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EMERGING MARKETS

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by EOS Intelligence EOS Intelligence No Comments

OBOR – What’s in Store for Multinational Companies?

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One Belt One Road (OBOR) Initiative, also known as Belt and Road Initiative (BRI), is part of China’s development strategy to improve its trade relations with countries in Asia, Europe, the Middle East, and Africa. OBOR envisions to not just bring economic benefits to China but to also help other participating countries by integrating their development strategies along the way. It has the potential to be one of the most successful economic development initiatives globally. Opportunities are countless for investment along this route. Multinational companies are looking to make the most out of this project, however, capitalizing on this opportunity will not be easy. To benefit from this initiative, companies need to understand that assiduous research and effective long-term planning is crucial, as the nations involved, though offer economic growth, will also present a series of geopolitical risks and challenges.

Chinese President Xi Jinping unveiled OBOR in 2013, aiming to improve relations and create new links and business opportunities between China and 64 other countries included in the OBOR. The initiative has two main segments: The Silk Road Economic Belt (SREB), a land route designed to connect China with Central Asia, Eastern and Western Europe, and the 21st-Century Maritime Silk Road (MSR), a sea route that runs west from China’s east coast to Europe through the South China Sea and the Indian Ocean, and east to the South Pacific. These two routes will form six economic corridors as the framework of the initiative outside China – New Eurasian Land Bridge, China-Mongolia-Russia Corridor, China-Central Asia-West Asia Corridor, China-Indochina Peninsula Corridor, China-Pakistan Corridor, and Bangladesh-China-India-Myanmar Corridor.

OBOR brings opportunities and challenges

Multinational companies will have a plethora of opportunities to explore along these economic corridors – for instance, trading companies can take advantage of these routes for logistics, while energy companies can use these corridors as gateways for exploring new sites of natural resources such as oil and natural gas. Along with dedicated routes, OBOR will require huge investment which is proposed to come from three infrastructure financing institutions set up as a part of this initiative – Asian Infrastructure Investment Bank (AIIB), The Silk Road Fund (SRF), and The New Development Bank (NDB).

The development of OBOR opens up a range of opportunities for overseas businesses. However, with the initiative being launched by the Chinese government and all the six corridors running across the country, it is clear that China will play a major role in most of the business collaborations. Thus, multinational companies investing in OBOR can prefer to partner with Chinese companies and leverage the partnership to access projects and assignments in other countries. Companies are also likely to be able to access new routes to sell products cheaply and efficiently, but looking for opportunities across OBOR would definitely involve initial partnerships between multinationals and Chinese state-owned enterprises.

OBOR – What’s in Store for Multinational Companies

Oil, gas, coal, and electricity

OBOR has the potential to open up opportunities for collaboration in the areas of oil, gas, coal, and electricity. Several energy opportunities may emerge with the OBOR initiative, and these energy-related investment projects are likely to be an important part of OBOR. For instance, the Gwadar-Nawabshal LNG Terminal and Pipeline in Pakistan includes building an LNG terminal in the Balochistan province and a gas pipeline between Iran and central Pakistan. Estimated at a total value of US$46 billion, the project was announced in October 2015 along the China-Pakistan Economic Corridor.

Energy projects along OBOR include initiatives largely by Chinese companies due to funds coming in from China-led financial institutions. In another investment, General Electric, an American corporation, signed a pact with China National Machinery Industry Corporation (Sinomach), in 2015, to offer project contracting (for supply of machinery and hardware tools) for developing a 102-MW Kipeto wind project in Kenya. The project aims to set up 2,036 MW of installed capacity from wind power by 2030. Kipeto wind project was originally a part of US president Barack Obama’s ‘Power Africa’ initiative, but with Sinomach joining in hands, it is clear that more initiatives like this can be expected to come up in the near future as a part of OBOR.

Logistics

Players in the logistics industry can also benefit from the improved infrastructure along the OBOR. In 2015, DHL Global Forwarding, providing air and ocean freight forwarding services, started its first service on the southern rail corridor between China and Turkey, a critical segment of China’s OBOR initiative. This rail corridor is expected to strengthen Turkey’s trading businesses along with benefiting transport and freight industries of Kazakhstan, Azerbaijan, and Georgia. Logistics companies can also initially partner with local postal or freight agencies to set up new business in these regions. OBOR can provide fast, cost-effective, and high-frequency connections between countries along the route. Improved infrastructure, reduced logistics costs, and better transport infrastructure will also contribute to driving e-commerce businesses in the regions.

