The globesity opportunity

The Gulf is home to some have the heaviest people on earth. Governments can't alone fight the fat and will require a whole gamut of tools such as PE and private sector involvement and better regulations, believes Bank of America Merrill Lynch.

23 July 2012
Trust a Wall Street investment bank to find an investment opportunity in a non-communicable disease, i.e. obesity.

But Bank of America Merrill Lynch (BAML) has a point.

According to the World Health Organization, there are 500 million obese and 1.4 billion overweight people across the world.

One of the world's biggest killers, obesity is the fifth greatest cause of death, leading to 2.8 million fatalities each year. The disease has doubled between 1980 and 2008 and has spread globally from high-income countries to many developing states.

The WHO's definition of obesity is when the body mass index is 30 kilogrammes over its set parameters. That puts the citizens of a number of Middle East states on notice, along with the United States (see chart below).

"The prevalence of overweight and obese individuals was highest in the WHO Region of the Americas (62% overweight in both sexes, and 26% obese) and lowest in the WHO South-East Asia Region (14% overweight in both sexes and 3% obese)," the organization said in its latest report.

"In the WHO European Region, WHO Eastern Mediterranean Region (Middle East) and WHO Region of the Americas, over 50% of women were overweight. In all three regions, approximately half of these overweight women were obese (23%, 24% and 29% respectively)."

By 2008, 10% of men and 14% of women in the world were obese, compared with 5% of men and 8% of women in 1980. As a result, an estimated half a billion men and women over the age of 20 were estimated to be obese in 2008. In all WHO regions, women were more likely to be obese than men.

BAML expects the disease to take centrestage as governments find ways to fight the fat and even improve regulations.

"As happened with smoking, it is likely that the growing cost burden of obesity on governments, corporates and wider society will spur collective action and greater regulation," notes the bank. "BofA Merrill Lynch expects widespread scrutiny of lifestyle aspects associated with obesity including food and drink, schools, work environments, insurers, tackling sedentary lifestyles, and encouraging increasing physical activity."

According to the bank, it takes 40% more to treat obese patients compared to non-obese patients. High levels of global childhood obesity and growing obesity in emerging markets is also set to increase global costs.

"Global obesity is a mega-investment theme for the next 25 years and beyond. Obesity may be the most pressing health challenge facing the world today and efforts to tackle it will shape thinking by policy makers and in boardrooms around the world," said Sarbjit Nahal, equity strategist at BAML.

The Wall Street bank identifies key investment opportunities:

Pharmaceuticals and Health Care - BAML believes investors should look at companies taking advantage of increased support for obesity drug development. Also keep an eye out for companies tackling related medical conditions and needs including diabetes, kidney failure, hip and knee implants. Also consider equipment such as patient lifts, bigger beds and wider ambulance doors.

Food - BAML position companies on their efforts to access the $663 billion "health and wellness" market, as well as on how they are reformulating their portfolios to respond to increasing pressure such as "fat taxes" to reduce sugar and fat levels.

Commercial Weight Loss, Diet Management and Nutrition - Up to 50% of some western populations pursue dieting, targeted nutrition and behavioral change making it a USD4 billion market in the U.S. and growing globally.

Sports Apparel and Equipment - This is the longer-term play, but BAML believes that promoting physical activity will become a key priority for more government health policies.

Among Middle East states, Kuwait has the highest obesity rates in the region, and the government is looking to address rising medical care costs and the impending demand for high-end healthcare.

A McKinsey study conducted in 2007 indicated the demand for healthcare in the GCC would surge 240% over the next 20 years, mainly due to significant increase in cardiovascular diseases and diabetes-related ailments.

According to the World Health Organization, the diabetes-affected population in the region is expected to increase 2.5 times by 2030 from 2000 levels, with Kuwait registering the highest CAGR of 3.8%.

"Overweight and obesity are significant health risk factors in Kuwait with a high
prevalence especially among the Kuwaiti population."

Other regional countries have not fared any better, with Egypt, UAE and Saudi Arabia posting high obesity rates as well.

