Untapped potential: Efforts to secure private financing for care facilities

Successive Egyptian governments have made a priority of improving and expanding health care. Most have tended to invest in tertiary care, targeting the large hospitals in the country’s major cities. However, in a new, more democratic Egypt, extending care to those Egyptians with less access will become an important priority. With demands on the public purse set to rise, Egyptian health officials are turning to the private sector in an effort to draw needed capital. Their strategy includes highlighting Egypt’s enormous potential.

Given its size, expanding middle class, and young but ageing population, Egypt’s health sector presents potentially attractive investment opportunities.

A GROWING MARKET: Al Masah Capital estimated Egypt’s health care market at $9bn (or 5% of GDP) in 2009, making it the second-largest market in the Middle East and North Africa (MENA) region after Saudi Arabia. Despite the lofty numbers, the Egyptian market retains a great deal of untapped potential. With an annual per-capita expenditure of just $112, Egypt ranks below countries at a similar level of economic development, despite the fact that government spending on health care has quadrupled over the past 15 years.

According to the General Authority for Investment, the 2011-12 budget set aside LE23.8bn ($4bn) for health care, which is 17.2% more than the 2010/11 budget. Nevertheless, as a share of total health care spending, Egypt ranks quite low on a regional scale. The Egyptian government accounts for just 42% of total expenditure, compared to the MENA average of 64%. Some of this can be explained by commitments from previous governments to secure private financing in order to modernise the country’s health services and infrastructure. That effort will continue and even gather pace. Egypt’s interim government announced in December 2011 an additional LE700m ($117.2m) in funding for health care – much of it designed to attract investment from the private sector. High-priority targets for investment include private hospitals, pharmaceuticals and rural health care.

EXTERNAL FUNDING: A renewed push for private investment is essential to building on recent progress in expanding health care coverage and improving the quality of care. With growing demands on its budget, the state can only do so much. Moreover, the government has to do without the assistance of the US Agency for International Development (USAID), which administered more than a total of $1bn in assistance dating back to the Camp David Accords. USAID’s health care mission came to an end in 2011 after Egypt reached many important milestones in public health, particularly in the areas of vaccination, communicable disease and infant mortality. In recent years, Egypt has garnered support from the African Development Fund, the Japanese Development Fund, the World Bank and the European Commission, but external support accounts for less than 2% of total expenditures on health.

PRIVATE SECTOR PARTICIPATION: The Ministry of Finance will continue collaborating with the World Health Organisation, which has also identified boosting the role of the private sector in providing health services within Egypt as a key aim. Dr. Mohamed Rabie, the former chairman of the Holding Company for Biological Products and Vaccines, acknowledges that recent political events in the country have destabilised the Egyptian economy and might discourage investment in the short to medium term.

But Rabie sees a brighter future on the horizon. By helping to create a more aware and vocal population, the revolution will help bring public demand for better health services to the fore, and democratic governments may have little choice but to listen. A more aware and vocal citizenry driving growth in the years ahead will bring the public’s wishes and the government’s policies in greater harmony and Rabie believes improved health care is part of this.

According to a report by Al Masah Capital, an asset management and advisory company, Egypt ranks third in the MENA region (after the UAE and Saudi Arabia) in terms of private equity investments in health care over the past seven years. Total investment is up over 100% during that time, much of it targeting pharmaceuticals. This will likely continue, as pharmaceuticals remain a safe investment with an established track record and a market approaching $20bn. But opportunities abound in other health-related areas, such as infrastructure and equipment provision.

FOCUS ON PPPS: According to a recent report issued by PricewaterhouseCoopers, governments across the Middle East are turning to public-private partnerships (PPPs) in order to boost health sector infrastructure and services. Egypt is no exception and is well positioned with a unit in the Ministry of Finance charged with facilitating PPP investments. The unit was established in 2006 and has gathered experience implementing the PPP model across other sectors, particularly infrastructure and transport.

The Ministry of Health and Population insists PPPs will be a central part of its ambitious plans for the future. Those plans include more than 4500 health care centres across the country and reaching full insurance coverage, which would add an additional 25m potential patients to the system. As demand for more and higher quality care gathers pace in Egypt, the country’s health care infrastructure will need to be expanded and improved. The Ministry of Finance has identified PPPs as a principal strategy for attracting the investment needed to construct, renovate and refurbish health care facilities across Egypt.

FIRST PROJECT: The country’s first PPP in health care is now taking shape in Alexandria, where the local university will host two new medical facilities. The Smouha Maternity University Hospital will be a 200-bed gynaecology and obstetrics centre along with a blood bank, while the Mowassat Specialised University Hospital will have neurosurgery, urology and nephrology services with a total capacity of 224 beds.

The International Finance Corporation (IFC), the private sector arm of the World Bank Group, advised the PPP unit within the Ministry of Finance on the LE2.5bn ($418.4m) project. Construction on the project is scheduled to last three years. The PPP contract foresees Bareeq Hospitals Company, an international consortium, financing, designing and constructing the two hospitals and managing them for 20 years before transferring ownership and management responsibilities to the Egyptian government.

The Alexandria project is being watched closely and, if successful, could herald a broader effort to attract private investment to help upgrade national health care infrastructure. During the signing ceremony, Atter Hannoura, the director of the PPP unit at the Ministry of Finance, acknowledged the importance of PPP financing during a difficult time in Egypt’s history. “Despite the current economic challenges, this signing demonstrates that investors have confidence in Egyptian PPPs and the country in general,” he said.

Looking further ahead, some ambitious planners envision Egypt as a destination for health tourism, which would have numerous spill-over benefits for the wider economy. Patients who opt for surgery, for instance, spend considerable resources recuperating. Stephen Newbigging, the director of central operations support for travel company Thomas Cook in Egypt, acknowledges the potential, but notes considerable investment is still needed: “Attracting enough people will require new facilities, better equipment and a lot of marketing. It can be done, but it will take time.”

UPGRADE NEEDED: Demand for international-standard health care services is not limited to just Egypt’s visitors. The country’s well-heeled elite often travels abroad, mostly to Europe and the US, for specialised treatment. These would-be customers represent a highly attractive opportunity for investors if they can be persuaded that the care and facilities available in Egypt are of a comparable standard. Egyptian doctors are well trained and there are more than enough to go around, but the facilities in which they work do not stack up as yet and there is a shortage of nurses. Modernising existing infrastructure and expanding facilities for specialised care will not be cheap, which has spurred the push for private and PPP financing.

Despite these efforts, there remains an important role for the state, as most Egyptians will continue to rely on public facilities. “There is a serious need to improve health care infrastructure in rural areas and urban slums,” said Moses, the chief of the Young Child Survival and Development programme at UNICEF. Access to health care services is severely limited for an estimated 16m Egyptians living in 1100 slums across Egypt. These areas are unlikely to draw the type of private investment seen in more affluent parts of the country, requiring the government to step in.

Egypt’s elected governments will have to pay attention to this large constituency as popular demands for social justice have already identified health care as a key priority. Addressing those demands will require mobilising capital from both public and private sources. By combining the best of both worlds, the government could improve health care at home, while at the same time serving as a model for others in the region.