Tourism

Tourism is expected to also see a major boost as a result of OBOR initiative. As connectivity between countries improve and new locations become easily accessible, the tourism industry is expected to see positive growth in the coming years. To support tourism, Evergreen Offshore Inc., a Hong Kong-based private equity firm, in 2016, launched a US$1.28 billion tourism-focused private equity fund called Asia Pacific One Belt One Road Tourism Industry Fund to boost relations between China and Malaysia by investing in tourism sector. The company invested in Malaysia as the country is considered an ideal investment destination for a long-term gain. This is in sync with the long term vision of OBOR to promote tourism sector in countries and regions along the MSR.

As OBOR develops, new markets along the routes are likely to open to business. The already existing routes will experience business diversification as infrastructure and connectivity improves. Trade barriers will most likely reduce as developing countries become more open to international investment which brings new jobs, better infrastructure, economic growth, and improved quality of life. There is bound to be growth in consulting business, professional services, and industrial sectors apart from trade and logistics.

EOS Perspective

While OBOR initiative assures opportunities for multinational companies, the path may not be smooth for all. Investing in these new geographies, companies will come across various economies with different legal and regulatory frameworks. Political stability is also a matter of concern – some regions may have sound political structures while others may be dealing with ineffective government policies. In fact, political instability and violence are some of the key challenges in the development of OBOR. Weak government policies and lack of communal benefit lead to political instability including terrorism and riots. These factors influence the availability of resources, negatively impact the setting up of businesses locally, thus resulting in financial losses for multinationals. Local investments need policies and investment protection backed by the governments to facilitate growth which is far more difficult to achieve in case of political and economic instability. Taking advantage of the opportunities associated with OBOR may be of strategic importance, but the companies need to be cautious about the obstacles associated with it.

While OBOR initiative assures opportunities for multinational companies, the path may not be smooth for all. Political instability and violence are some of the key challenges in the development of OBOR.

Local competitors will also present obstacles to multinational firms. The competition is stiff for international players as local companies can operate better in riskier environment at low operating costs. Not only will regional companies pose a threat for survival of multinationals, in many scenarios, partnering with Chinese companies will also be a massive challenge. Many Chinese companies do not implement a clear structure while partnering with other international companies. Decision making and profit sharing is often not properly documented. Lack of clarity in business dealings give these state-owned enterprises an upper hand.

Complexity and lack of transparency in local regulatory framework for setting up a new business is also a hindrance for investments in many geographies along the OBOR. Absence of clear policies and delays in decision-making processes can prove too challenging for companies to adapt to which may even lead to financial losses or failed attempts to establish local operations. Issues such as corruption, challenges associated with supply chain security, and financial risks are some of the other obstacles that companies are likely to face while setting up businesses in new countries along the OBOR route.

Complexity and lack of transparency in local regulatory framework are a hindrance for investments in many geographies along the OBOR.

OBOR is still in the initial years of implementation. The initiative offers great potential for developing regions in need for improved infrastructure and economic growth but what this really means for multinational companies is still somewhat unclear. It encourages participation from international companies to turn the initiative a success, but there are no clear guidelines on how these investments would be integrated into the OBOR. With a major part of investment coming from China-based institutions, dominance of Chinese companies in major projects cannot be avoided. While the underlying aim of the initiative is to reduce China’s industrial overcapacity and to strengthen its economy, there are concerns about the part being played by multinational companies. To what extent would they participate, who would be the main investor (Chinese company or multinational companies), and how much share and what say would the multinational company have in a project, etc., are some of the questions that still remain unanswered.

With major part of investment coming from China-based institutions, dominance of Chinese companies in major projects cannot be avoided.

In view of these risks and challenges, we believe it is too early to estimate the scale of potential monetary benefits for companies wanting to invest along the OBOR route to expand their businesses. It will surely not be easy for multinational companies to compete for benefits from OBOR in an environment heavily dominated by Chinese companies. Developing business policies and financing schemes through related institutions can help the multinational firms to benefit from this initiative in the long run. There is no doubt that OBOR has the potential to open new markets for doing business by redrawing the global trade map, however, with no clarity and transparency on the role MNC’s as part of OBOR initiative, companies need to correctly identify the best opportunity by accessing the right market and find effective ways to mitigate a wide range of associated risks. For now, the future role of MNC’s in this environment is uncertain. They will have to wait and watch to work out a stable business arrangement. But in current times of global geopolitical turbulence, such a harmony is never guaranteed.

by EOS Intelligence EOS Intelligence No Comments

The Return of Consumer Credit – What Does It Mean for Algerian Passenger Vehicles Industry?

