The MENA healthcare sector has continued to attract growing interest from private equity players in recent years. In terms of investment volume by sector, healthcare reached 7% in 2012, compared to 5% in 2006, an increase made more notable because of the losses other industries, such as construction and financial services, have struggled to recover from since the financial crisis, according to the MENA Private Equity Association.
As an emerging market with accelerating growth, the Middle East and North Africa region is high on the investment agenda. But as with any developing market, there are associated challenges and incumbent risks, including social and economic instabilities. The GCC in particular is a complex region; with each country looking to address its own specific needs, as well as maintaining differing legislative and operating requirements for private investors. There is no doubt, however, that the MENA healthcare sector presents significant opportunities and strong returns for experienced investors who bring the international experience and global insight required to identify the right opportunities and help develop healthcare for the local communities.
SIGNIFICANCE OF HEALTHCARE MARKETS TO ECONOMIES
A nation's health is a paramount concern for individuals, providers and most certainly governments. Regional communities need better healthcare, more access to specialized services and improved quality standards. These objectives are shared amongst all key stakeholders, whether public or private.
MENA healthcare spend is currently on average 8% of GDP, up from around 5% in 2009, and growing fast, with a focus on GCC countries. However, in comparison with Europe and the US - 10-12% and around 18%, respectively - there is still a big gap to fill. Combine this with the high incidence of lifestyle diseases, some of the most rapidly growing and wealthiest economies in the world, and the emergence of private insurance, the market is clearly poised for growth. In population terms, the GCC has almost doubled in the last 10 years, with the Middle East growing at rate of 2% - the highest in the world, as per World Bank data.
Valued at approximately USD 80-90 billion, the MENA healthcare market is in quick transition and as regional governments strive to save public sector costs, they have realized the importance of private sector participation. It is the private sector that is slowly taking over the growth and development of the healthcare sector: a significant step, but one that needs careful consideration in order to effect positive and sustainable improvement.
PRIVATE-PUBLIC PARTNERSHIPS
Collaboration between public and private entities is vital in order to develop the healthcare sector into a world-class system and establish services in the GCC and broader MENA region that provide excellent healthcare to the local community. An estimated USD 15 billion is spent on individuals from the region travelling abroad for medical care; this presents a big opportunity to both governments and private companies. As more public-private partnerships are made, healthcare facilities will be able to provide better quality of care, meaning UAE patients can be treated locally.
From a financial perspective, the private sector is better placed than the public sector to drive profitable areas of growth in specific sub sectors. It is also able to use innovative financing techniques to invest in capacity building, where the public sector does not have the same flexibility due to internal regulations or bureaucratic processes.
In terms of human capital, private and public companies compete for the same healthcare professionals and have similar issues when building up an organization. Engaging best-in-class, international operators will drive standards in MENA healthcare through the transfer of technology, managerial insight and skilled labor. This is happening both on the public as well as the private company side.
PRIME AREAS OF GROWTH
As the public sector continues to focus on the build-out of general hospitals, this leaves room for private initiatives to complement general medical provision and look outside of the hospital setting.
Specialized services such as long-term care, acute care and rehabilitation are key areas for investment. These elements are facing substantial demand versus a major shortage of specialist providers, which is placing a physical and financial burden on already over-populated ICUs.
Diagnostic centers and pharmaceuticals also present strong opportunities for private investment. In every case, though, thorough demand analysis has to be performed to be sure that there is still a demand-supply gap in the target market. For private investors, understanding the public service environment is also critical.
MAXIMIZING INVESTMENT POTENTIAL
Examining investment trends, we are seeing growth capital take center stage as the number of deals is on the up, but at much smaller volumes. Investors can benefit from looking towards businesses that have the potential for rapid and profitable growth, and then utilizing international expertise to support these companies in achieving a clear set of strategic and financial objectives.
Involving best practice partners from around the globe will allow specialized healthcare facilities to reach their true potential and create local centers of excellence that deliver exceptional patient care and unparalleled benefits to public and private stakeholders all looking to build a sustainable future.
Dr. Helmut M. Schuehsler serves as chairman and chief executive officer of TVM Capital MENA, Ltd. in Dubai, UAE. He is also the chairman of TVM Capital Group and managing director of TVM Capital GmbH in Munich, Germany. He joined TVM Capital in 1990 and was the founder of the life science and healthcare activities of the firm. He raised more than USD 1 billion for investments in the sector and led more than 25 direct investments in life science/healthcare companies in Europe, the US and the Middle East.
© Zawya 2014