As healthcare costs rise across the region and greater prosperity leads to bigger waistlines, governments will need to re-examine regulations and even incentives for citizens, apart from greater healthcare facilities.

A report by respected Australian dieticians suggested that subsidies may have resulted in Egypt's obesity problems.

"The findings indicated that government subsidies for bread and sugar may have contributed to an obesity epidemic in Egypt and that reducing subsidies to create a 1% increase in bread and sugar prices per 100 calories would reduce the average body mass index (BMI) of mothers in the country by 0.12% and 0.11%, respectively," noted health science practicioners from Menzies Centre for Health Policy, The George Institute for International Health and Deakin University.

In Saudi Arabia, the government is also battling increasing problem with obesity, which affects about 30% of children.

The low levels of exercise, along with a taste for fast foods laden with carbohydrates, salt, fat and processed sugar is cause for increasing concern about the region's health.

The UAE also faces high overweight and/or obesity issues among the indigenous population. In 2008, the Department of Nutrition and Health at UAE University reported that about a quarter of children aged between eight and 12 were overweight.

"Where there is obesity, diabetes follows. In 2000 WHO reported that 13.5% of the UAE population was diabetic, the second-highest prevalence of the disease in the world; this figure is expected to rise to 19.3% by 2030," said WHO.

Private sector, and especially private equity, is taking note of numerous investment opportunities in the healthcare sector. The region's healthcare costs stood at USD65.6-billion in 2009 and is estimated to nearly double to USD125-million by 2015, according to Al Masah Capital.

"Efforts to reduce the healthcare burden on the government and to increase the role of the private sector through PPPs are likely to create tremendous opportunities for private equity players. Private equity firms have invested a total of USD882.1 million (disclosed value) through 13 deals, in the MENA healthcare sector since the beginning of 2005," said the investment firm. "The UAE is the preferred country for private equity investments. Six of the 13 deals in the MENA region since the beginning of 2005 involved UAE-based companies. The total value of these deals stood at USD453.3 million."

Here are some of the areas that's opened up for the private sector:

PREVENTIVE MEDICINE - HOSPITALS: That's the big prize. With government's seeking public-private partnerships and spending billions on developing medical centres, international hospital franchises have a great opportunity to benefit from increasing emphasis on preventive medicine.

PREVENTIVE MEDICINE - DRUGS: Pharmaceutical companies are making greater efforts at weight-loss medicine, and while governments are still not convinced of the efficacy of weight-loss medicines, there are increasing efforts at medicine that reduce cholesterol and more weight-reducing supplements.

FITNESS CENTRES: The rise of health and fitness centres such as Fitness First in the Gulf, suggests the growth prospects in the region. With inhospitable weather making outdoor activities difficult for much of the year, indoor gyms and fitness centres offer tremendous prospects as citizens and expatriates look after their waistlines and move away from sedentary lifestyles.

RETAIL PHARMACIES: Pharmacies could also take a lead and distinguish themselves from their competitors by offering more sophisticated nutritional supplements and setting up franchise agreements with international distributors.

FOOD FOR THE HEALTH-CONSCIOUS: Companies that details the exact nutritional content and calories in their food products are all the rage in the West and that's slowly tricking into the region. Organic foods and produce often come at a premium to fast-food, but customers are willing to pay extra to ensure greater health advantages for their families. With high disposal income in much of the Gulf, food chains and restaurant with emphasis on healthier food offers a niche prospect.

The WHO's alarming obesity statistics on the region should be a wake-up call for governments.

While western economies typically spend well over 10% of their expenditure on healthcare, the figure stands at less than 5% in the Middle East North Africa region; the Gulf is far worse with spend of around 3.8% of its GDP on healthcare spending. Clearly, there is scope to do more.

The cost of not doing much to fight obesity in the Gulf and the Middle East will take its toll on governments' coffers in the near future. Apart from investment in preventive medicine, there's also a great need for a major social drive to highlight health benefits and better dietary choices before waistlines get out of control.

As they say, prevention is better than cure.

© 2012


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