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(This post, along with recently published article on auto financing in Nigeria, formed a mainstay of a broader coverage article titled ‘Affordable auto financing essential for OEM success in Africa’, contributed by EOS Intelligence to ‘Guide to the automotive world in 2017’, Automotive World’s annual publication covering a gamut of articles by leading global automotive industry analysts and consultants. The report was published in January 2017)

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Banned in 2009 in order to curb the national import bill as well as the level of household debt, consumer credit was reinstated in Algeria in early 2016 to encourage the consumption of national products. In the local automotive industry, Renault Symbol is the only passenger vehicle currently available on auto financing, since Renault is the only locally assembled vehicle in Algeria. Can the return of consumer credit along with other policies provide the much needed boost to the nation’s passenger vehicle industry?

With a total population of approximately 40 million, Algeria is the second largest automotive market on the African continent. For the past several years, the country’s automotive industry has relied heavily on imports from Europe and Asia, importing nearly two million cars between 2012 and 2015. Today, the industry continues to be heavily dominated by imported vehicles, which account for approximately 85-90% of the total market. Passenger car manufacturing is limited, with Renault Algerie being the only domestic manufacturer (the Renault Algerie production plant is an assembly unit that builds the Symbol model from completely knocked down production for the Algerian market).

In 2009, all consumer loans were abolished by the government in an effort to reduce import bills as well as the level of household debt. However, in 2016, under the Executive Decree No. 15-114 of May 2015, consumer loans were made available on selected goods manufactured nationally. Under the scheme, car loans are available only on Renault Symbol, since it is the only locally-assembled vehicle.

Unlike in Nigeria and in several other African countries, where accessibility and affordability of car finance remain an immense challenge, in Algeria, a considerable part of the population can qualify for loans based on their monthly income level. As a result, major Algerian banks have seen a rapid surge of car loan applications. Although access to consumer finance has boosted car loan applications over the second half of 2016, this is not likely to significantly impact the industry growth, since consumers have no choice in selecting either brand or model. In addition, Renault’s current production volumes are very limited (25,000 vehicles per annum) and cannot meet the total local demand. However, due to the recently introduced reforms, the industry dynamics can be expected to change in the next few years.

EOS Perspective

The current economic environment, along with the implementation of licensing system and import quotas are likely to have a negative impact on the passenger vehicles industry in the short term. New vehicle sales can be expected to witness a decline to some extent in 2017. But the recent developments are also likely to push automakers to invest in setting up local production facilities. The arrival of major OEMs and their production projects is expected to serve as a growth catalyst for the local automotive industry over medium to long term. Once these projects become operational, local production volumes might increase significantly, which will provide consumers with more buying options. In addition, the ease of consumer lending could accelerate household spending, leading to increased bank lending in the automotive industry. As competition between banks intensifies, more innovative and affordable car financing solutions are likely to be available to consumers in Algeria, which can in turn attract many consumers across segments to buy new cars. The rising and young middle-class Algerians are likely to consider shifting from entry-level segment to the luxury segment, as they can spread their payments over a longer period of time (e.g. up to 60 months).

All of these efforts combined together – the recent industry reforms, auto manufacturing projects in the pipeline, and auto lending – can be expected to fuel growth in Algeria’s passenger vehicle industry.

by EOS Intelligence EOS Intelligence No Comments

Affordable Auto Financing – The Key to New Passenger Vehicle Sales in Nigeria

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Since the announcement of the National Automotive Industry Plan in 2013, the Nigerian automotive industry has witnessed an increased interest from several global automakers. As a result of the Plan as well as recent reforms made by the Nigerian government, PwC predicts Nigeria has a chance of becoming Africa’s auto manufacturing hub by 2050. However, the passenger vehicles market in Nigeria remains heavily dominated by imported second-hand cars, mainly due to the various industry challenges, including lack of access to auto financing. Could affordable auto financing schemes drive growth in Nigeria’s new passenger vehicles market?

