As Abu Dhabi Health Services Company, or Seha, prepares to sell off part of its healthcare services, the region’s investors are studying new opportunities to enter the country’s medical industry.
The UAE’s “high birth rates, increases in life expectancy, rapidly shifting epidemiology profile, and a rise in the incidence of noncommunicable diseases ... combined with a [sub] US$65 oil price, a shortage of health-care workers, and low insurance penetration rates” all create opportunities for private firms looking to enter health care, says Joel Finlayson, a partner at Strategy&, the consulting arm of PwC.
The local private equity houses Gulf Capital, Abraaj and Waha Capital have all dipped their toes in the region’s healthcare market, while the London-listed Al Noor Hospitals and NMC have seen double-digit revenue and patient growth here. The flagship public-private partnership Cleveland Clinic Abu Dhabi has added 364 beds in the capital, with plans for a total of 460 beds.
The investment bank Alpen Capital estimates healthcare spending in the UAE will be expanding by 13.1 per cent annually in the next four years, an increase it describes as “unprecedented”. This country spent an estimated $11.3 billion on health care in 2011, the most recent year for which figures are available.
But despite the rapid growth of spending, the number of hospital beds in the UAE is set to grow by just 1.7 per cent in 2018.
“The UAE needs more of pretty much everything, healthcare facilities included,” says Faisal Durrani, an international research manager at the estate agency firm Cluttons.
“The expat population is growing because the Government is encouraging diversification, and fostering the growth of the country’s non-oil sector,” he says. “This is attracting new households, which puts pressure on existing facilities.”
Dr Helmut Schüsler, a managing partner at the private equity firm TVM Capital, sees investment opportunities in almost every segment of the region’s healthcare industry. TVM aims to launch a $150 million funding round early next year. “There is a growing demand for everything a hospital needs as a service,” Dr Schüsler says, “from cleaning, to hospital management, technology, consulting, electronic medical record systems, telemedicine – everything that hospitals need to function well. All of these would be promising areas to invest in.”
Shortages of skilled workers across the sector create an opportunity for the right firms.
“We are seriously considering investing in healthcare professional search firms,” says Dr Schüsler, adding that he cannot see how the region’s hospitals will gain enough staff to meet requirements.
Regional governments, the UAE included, have historically focused on the construction of primary care facilities – hospitals and accident and emergency clinics that deal with acute conditions. But chronic conditions – long-term, persistent health issues,such as Alzheimer’s or mental health problems – have received less investment.
“As you work your way down the acuity level, you see fewer staff and facilities available – that’s exactly the wrong way around,” says Mr Finlayson.
“The majority of healthcare delivery is related to the prevention of illness, management of chronic conditions and the provision of post acute care through recovery,” he says. But that is not where governments are focusing their efforts – and this creates opportunities for private firms.
Privatisation is not without its risks, however. Some private companies cherry-pick the cheapest patients to treat in order to maximise profits, says John Kaelin, a senior adviser at the Health Authority Abu Dhabi. It is important, he adds, to ensure that private companies compete on the quality and cost of care, rather than risk selection – where private hospitals select only the easiest-to-treat patients in order to reduce costs.
Dr Jad Aoun, the chief medical officer of the health insurer Daman, says “the biggest fear is that the private sector is chasing low-hanging fruit. Some firms will pass a patient on to a different provider if they find that it is a difficult case.” He says the Government needs to set payment incentives in such a way as to ensure quality of provision – irrespective of the difficulty of the medical case.
Private health care also risks spurring health cost inflation, which is already at high levels in this country. Towers Watson estimates the cost of health care in the UAE is growing at an annual rate of 9.3 per cent above the rate of inflation. That is a result of more expensive medical technologies and greater competition between hospitals over wages, leading to rent-seeking behaviour and above-equilibrium wages for skilled staff.
Dr Schüsler is confident that healthcare inflation will be slowed if the Government provides the right incentives to health care providers. If insurers pay per service, they will get oversupply of individual treatments, he says. But if insurers pay per outcome, by contrast, they will give companies an incentive to cut the cost of achieving outcomes.
“I strongly believe that you get what you pay for,” he says.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Our legal columnist
Name: Yousef Al Bahar
Advocate at Al Bahar & Associate Advocates and Legal Consultants, established in 1994
Education: Mr Al Bahar was born in 1979 and graduated in 2008 from the Judicial Institute. He took after his father, who was one of the first Emirati lawyers
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Fourth Estate
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
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What it means to be a conservationist
Who is Enric Sala?
Enric Sala is an expert on marine conservation and is currently the National Geographic Society's Explorer-in-Residence. His love of the sea started with his childhood in Spain, inspired by the example of the legendary diver Jacques Cousteau. He has been a university professor of Oceanography in the US, as well as working at the Spanish National Council for Scientific Research and is a member of the World Economic Forum’s Global Future Council on Biodiversity and the Bio-Economy. He has dedicated his life to protecting life in the oceans. Enric describes himself as a flexitarian who only eats meat occasionally.
What is biodiversity?
According to the United Nations Environment Programme, all life on earth – including in its forests and oceans – forms a “rich tapestry of interconnecting and interdependent forces”. Biodiversity on earth today is the product of four billion years of evolution and consists of many millions of distinct biological species. The term ‘biodiversity’ is relatively new, popularised since the 1980s and coinciding with an understanding of the growing threats to the natural world including habitat loss, pollution and climate change. The loss of biodiversity itself is dangerous because it contributes to clean, consistent water flows, food security, protection from floods and storms and a stable climate. The natural world can be an ally in combating global climate change but to do so it must be protected. Nations are working to achieve this, including setting targets to be reached by 2020 for the protection of the natural state of 17 per cent of the land and 10 per cent of the oceans. However, these are well short of what is needed, according to experts, with half the land needed to be in a natural state to help avert disaster.
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Tips for used car buyers
- Choose cars with GCC specifications
- Get a service history for cars less than five years old
- Don’t go cheap on the inspection
- Check for oil leaks
- Do a Google search on the standard problems for your car model
- Do your due diligence. Get a transfer of ownership done at an official RTA centre
- Check the vehicle’s condition. You don’t want to buy a car that’s a good deal but ends up costing you Dh10,000 in repairs every month
- Validate warranty and service contracts with the relevant agency and and make sure they are valid when ownership is transferred
- If you are planning to sell the car soon, buy one with a good resale value. The two most popular cars in the UAE are black or white in colour and other colours are harder to sell
Tarek Kabrit, chief executive of Seez, and Imad Hammad, chief executive and co-founder of CarSwitch.com
