Foglamp Overseas Insight: Q2 2011

We hope you enjoy this latest installment of Foglamp’s Overseas Insight, which covers trends and investment opportunities in overseas markets.  Don’t hesitate to contact me if we can help with your own investment idea generation and due diligence needs.

– Kate Horn, Director, Foglamp (kate.horn@foglamp.org)

In this issue

FOGLAMP INSIGHT: Trends in Chinese government healthcare spending

WHAT WE’RE HEARING: The latest chatter on overseas investment

CONTRIBUTOR PROFILE: Our teams on the ground – Nigeria

FOGLAMP INSIGHT: Trends in Chinese government healthcare spending

Healthcare Spending in China

The majority of China’s health care costs are borne by individual Chinese citizens. In 2009 the Chinese government contributed 24.7% of total health expenditures, far below the average of 75% in developed countries and 55% in developing countries.

The New Health Care Reform Plan outlines how the Chinese government will spend RMB 850 billion (100 RMB equaled $15.42 on June 26, 2011) from 2009 to 2011 to reform the country’s healthcare system. This plan is aimed at benefiting the poor by increasing coverage and improving the availability of key medical equipment.

The government spent RMB 149 billion on healthcare in 2010 with RMB 22.5 billion spent on local-level healthcare infrastructure and RMB 29.6 billion on major public health programs. This figure does not include local-government healthcare budgets for infrastructure construction, medical equipment procurement, and hospital capacity enhancement. The government estimates it will spend RMB 172.8 billion on health care in 2011, up 16% from 2010.

China’s Healthcare Spending Priorities

Government spending on healthcare will be significant in the coming years across three priority areas:

Subsidy Programs

Through the New Rural Cooperative Medical Care System and the Urban Worker’s Health Insurance System, 90% of peasants and unemployed urban residents are covered with basic health care services (835 million under NRCMCS and 196 million under URHI in 2010).  To ensure similar levels of participation, the government will spend RMB 140 billion more in 2011, increasing the direct subsidy from RMB 120 to RMB 200 per person and raising the percentage reimbursed for hospitalizations.

Healthcare Infrastructure construction

The government spent more than RMB 40 billion during 2009 and 2010 to support the construction of 1,877 county-level hospitals, 5,169 town-level hospitals, 2,382 city community health centers, and more than 11,000 rural health centers. It also spent RMB 13 billion on the purchase of medical equipment in facilities. Officials indicate that spending figures will be far higher in 2011 on hospital construction, equipment procurement, and personnel training.

Reforming public hospitals

Most public hospitals in China are considered inefficient, corrupt, and expensive. To counter this perception, the government is placing a high priority on reforming public hospitals and is investing significant financial resources to reorganize hospital administration and pharmaceutical procurement systems.

Healthcare Reform and Investment Opportunities

Many industries are poised to benefit from the ongoing healthcare reform initiatives in China, including medical equipment, pharmaceutical, information technology, and health insurance companies.

Medical Equipment

According to industry experts and government officials, medical equipment providers have been the biggest beneficiaries of healthcare reform in China. The Ministry of Health will require all county- and town-level hospitals to maintain X-ray machines, CT scanners and cardio monitors. This represents a windfall for the industry, especially for local Chinese manufacturers, as imported medical equipment is expensive. A Ministry of Health official estimated that procurement of medical equipment in the country could reach RMB 100 billion for the period 2009 – 2011.

Pharmaceuticals

Many more Chinese will be able to afford medicines following the increases in government subsidies as a result of healthcare reforms. Experts predict that prices of basic medicines will increase, with many anticipating a “golden decade” of 15% – 20% growth for Chinese pharmaceutical companies.

Information Technology

The Chinese information technology industry will also benefit significantly as the government will need to invest heavily in IT hardware and services to implement many of the country’s healthcare reform proposals.

Health Insurance

The impact of reforms on the health insurance industry is uncertain. Burgeoning healthcare budgets point to future market opportunities for private insurance companies; however, currently the industry is tightly regulated and the government’s central role as an insurance provider crowds out investment by private insurance providers.

Conclusion

Despite the Chinese government undertaking large-scale reforms of its healthcare system, uncertainties remain. Central government budgets and healthcare policymaking are notoriously opaque. Despite these risks, the government’s commitment to reform and increased investment in the healthcare sector brings significant growth opportunities for Chinese and international companies over the next five years.

WHAT WE’RE HEARING: The latest chatter on overseas investment

Africa, Africa, Africa. That’s what we’ve been hearing and seeing lately in terms of investors’ and companies’ interest in overseas expansion and growth opportunities.  With a growing middle-class, rising levels of disposable income levels, and an emerging consumer class, a number of exciting markets in Africa are increasingly popping onto investors’ radars. We like Nigeria (huge market and booming middle-class; corruption concerns real but highly variable depending on the sector and vertical) and companies that can market and sell their goods and services seamlessly across East Africa (Kenya, Uganda, Tanzania).  Morocco offers another intriguing though riskier opportunity.

Elsewhere, we see growing concern over non-economic trends in Mexico affecting long-term business opportunities (drug war spiraling out of control).  Brazil remains of interest but with increasing concern over inflation and other macro economic indicators. In Asia, the Philippines remain a popular destination for investors looking to diversify into a burgeoning emerging market in the region.

CONTRIBUTOR PROFILE: Our teams on the ground

In Nigeria we have a deep bench of contributors with contacts across numerous industries and verticals ready to assist clients.  This Foglamp contributor has a Masters in Communications Studies and is an award-winning journalist as well as a business and economics editor for a major local news organization.  He has covered a range of industries and has performed investigative work on everything from healthcare, travel and leisure, energy (oil and gas), to local internet companies.  His research capabilities have proven valuable to clients wanting help with due diligence as well as those interested in understanding new market dynamics.