Health care under the microscope

Declining birth rates, ageing populations and low health spending are increasing demand for medical services.

The information age: Medical technology can now show breathing lungs, and more - if the price is right.

In the medical technology and equipment business, vital signs matter, just as much as they do for a doctor working in intensive care. In the Middle East, those signs include declining birth rates, an ageing population and low health care expenditure as a percentage of gross domestic product (GDP). Together, they mean greatly increased demand for medical services, which makes promising reading for businesses supplying know-how and equipment to the health care sector.

GE Healthcare, a UK-based subsidiary of the American giant, General Electric, expects its 2007 revenues of US$600 million (Dh2.2 billion) in its Eastern and African markets to double to $1.2bn by 2010, according to Richard di Benedetto, the company's regional president and chief executive. Throughout the GCC, rising incomes are expected to lead to lower birth rates, creating a population weighted to older age brackets. As has been the pattern in the West, while ageing and increasingly wealthy populations reduce the incidence of communicable diseases, they see an increase in chronic diseases.

McKinsey and Company, the consultancy firm, recently predicted a 240 per cent leap in demand for health care services in the region, with particular increases in cardiovascular health (410 per cent) and diabetes care (323 per cent), both regarded as diseases of affluence. Medical equipment companies are focusing their marketing efforts on these sectors. Two of Johnson & Johnson's four Middle East franchises are devoted to these areas, and Diederik Zeven, the general manager for the Middle East at Philips Healthcare, said his company's line of cardiovascular systems and patient monitoring devices were the major driver of its fast growth in sales.

"In 2007, our sales in the Middle East increased by 34 per cent, compared to 2006," he said, adding: "We see the UAE and Saudi Arabia as having very high growth potential, and we expect continued double-digit growth year-on-year." Although the UAE currently has a very young population - 20 per cent of people are aged under 15 - the balance will change rapidly, according to the World Population Prospects study conducted by the UN. In 2005, only 1.1 per cent of the population was over 60, lower than all other GCC nations and dramatically lower than the US and the UK, where the proportions were 16.6 and 21.2 per cent respectively. But that age group would comprise 2.8 per cent of the UAE's population by 2015, and nearly 25 per cent by 2050. Yemen would be the only country in the region with fewer than 10 per cent of its citizens older than 60.

"The dream market is high income with a large population," said Dr Ioan Cleaton-Jones, a senior health specialist at the International Finance Corporation. "A lot of the time you have a small population with high income," such as in the UAE, he said, adding that Saudi Arabia's growing economy, relatively high income and large population made it a very desirable market. The country had also sought to create a more favourable business environment - jumping 10 places to 23rd in the Doing Business 2008 rankings published by the World Bank - and had announced plans to open more than 100 new hospitals within the next seven years.

The kingdom currently accounted for $100m, or one-sixth, of GE Healthcare's revenues in the Middle East and Africa region, Mr di Benedetto said. The UAE is also fertile territory for medical technology companies, with projects such as Dubai Healthcare City, with a projected capital expenditure of Dh6.6bn, and the establishment last year of the Dh1bn Abu Dhabi Health Service Company. Last year, Siemens Healthcare signed a contract worth $21.7m to work with Mubadala Healthcare on its Molecular Imaging Centre in Al Ain, and Siemens has partnered with NMC Specialty Hospitals in the UAE. Royal Philips Electronics last week signed a contract to become the preferred supplier for the Dubai Health Authority.

But ageing populations are only part of the story. Mamdouh Ayad, the strategy director for Johnson & Johnson Middle East, said recent regulatory and organisational changes in the UAE - such as large-scale insurance plans organised by the Dubai Health Authority, Health Authority Abu Dhabi and the Ministry of Health - suggested a renewed focus on high quality care, which would further increase the demand for health care products.

Current expenditure lags behind the West, but according to Dr Cleaton-Jones health care expenditure will increase as Gulf countries play catch-up with Western counterparts. The UAE spends only 2.5 per cent of its GDP on health care, compared with an average of nine to 15 per cent in high-income Western countries, according to the World Health Organisation (WHO). The country also lags behind some of its less prosperous neighbours. Yemen spends 5.1 per cent of its GDP on health; Egypt spends 6.1 per cent; and Jordan spends 10.5 per cent. Furthermore, UAE health spending has dropped from its 2000 level of 3.1 per cent, according to WHO figures.

Dr Cleaton-Jones said the rapid transformation of the nation's economy had skewed the figures here and in some other GCC countries, including Qatar, where spending was 4.1 per cent of GDP. "Essentially, what's happened is the countries that are high-income got there pretty quickly. The population and demographic effects are working up," he said. "The Gulf hasn't reached the point where birth rates drop, and so it can get away with low spending."

Years of low spending meant that infrastructure had to be expanded and upgraded, creating an immediate need for integrated IT solutions, as well as heavy equipment such as MRI scanners, said Maurice Faber, the vice president for the Middle East at Siemens Healthcare in Dubai. "[It] means we have a huge potential for health care IT," he said. "That's also a trend that's already started, and we see a big potential in the solutions business."

For companies such as Johnson & Johnson, which specialised in diagnostic systems rather than heavy equipment, the return would be somewhat slower, said Mr Ayad, since they would not come into play until after hospitals had opened their doors. The process was still too slow, he said, although he hoped that the more proactive equipment and technology suppliers would help the public sector to develop more quickly.

"What I see from the infrastructure growth in health care is not encouraging. I think [governments across the region] are outside the declared plans," he said. "I don't question their sincerity, but what I'm discovering is they're very much behind plans." The growth of the medical sector is beginning to create a two-way exchange that will benefit local economies as well as vendors, bringing money to the region through recruitment and relocation.

Mr Faber, for example, moved the headquarters of his division of Siemens to Dubai from Germany in 2006 to improve access to clients, and GE Healthcare's parent company announced last month that health sector professionals would be among the 250 new positions it was creating in the Middle East and North Africa. Nabil Habayeb, the president and chief executive of GE for the Middle East and Africa, said rather than relying on imported solutions, the company would also begin developing health care products in the region, which could also be exported worldwide.

Mr Habayeb said that while GE's health care subsidiary still earned it less in the region than its core business, the sector was growing very fast by percentage. "Everywhere you go, with whatever leader you meet, their number one priority is health care, and then education, building, improving life and diversifying," he said. "But everywhere you go, they say number one, number two are health care, education."

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