sector weathered the global financial crisis of 2007–08 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 147.6 162.7 10.3% 21.6 23.1 6.9%

Mouwasat Medical Services Co 106.9 121.1 13.4% 25.7 29.4 14.7%

Medical Union Pharmaceuticals Co 97.3 107.8 10.8% 22.4 26.3 17.2%

Safwan Trading and Contracting Co 73.5 81.9 11.4% 5.2 7.4 41.4%

Kahira Pharma and Chemical Industries 42.9 48.8 13.7% 7.9 9.0 14.0%

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.

MENA healthcare sector weathered the global financial crisis of 2007–08

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25


OUTLOOK FOR THE SECTOR

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 2020.

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

xxxxxxMENS

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

Source: WHO, The World Bank, Al Masah Capital Research

Saudi Arabia

Egypt

Algeria

UAE

HEALTHCARE MARKET2011

USD 24.7 billion

USD 11.5 billion

USD 11.7 billion

USD 7.8 billion

USD 36.5 billion

USD 31.8 billion

USD 17.3 billion

USD 9.8 billion

HEALTHCARE MARKET2020

COUNTRYCAGR (%)

OVER 2011-20

4.4%

12.0%

4.5%

2.6%

Libya

Qatar

Tunisia

Kuwait

USD 1.5 billion

USD 3.3 billion

USD 4.3 billion

USD 2.9 billion

USD 9.8 billion

USD 5.6 billion

USD 5.5 billion

USD 5.0 billion

23.0%

6.2%

2.9%

6.3%

MENA USD81.1 billion USD 144.5 billion 6.6%

Morocco USD 6.0 billion USD 10.6 billion 6.6%

Jordan

Oman

Lebanon

USD 2.4 billion

USD 2.5 billion

USD 1.6 billion

USD 4.7 billion

USD 4.1 billion

USD 2.2 billion

7.5%

6.0%

3.3%

=

=

=

=

=

=

=

=

=

=

=

=

=

/

/

/

/

/

/

/

/

/

/

/

/

/

Bahrain USD 1.0 billion USD 1.5 billion 4.5%=/

xxxxxxMENS

27


Al Masah Capital Management Limited

Level 9, Suite 906 & 907 ETA Star - Liberty House Dubai International Financial Centre Dubai-UAE P.O. Box 506838 Tel: +971 4 4531500 Fax: +971 4 4534145 Email: [email protected] Website: www.almasahcapital.com 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

http://www.almasahcapital.com/

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