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All Signs Point to Robust Growth in UAE Healthcare Sector

Hospital surgery room

Colliers International this week released a healthcare report that stated high quality, efficient private hospitals in the UAE could achieve 15% – 20% net profit margins over the coming years.

It’s a very bold forecast, but one that is aligned with wider market research and recent industry developments that all point to high returns on healthcare investments in the UAE.

Dubai’s announcement last week that mandatory health insurance will begin to take effect from 2014 is tremendously significant. This long-awaited measure will have a profound and positive impact on the emirate’s growth and demand in healthcare services. Abu Dhabi passed similar health insurance legislation in 2006, paving the way for an immediate 40% increase in demand for healthcare services and doubling of revenues for most private hospitals in subsequent years, according to Colliers.

NMC Health, a UAE healthcare company trading on the London Stock Exchange, reacted to the Dubai health insurance announcement with its shares rising almost 9%, according to Bloomberg data. Consider, too, the performance of UAE’s Al Noor Hospital Group, which floated as an IPO on the London Stock Exchange less than a year ago. Its stock price has risen dramatically by 45%.

In this blog post we’ll look at how and why Colliers, along with Deloitte and other intelligence units monitoring the healthcare sector, have arrived at these conclusions, and why private companies like Al Noor Hospital Group and NMC Health are riding high on optimistic investor sentiment.

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Three factors appear to be driving growth in the UAE healthcare market.

  1. A rapidly growing affluent population and subsequent increases in elderly demographics
  2. Current high levels of Government healthcare spend, and the necessary unloading of that financial burden to the private sector, resulting in huge potential for growth in the near future
  3. Mandatory health insurance laws in Abu Dhabi have driven rapid growth in patient encounters, and last week’s announcement that Dubai is set to follow suit will undoubtedly result in a similar trend

Demographics: a foundation for continued growth and demand

The significant increase in the UAE’s population will be the primary driver of demand for healthcare goods and services. Population growth in the UAE is among the highest in the world, primarily due to immigration.

The UAE’s per capita healthcare spend, ranked second highest in the GCC region, is expected to grow at a CAGR of 5 percent from 2011 – 2014 (Economist). Deloitte believes growth will be fuelled by a combination of an increasing incidence of chronic lifestyle diseases, a growing aging population, high purchasing power, substantial government budgetary allocation to the sector and an increasing volume of patient encounters due to mandatory insurance coverage (more on this later).

Healthcare expenditure per capita in GCC

Healthcare expenditure per capita in GCC region.

The elderly form a big market for healthcare, as they are prone to age-related ailments such as heart diseases, hypertension and diabetes. The MENA region’s elderly population totalled around 10 million in 2010. It is estimated to rise more than 40% to 14.3 million by 2015. Incidence of lifestyle-related diseases, such as obesity, hypertension and diabetes, has increased in the MENA region due to growing preference for fast-food diet, lack of exercise, sedentary lifestyles and tobacco smoking (Deloitte).

Shifting the burden from public to private healthcare providers

UAE government expenditure on healthcare is among the top quartile in the world, and it is emerging as the GCC’s fastest growing healthcare hub. Al Masah Capital report that, in 2011, total healthcare spending in the UAE was estimated at USD10.8 billion (24% of the 2011 federal budget). By 2016, Al Masah Capital estimates this figure to reach USD15.7 billion.

However, this will change as government health departments actively encourage private sector investment to share the burden. The increased role of the private sector is likely to create tremendous opportunities for investments in healthcare and Information Technology.

Private healthcare providers are already gaining an increased share of UAE patient encounters. In 2006, the share was evenly split between public and private sectors at 50%. In 2011, the private sector share had risen to 64% of patient encounters (National Bureau of Statistics).

Demand looks set to continue. Studies show that, despite its vast wealth and ongoing investment in healthcare, the UAE still lags behind other developed countries such as the US and UK, with shortages of doctors, nurses and beds. This is viewed as a crucial issue that needs addressing, and the UAE government is fostering private sector investment to meet this shortfall.

Mandatory health insurance creates tremendous opportunity

The introduction of mandatory health insurance in Abu Dhabi in 2006 has created exponential demand and benefits for healthcare providers in the emirate, as illustrated in the graph below. Dubai, which will begin implementing compulsory health insurance laws for expatriate workers from 2014, can expect similar growth.

AbuDhabi medical claims history

Historical growth for healthcare services, following Abu Dhabi mandatory health insurance laws.

Colliers report that Abu Dhabi experienced an immediate increase in demand of over 40% for healthcare services, and that revenues for most private hospitals had doubled in subsequent years.

Once private health insurance takes hold, as planned, across other UAE emirates, it is expected that patient volumes for private providers will rapidly increase.

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