This post formed a mainstay of a broader coverage article titled
‘Affordable auto financing essential for OEM success in Africa’, contributed by EOS Intelligence to ‘Guide to the automotive world in 2017’, Automotive World’s annual publication covering a gamut of articles by leading global automotive industry analysts and consultants. The report was published in January 2015.

Nigeria’s new passenger vehicle sales are far behind sales in countries such as Egypt, Algeria, and Morocco, despite the fact that Nigeria is the most populous country in Africa. With a giant share of nearly 80%, Tokunbo vehicles (local name for imported used vehicles) heavily dominate the Nigerian passenger vehicles market.

Although there is a plethora of industry challenges that range from lack of cohesive government policies to poor infrastructure, one of the major growth constraints at present is the lack of affordable auto financing. Due to the limited accessibility and expensive financing options, new vehicles remain out of the reach for most Nigerians.

Nigeria Affordable Auto Financing

Nigeria Affordable Auto Financing

Currently, the cost of auto financing in Nigeria is exorbitant. Amid current economic environment and credit criteria, only a small segment of the population can obtain auto loans. Therefore, most Nigerians either buy used cars or save money over period of time to buy new vehicle for cash, stalling the new vehicle sales – retail customers accounted for less than one-third of all new cars sold in 2015.

This shows how lack of financing options is holding growth in a market segment with the highest growth potential. According to Lagos Business School’s research, an affordable vehicle finance scheme could boost Nigeria’s annual new vehicles sales to one million from 56,000 units at present.

Nigeria Affordable Auto Financing

Nigeria Affordable Auto Financing

EOS Perspective

Although the National Automotive Industry Plan and recent government reforms managed to attract some FDI in recent years, the Nigerian passenger vehicles industry still remains heavily reliant on imported used cars. As the government plans to curb the country’s auto imports, as a first step, the industry stakeholders should plan policies that can make new vehicle ownership more attractive to mass consumers.

The current credit facilities offered by banks are unattractive to many consumers due to cost and credit terms. In order to fuel growth in local vehicle manufacturing and new vehicle sales, the industry, along with the help of CBN, should develop more affordable vehicle credit purchase schemes targeted at the mass middle class population.

Further, as majority of consumers simply have little or no credit history, the current lending models are not going take the industry growth any further. By leveraging on alternative credit data such as payment data from utility and telecom companies, lenders should look beyond credit scores to segment a new customer base of creditworthy consumers.

For vehicle manufacturers and dealers, there is a tremendous opportunity to move up the value chain by setting up in-house financing with the help of the right partners. By offering innovative auto finance solutions, they can push the demand for new vehicles, especially among millennial and emerging middle class first-time buyers.

Whether Nigeria is capable of becoming the next auto manufacturing hub for Africa, only time will tell, but with better financing options, it can surely boost new car sales and help the local automotive industry to progress.

by EOS Intelligence EOS Intelligence No Comments

Refurbished Smartphones – the Future of High-end Devices in Emerging Markets

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An anticipated slowdown in the global smartphone sales forecast for 2016 due to lack of new first-time buyers in large markets such as the USA, China, and Europe, has been alarming for large players who have turned their focus to other emerging markets. To fit the expectations and financial capabilities of price-sensitive consumers in these markets, companies are lining up to sell refurbished smartphones as a strategic move to increase sales volume. However, competition – primarily from new smartphones – in these markets is still fierce, due to some smartphone makers (such as Chinese mobile phone manufacturer Tecno Mobile) reaching consumers with more economic devices. Are second-hand smartphones capable of outshining new devices in emerging markets?

The global smartphone market has been witnessing a slowdown in sales during 2016 in comparison to previous years, partially because some markets, such as the USA, China, and Europe have become saturated (in large part with mid-range and high-end models, such as Apple’s iPhone and Samsung’s Galaxy). Therefore, to avoid a decrease in sales and a subsequent loss in profits, smartphone makers are readjusting their strategies to focus on marketing economic second-hand sets in developing countries.

Refurbished Smartphones - Market Growth

 

 

According to a 2016 Deloitte report, refurbished smartphones global sales volume is expected to increase from 56 million units sold in 2014 to 120 million in 2017, growing at a CAGR of 29%. Large part of this growth is likely to occur in emerging markets, such as India, South Africa, or Nigeria, which is a sound reason for large players to venture into these geographies.

