House View by the Chief Investment Office

Emerging market healthcare Aging, increased prosperity, and even medical tourism are fueling demand for healthcare services in emerging markets.

28 March 2017

Twelve years ago, Shaffi Mather’s mother faced a medical emergency. He rushed her to the hospital in the back of his car. "Even if you are wealthy (in India), in an emergency you drive your family member or friend to the hospital. India has ambulances, but these vehicles are not equipped with life-support services and or medically trained staff," said Mather.

Later, as he waited for his mother to recover in the intensive care unit, he had an epiphany. The dearth of emergency care inspired him to found MUrgency, a mobile application that connects people who need emergency response with a community of medical professionals and their network.

Time to play catch-up

"Non-communicable diseases are becoming far more prevalent in developing nations. And these chronic conditions are much more expensive to treat than infectious diseases."

says Amanda Glassman, director of health policy at the Center for Global Development.

Mather’s story and MUrgency are part of a wider trend in evolving emerging market (EM) healthcare systems. After years of neglect, EM governments are now under strain as greying populations and growing affluence conspire to increase the cost and complexity of healthcare provision.

Hypertension, diabetes, and cardiovascular disease are on the rise as lifestyles become more sedentary and diets include more meat and sugar.

Meanwhile, the percentage of people 65 years or older in EM has doubled since 1980 to 10%, and will likely reach 15% by 2030, according to the UN. Older populations entail higher costs. In the EU, public healthcare spending as a percentage of GDP averages 15% per capita on those 66 and older, compared to just 5% for 20-65 year olds.

Despite the growing similarity between the healthcare challenges faced by EMs and more developed markets (DMs), EMs spend less than half what DMs do on healthcare as a share of GDP. There are just 3.4 hospital beds per 1,000 citizens on average in EMs versus 9.5 in DMs, according to the World Bank.

EM health spending to outpace GDP growth

"We expect the EM healthcare sector to grow at an 8% pace annually from 2014 to 2020, double the forecast for overall GDP growth. China and India are expected to post double-digit growth rates."

says Carl Berrisford, CIO strategist.

EM policymakers are aggressively seeking to catch up to their DM counterparts in terms of healthcare quality and accessibility.

China in particular is spearheading the EM healthcare revolution. It has embarked on the most ambitious healthcare reform programs in history by targeting a seven-fold increase in medical spending from 2011 to 2020.

This would imply a 26% compound growth rate over the coming five years, turning China’s healthcare market into a CNY 8tr (USD 894bn) industry and, in essence, doubling the size of the entire EM healthcare sector from today’s valuation.

This upsurge in public spending, for example, aims to increase the number of hospital beds for every 1,000 people from 4.55 currently to 6.0 by 2020. This is likely to prove a boon for private hospital groups, pharmaceutical firms and ambulance services.

Traveling farther for healthcare

"For people from wealthy nations it can be tempting to take advantage of the lower costs in developing nations, particularly for procedures not covered by insurance firms at home."

says Amanda Glassman, director of health policy at the Center for Global Development.

Medical tourism is another potential source of EM growth and opportunity.

Some emerging countries have carved out specialist or low-cost niches. South Korea, for example, has become a regional hub for cosmetic surgery. And Thailand offers a combination of quality and affordable services, alongside its famous beaches.

In Asia, the medical tourism market doubled between 2011 and the end of 2015, according to industry sources, a trend likely to continue thanks to rising regional income growth, improved healthcare quality and cheaper air travel. Sputtering economies and weak commodity prices pose a risk for the sector.

Both might increase public deficits, curbing governmental ability to invest in domestic healthcare. But with healthcare demand almost certain to rise in spite of economic growth, the sector is likely to prove more resilient than others.And if public sector spending comes under pressure, entrepreneurs like Mather and his company MUrgency have the potential to plug the gap. He has transported more than six million people to the hospital since starting his business in 2004. More of the same from his peers could push the EM healthcare sector from the intensive care unit to the recovery ward.

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