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Kuwait: Healthy Growth

The healthcare sector in Kuwait, much as in the Gulf Co-operation Council (GCC) states as a whole, remains largely underdeveloped. However, it is showing signs of strong growth as the government pours its budget surplus into new public projects and encourages further private sector development.
Despite the small size of the market, Kuwait's healthcare sector has been expanding rapidly, and, according to industry reports, is worth an estimated $1.05bn. This expansion is due, at least in part, on a high rate of growth, currently hovering around 4.5% and high levels of oil-fuelled liquidity.
Given that healthcare is provided free of charge to Kuwaiti nationals, it is the public sector that is the leading player in the market. Speaking with OBG, Anwar al-Mudhaf, chairman and CEO of the Kuwaiti Al-Razzi Holding Company , a firm that specialises in health sector investment, said that in spite of moves towards privatisation, the ministry of health still dominates the market, largely due to its unrivalled coverage and catchment area.
In the service provision sector, less than 1000 of the over 7000 beds currently available in Kuwait are located in private facilities, while private specialist clinics are dependent on referrals from larger government facilities. However, the growth in consumer demand for new types of services, such as elective surgery and cosmetic care, has increased the opportunities for niche providers, which private companies have been quick to take advantage of.
Robert Hipkins, group communications director at Kuwait Projects Company, told OBG that with the regional healthcare sector growing rapidly, there is an increased demand for high quality service providers in the local market, driven in large part by the high numbers of citizens who are treated overseas as the government has a longstanding practice of sending citizens abroad if it is believed they will receive better care in another country.
As a result, private clinics have begun to spring up, ranging from the general practice International Clinic, owned and operated by Kuwait-based United Medical Services , and the $100m Royal Hayat Hospital, a specialty maternity and paediatric facility, to Elysium Health Spa, a fitness and rehabilitation centre operated by Kuwaiti Al Nawadi Holding , which is expected to build and operate a branded network of fitness and recreational treatment centres in Kuwait and the region.
Additionally, YIACO medical group recently implemented a contract for a radiology laboratory and nuclear medicine clinic. Kuwait hosts around 50 general practice medical centres, 25 dental clinics, 21 specialist laboratories and over 175 independent clinics - numbers that are only set to increase, should the growth trajectory continue.
This is largely in line with the dramatic growth the GCC healthcare industry has been experiencing, with direct healthcare costs expected to grow by nearly $50bn regionally to over $60bn by 2025.
The number of patient visits is also expected to increase dramatically, jumping by 350% in Kuwait alone due to population growth, increasing health awareness, higher incomes and growing health risks. Lifestyle changes that have brought on an increase in health risks, including heart disease and diabetes, are also expected to fuel treatment costs. In the GCC region, cardiology treatment is expected to increase in cost from $1.5bn to nearly $15bn by 2025, accounting for nearly a quarter of all healthcare costs. In Kuwait, diabetes has become such a concern that nearly 28% of all Kuwaitis either suffer from the disease or are at high risk. It has become so prominent that in 2004, the Kuwait Foundation for the Advancement of Sciences opened a $38m diabetes research and treatment centre. Finally, there is a lot of room for further growth in medical staffing, with GCC countries averaging half the nurse-to-patient ratio of Organisation for Economic Co-operation and Development countries.
However, the healthcare boom for Kuwait's private sector is leading to concerns over fragmentation. According to Hemant Pradhan, financial manager of YIACO medical group, "On almost every street you find new clinics, new medical centres and new hospitals going up in the private sector. I think there will be a major shake-out in the next two years." Industry insiders have also suggested that profit margins in the service provision sector are shrinking as increasingly larger players get involved.
The steady growth of the private healthcare sector in Kuwait has not extended to the pharmaceutical sector. According to recent estimates, the pharmaceutical market in Kuwait is worth around $450m and is expected to grow by another $75m over the next two years. However, privatisation efforts in this area have been hindered by the tight grip the ministry of health holds on the distribution of drugs.
Drugs prices are fixed by the government, as are profit margins, which are limited to approximately 29% for wholesalers and 26% for retailers. As the government is the largest purchaser of drugs, it also often controls the market, supplying between 70% and 80% of the local market. The sector is one of the most expensive in the GCC region, marked by a strong preference for brand name products, which compose 85% of total drugs spending. This limits the local production opportunities for generic manufacturers. In fact, Kuwait currently has only one pharmaceutical manufacturer, compared to 27 in Saudi Arabia, 11 in Bahrain, eight in the UAE and five in Oman. While this might indicate an opportunity for foreign pharmaceutical companies, the lack of a strongly enforced intellectual property regime limits the attractiveness of the location.
However, there are some notes of optimism to be sounded. Should the government's cost-containment policy be fully implemented and regional harmonisation properly executed, drug prices will likely drop and generic production opportunities increase.

© Oxford Business Group 2007

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