Most smartphone buyers in these markets are highly price-sensitive and frequently precede their phone purchasing decisions with intensive online research to get a good understanding of options that are available to them based on their financial capabilities. These consumers are likely to prioritize price over features and appearance of a smartphone. Therefore, refurbished devices from well-known brands, such as Samsung or Apple, need to offer satisfying functionalities yet be available at affordable price in order to be attractive for buyers in these emerging economies.

Refurbished Smartphones - India, South Africa, Nigeria

Refurbished smartphones hit obstacles across the markets

Emerging markets, despite their favorable dynamics that should at least in theory offer a great environment for refurbished phones sales to skyrocket, are not easy to navigate through, especially for high-end devices makers.

Some markets are becoming protective of their local manufacturing sectors, and introduce regulations that make it difficult to import smartphones, especially refurbished ones. India is one such case. In 2014, the Indian government rolled out the Make in India program, with the idea to promote local manufacturing in 25 sectors of various industries, one of them being electronic devices (including smartphones).

Coincidentally, two years later, when Apple initiated efforts to start importing and selling its refurbished smartphones as a way to increase the iPhone’s market share in the country, these efforts were unsuccessful. The Indian government rejected Apple’s plan, justifying its decision with a concern about the electronic waste increase caused by a deluge of refurbished smartphones entering the country. As a result, the refurbished version of Apple’s iPhone is currently sold only by online commercial platforms (e.g. Amazon, Snapdeal) from vendors that are not always official company retail stores. This could fuel sales in a parallel market, not necessarily benefiting either India’s local manufacturing or Apple.

In case of South Africa and Nigeria, both markets share similarities in terms of advantages as well as potential barriers for refurbished smartphone sales volume to grow. Nigeria’s GDP contracted by 2.06% in the second quarter of 2016, causing wary consumers to maintain their old phones or purchase very economic options due to decreasing disposable income. In South Africa, consumers are also highly price-sensitive with a very limited brand consciousness.

The rapid level of smartphone adoption registered in both markets is seen mainly in handsets with retail price of US$150 or less in South Africa and US$100 or less in Nigeria. Therefore, refurbished high-end models may dazzle local consumers, but low-cost devices can be expected to represent an obstacle for brands such as Samsung or Apple, as these smartphone makers are likely to sell their refurbished devices for half the original price which is still above the consumer-accepted purchase price in these two markets.

EOS Perspective

In case of India, the recent rejection of Apple’s plan to import and sell refurbished smartphones is an indicator that similar issues might be faced by other large players willing to do the same in the future. However, as one of the world’s largest smartphone markets, India is likely to continue building a strong sense of brand loyalty among consumers, especially towards Samsung’s and Apple’s brands in general (smartphones and beyond), and consumers will demand access to these brands (Samsung and Apple already held a 44% and a 27.3% market shares, respectively, in 2016).

The risk of India’s market being flooded with refurbished smartphones sold in a parallel market or online commercial platforms without proper regulation by authorities could result in lost control over excessive e-waste in the country, without necessarily driving local production of competitive products. Consequently, India’s government might have to consider the possibility of allowing large manufacturers to import factory-certified second-hand smartphones into the country, perhaps under the condition of refurbishing the devices in India.

In Nigeria and South Africa, the consumer price sensitivity and limited brand loyalty seem to be the most pressing issues for large players such as Apple or Samsung intending to sell their refurbished phones. In both markets, the rivalry is rather fierce, mainly due to a relatively strong presence of smaller regional manufacturers and large Chinese companies (e.g. Xiaomi) that offer affordable smart devices. While consumers in these markets are willing to spend up to US$100-150 for a device, in most cases they lack brand loyalty.

Apple or Samsung are likely to be negatively affected by this when launching their refurbished high-end handsets at half of the device’s original retail price, which in most likelihood would still be above the price consumers in these markets can and are willing to spend. As a result, large players may have to set their eyes on a long-term horizon, and slowly build the brand loyalty sense in local consumers and temporarily relinquish on large profits in order to enter these markets and settle among their potential customers.

by EOS Intelligence EOS Intelligence No Comments

Thailand – Is Just 100% Universal Healthcare Access Good Enough?

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Thailand has a well-developed healthcare system, as compared with most of the Asian countries. Majority of the health-related Millennium Development Goals (MDG) have been achieved, though a rapidly ageing population and the burden of non-communicable diseases remains a challenge for the public healthcare system. A better disease prevention mechanism, health promotion, and adequate primary care are some of the priorities of the Thai government in the healthcare sector.

