Few business sectors in Southeast Asia have higher growth potential than healthcare services. The region's spending on medical care has risen 10-12% each year during the past five years to reach US$98 billion in 2014, outpacing the 5.5% annual growth of the Asean economy during that period.
Higher spending is being driven by growth of the middle class, higher incomes, increasing access to hospitals and more advanced healthcare services. Ageing demographics will continue to lift demand. Just 7% of the regional population is now older than 60 years, but the share will climb to 18% by 2050. Life expectancy has risen to 73 today, up from 65 in 1990.
The sophistication of the region's medical services is rising fast. One factor behind this is the need for more specialised treatments as the population has become more affluent and older, causing a shift in patterns of illness. Non-communicable diseases (NCDs) have become the most common causes of death, now more prevalent than communicable diseases. This is due to changes in lifestyle that trigger obesity and stress, which increase the risk of heart disease, diabetes, high blood pressure, stroke and cancer.
In Thailand, the number of hospital patients with heart disease and kidney failure increases every year. We expect that the share of deaths from NCDs will rise by 20 percentage points in the next 10 years. It's clear that Southeast Asians will increasingly need more than just basic medical treatment.
Rising demand is not, however, matched by capacity in much of Asean, especially Cambodia, Laos, Myanmar and Vietnam, or the CLMV economies. Myanmar and Cambodia have only seven hospital beds per 10,000 people, half the Asean average. And healthcare expertise in both countries is mostly limited to general practice. On the other hand, treatment by specialists is available in Singapore, Malaysia and Thailand, including sophisticated operations such as organ transplants.
Most Asean countries have actively promoted the healthcare industry, especially Thailand, Singapore and Malaysia, which are competing to be the medical hub of Asia. For example, Singapore has positioned itself as the biomedical hub by integrating the value chain from R&D of medical technologies, medical devices and pharmaceutical production through medical services. Key strategies include raising venture capital for investments in the biomedical industry and attracting the talent with high paying and incentives.
Meanwhile, Malaysia and Thailand are promoting medical tourism with their strength in lower treatment costs, planning to develop more specialised treatments and pushing for more JCI-accredited hospitals. The government also offers privileges for foreign patients by granting 90-day visas.
Medical tourism is a major demand factor and a business opportunity in its own right. In Singapore, Malaysia and Thailand, many large private hospitals with comprehensive services have focused on serving foreign patients. In Thailand, the number of foreign patients has grown 8% per year in the past five years.
Affluent patients from the CLMV markets are among the target customers. Large private hospitals should therefore set up representative offices in major CLMV cities to attract more patients and handle transfers.
Another strategy is to establish partnerships with insurance companies. For example, Malaysia's Ramsay Sime Darby Healthcare and Pantai Hospital Kuala Lumpur have partnered with insurance companies in Vietnam to bring in patients for treatment. As a result, the number of Vietnamese patients obtaining treatment in Malaysia has doubled.
Healthcare providers are increasingly able to invest across borders in the region. Several countries have relaxed their regulations to attract direct investment in medical services and close service gaps. For example, Vietnam's hospitals are facing a severe capacity crunch with bed occupancy rates of 170%. The government offers special tax incentives for foreign investors in healthcare, including a corporate income tax rate of 10% and tax breaks on investment expenses during the first four years, and taxes at half the normal rate in the following years. As well, foreign physicians are being allowed to practise in Vietnam.
But foreign direct investment in the healthcare sector is still restricted in some countries. In Indonesia, for example, foreign investors can hold 67% of shares in a healthcare business only if it is a specialty healthcare service. Myanmar wants to encourage foreign investment in the hospital business, but requires any project to be a joint venture with local investors, allowing a maximum of 70% of shares to be owned by foreigners. The government's 2016 budget calls for adding 5,600 medical technicians and 1,300 nurses.
A relatively fast way to enter the region's healthcare markets is via mergers and acquisitions or a joint venture with a local hospital. Large private hospitals have plans to increase investment in the CLMV markets. For example, two hospitals will be built in Yangon in a joint venture between Thailand's Thonburi Hospital Group and Myanmar's Ga Mone Pwint Company. Lippo Group, the Indonesian property company, has plans to build 20 hospitals in Myanmar by 2025 through a joint venture with Serge Pun & Associates Group, which already runs a hospital there. Singapore's Brookline Medical Pte Ltd, a cancer treatment centre, plans to buy shares in Vietnam Central Transport Hospital.
One further challenge is the shortage of human resources in the CLMV markets. There are too few doctors, medical technicians and nurses, and skill levels need to be raised. The ratio of five physicians per 10,000 people in the four countries is half the Asean average. Foreign investors should consider partnering with educational institutions in order to recruit graduating students. Alternatively, they could bring in doctors and nurses from abroad.
Investing in a medical care operation abroad requires especially vigilant study of local regulations and capacities. The key to moving smoothly and quickly is establishing a good business alliance. The opportunities may be best in niche healthcare markets catering to special needs and customers with high purchasing power. For example, plastic surgery and skincare clinics show great potential to grow in Southeast Asia.
EIC, a unit of Siam Commercial Bank Public Company Limited, offers in-depth macroeconomic outlook and sectoral impact analyses. For more information, please visit www.scbeic.com or contact eic@scb.co.th