What’s driving private sector investment in healthcare? The private sector’s FY2018-2019 investment in healthcare reached EGP 9.3 bn, accounting for 42% of total investment in the sector during the fiscal year, according to government figures. And more investments are expected in the next 10 years, as evidenced by the boom in healthcare M&A activity in 2020 and 1Q2021. Egypt is a market that is primed to absorb healthcare services, with its large population and prevalence of chronic diseases such as high blood pressure, diabetes and (formerly) Hep C. But beyond the covid-19 pandemic and the fundamentals (which have always existed), what’s been driving this expansion in private sector healthcare?
The rollout of the Universal Healthcare Plan and the construction of new cities are behind the heightened appetite. Having more people covered by ins. and new areas that need healthcare services translates into heightened demand, which bodes well with investors’ ROI expectations, industry players we’ve spoken with tell us. But a fundamental issue remains: Some governorates are still underserved when it comes to healthcare services, due to a lack of talent outside cities with university medical faculties, and private investors being unable to hit ROI targets beyond urban centers like Cairo and Alexandria.
Investment in the sector has been increasing since 2015: Total implemented investments in the private healthcare sector increased 1.5x between 2015-16 and between 2018-19 in nominal terms, totaling EGP 9.3 bn in private and EGP 9.8 bn in public investments in 2018-2019, according to a joint February report (pdf) by Dcode Economic and Financial Consulting and The American University in Cairo.
Private sector healthcare in 2020 and 2021 — an M&A story: Our internal tracker tells us 19 healthcare transactions were completed in 2020, with the sector being the most active after banking and finance, which came in at 32 transactions. Major M&A included Al-Ahly Capital acquiring El Nada Hospital, Ezdehar Egypt Mid-Cap Fund getting a minority stake in Al Tayseer Healthcare Group, and in turn Al Tayseer upping its stake in Mansoura Medical Center, PE outfit Alta Semper increasing its stake in Macro Holding to 80%, and several more. Companies are also competing for Abu Dhabi Commercial Bank’s 51.4% stake in Alexandria Medical Services. A mega-merger between Cleopatra Hospital Group (CHG) and Alameda Healthcare was also in the works, but recently faltered.
The private sector’s expanded role in healthcare is also evident when we look at its market share in the last 10 years. As of 2019, just over a quarter of Egypt’s hospital beds could be found in private sector healthcare facilities, equivalent to almost 36k beds, according to the Dcode report. Moreover, private sector hospitals increased by 20%, from 942 to over 1.1k between 2009 and 2019, increasing their market share from 58.8% to 63.4%. Private beds increased from 21k in 2009 to just under 36k in 2020 — an almost 70% growth rate.
Why is this happening? Two reasons: Ins. coverage and new cities. The high penetration of the ins. market, including the rollout of the universal healthcare plan, means that an investor’s potential market in the sector will increase, Hassan Fikry, corporate strategy and investor relations director at CHG explains. This ensures healthcare service demand — and return. Also, a lot of organized investment has been injected into infrastructure and the creation of new cities, which will need medical services, says Neeraj Mishra, group CEO of Alameda Healthcare, creating potential for more healthcare investment.
But Egypt’s healthcare sector has a lot of catching up to do: There were 1.4 beds per 1k people, and only 0.8 physicians for every 1k people as of 2017, according to Dcode. This is half the global average. Worldwide, the average number of beds per 1k people stands at 2.9 and the number of physicians per 1k people stands at 1.6, the report notes. Only 4.9% of our GDP is spent on healthcare, with the average life expectancy hovering at 63. In all categories, Egypt ranks lower than KSA, Tunisia and Jordan in the Arab world.
Why such low KPIs? The sector was late to institutionalize: Historically, the sector in Egypt was dominated by doctors who built hospitals based on their own specialization, Fikry says, adding that the demand-supply gap was exacerbated by the fact that the sector was not investment-driven, but rather doctor- or family-run. This also fueled the rise of specialized rather than general, hospitals. An increasing number of beds were only available to certain types of patients, resulting in a growing number of private beds not being used.
This ultimately culminated in an uneven geographic distribution of services: Over 12.7k private sector hospital beds can be found in Cairo and Alexandria alone. Giza governorate boasts another 3.9k beds, according to CAPMAS. This means that almost 50% of private sector hospital beds are concentrated in just three governorates. The remaining 19.4k beds are scattered across the remaining 24 governorates. This would be equivalent to an average of just over 800 private beds per governorate — in theory, though practically the distribution is fragmented. South Sinai, for instance, only has 18 available private sector beds, according to CAPMAS.
Why hasn’t the private sector gone to these high demand governorates? A lack of talent and profitability: Access to doctors and nurses in governorates can be tricky, especially if the city does not have a medical faculty, Fikry says. To move talent from governorates with medical faculties to others will require having to pay higher salaries, Mishra, adds. Moreover, average income levels in other governorates are lower than in Cairo and Alexandria, so hospitals cannot charge the same fees they would elsewhere. They have to run hospitals at a price point that is affordable in the city they are in, Mishra says.
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