This article is part of a series focusing on universal healthcare plans across selected Southeast Asian countries. The series also includes a look into the plans in The Philippines, Cambodia, Vietnam, Indonesia, and Thailand.

Thailand achieved Universal Healthcare Access (UHA) status in 2002 with the launch of health insurance benefits for 30% of the population that was outside the health insurance ambit till then.

Thailand boasts of world class medical facilities (especially in the private healthcare sector), and is among the world’s largest medical tourism markets. The government is looking to further develop Thailand into an “International Health Center for Excellence” under its second strategic five-year plan (2012-2016).

The plan focuses on four major areas: medical services, integrative wellness centers, development of Thai herbs, and traditional and alternative Thai medicines.

With almost 100% population already covered by UHA, and a reasonably developed healthcare infrastructure in place, the government’s focus is likely to be on improving the quality of healthcare services. This will create opportunities for the companies operating in the healthcare industry.

 

INFRASTRUCTURE
Key Stakeholders

  • The Ministry of Public Health (MoPH) is responsible for public healthcare services and for governing and regulating the healthcare industry, including healthcare-related NGOs, medical professionals, hospitals, and clinics. In a series of Decentralization Action Plan (1999, 2008, and 2012), responsibility for some of health facilities was delegated to local authorities at provincials (municipal and general hospitals) and sub-district level (health centres); However, the Thai healthcare system still remains highly centralized (and more dependent on public healthcare services).
Healthcare Service Delivery

  • Public healthcare service delivery system includes:

    • Primary Care: Community health posts and primary healthcare centres (village level) and health centres (sub-district level)
    • Secondary Care: Municipal health centres and community hospitals
    • Tertiary Care: Provincial and regional hospitals, and medical schools

  • At provincial and regional level, some of the hospitals are under the administration of other government bodies, such as the Army, Police, and Ministry of Education (MoE). All community hospitals and health centres in rural areas are operated by the MoPH. The healthcare infrastructure consist of the following:

    • Community Care Centers: ~50,000
    • Health Centers: ~10,000
    • Community Hospitals and Municipal Health Centers: ~ 1,000
    • Provincial Level Hospitals: ~ 200
    • Regional Level Hospitals: ~ 80
KEY CHALLENGES
Unequal Distribution of Services

  • Despite a well-developed healthcare infrastructure and almost 100% population coverage, inequalities still exist in terms of accessibility and quality of care

  • There is a variance in the geographical distribution of health workers and other resources; urban centres such as Bangkok have access to better quality healthcare as compared with the rural populace, which faces a shortage of clinical resources

Duplication of Efforts

  • Thailand’s healthcare sector consists of several stakeholders, including ministries, government agencies, and the local governments involved in management and financing of healthcare facilities. This has resulted in duplication of administrative systems (including payment, reporting, and monitoring), eventually leading to inefficiencies

 

DESIGN
Beneficiary Classification

  • In Thailand, the UHA covers the population not covered by

    • Civil Servant Medical Benefit Scheme (CSMBS) for government employees, pensioners, and their dependents
    • Compulsory Social Security Scheme (CSSS) for private employees or temporary public employees
    • Private Health Insurance (for individuals and private firms)
    • Once registered, people joining the UHA scheme receive a gold card to access services in their health district, and, if necessary, be referred for specialist treatment elsewhere
Healthcare Insurance Financing

  • Source of finances for different social health schemes is as follows:

    • UHA – general tax revenue
    • CSMBS – general tax
    • CSSS – premium (as a % of salary)
Payment System

  • The payment system varies according to the insurance scheme

    • UHA – The payment system is capitation-based for most of the services; and rest of the services, such as dental care are on fee-for-service basis; funding allocated to the contracting facilities for Primary Care are on a population basis
    • CSMBS – Outpatient services are on fee-for-service basis; inpatient services are on Diagnosis-related group (DRG) system (to classify hospital cases into groups to determine cost)
    • CSSS – the payment system is capitation-based for most of the services; and rest of the services, such as dental care are on fee-for-service basis
Benefits

  • The coverage is comprehensive in case of UHA and CSMBS and includes both inpatient and outpatient treatment. However, there are few conditions, such as:

    • UHA – Treatment available in contracted hospitals only; facilities, such as private bed and special nurses are not available
    • CSMBS – Private hospitals available in case of emergency care only; special nursing services not available
    • CSSS – Coverage is coverage is comprehensive except that it doesn’t include annual physical check-ups, and work-related illness and injuries
Co-payment (Reimbursement) System

  • At present no co-payment regime is applicable for UHA, however, 30-Baht co-payment (per service) is applicable to patients who receive prescriptions and are willing to pay. For the population covered by CSMBS and CSSS, co-payment system is applicable in case of emergency care.
Reimbursement System for Drugs

  • For UHA, CSMBS, and CSSS the drug benefit package is based on the National List of Essential Drugs (NELD), and the drugs can be reimbursed without any co-payment. Drugs used under CSMBS’ out-patient fee-for-service system, and not listed in NELD, are reimbursed.
KEY CHALLENGES
Absence of Unified Scheme

  • Theoretically, UHA is for the entire Thai population; however, two other health financing schemes for the government and formal sector private employees operate in parallel wherein the benefits differ from one another. E.g. variance in expenditure per patient, access to healthcare facilities, co-payment regime, and access to special care. It is a challenge for the government to achieve equality in the quality and range of services, which arise due to social health insurance specific policies

Funding Constraints

  • Due to changing disease profile (e.g. prevalence of chronic diseases and an aging population), Thailand is witnessing increasing cost of healthcare thereby putting burden on UHA, which is entirely funded through taxation. The government needs to look at the cost saving options e.g. payment system for healthcare facilities and procurement of drugs and equipment, to ensure the long term viability of UHA

 

Opportunities for Healthcare Companies

Healthcare Service Providers

  • Thailand has a better (as compared with most of the countries in Asia) developed healthcare system with a majority of the healthcare services being delivered by the public network. At present, it appears limited scope for the private providers, as they also are mostly concentrated in the urban centres while there is a greater need (at least at primary and secondary level) in non-urban areas

  • However, private providers can look for collaboration opportunities in areas/aspect that add value to pre-existing service set-up. For example in the field of mobile healthcare, telemedicine etc.

Medical Device Manufacturers

  • There is significant growth potential for the medical device companies, as the country’s universal healthcare system continues to support healthcare initiatives. Demand for medical devices is further anchored by the government’s efforts to develop the country into an Asian medical hub

  • Public hospitals continue to be the main user of medical equipment. Opening of new health facilities would also create demand for equipment and devices

Pharmaceuticals Companies

  • The government encourages the use of drugs listed in the National List of Essential Medicines, all of which are fully reimbursed by the three major public health insurance schemes

  • However, the government may review health expenditure pattern and reimbursement policies amid changing demographic profile (i.e. more senior citizens) leading to increased focus on cost-effective healthcare services. This may create better opportunities for generics and low-cost drugs

A Final Word

Thailand’s UHA scheme has largely been a success, and a model for other countries to follow. The scheme provides coverage to a large informal sector, which is a challenging task in itself. The benefit package, which includes curative as well as preventive services, is comprehensive.

The country has demonstrated efficiency in UHA implementation with satisfactory outcomes in terms of meeting healthcare needs of the society, and in attempts towards offering equitable health. A relatively better developed healthcare network and relevant administrative experience helped in achieving the desired results.

Leaving behind the past successes, UHA would be required to gear-up for the challenges ahead. For instance, the country needs to plan for changing disease profile i.e. an increased burden from Non-communicable Diseases (NCDs). This may have cost implications for UHA (and opportunities for the healthcare industry participants) in terms of accommodating suitable interventions and planning for adequate preventive measures at primary, secondary, and tertiary care level. It is expected that the country will witness more activity with respect to qualitative improvement in healthcare services, as compared with geographical expansion of services.

A comparative with other countries in the region should provide a better perspective on the actual potential of Thailand as a prospective destination for devices and drugs companies alike.

by EOS Intelligence EOS Intelligence No Comments

Indonesia – Public and Private Participation in Universal Healthcare

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Under its National Health Strategic Plan (NHSP), Indonesia is continuously focusing on improving the quality and accessibility of its public healthcare system. NHSP (2010-2014) aims to enhance health status through involvement of private sector and civil society. It also focuses on the prevention and cure of health problems faced by the community through availability of comprehensive and equitable health services and health resources, supported by good governance.

This article is part of a series focusing on universal healthcare plans across selected Southeast Asian countries. The series also includes a look into the plans in The Philippines, Cambodia, Vietnam, Indonesia, and Thailand.

The Indonesian government is planning to cover every Indonesian under Universal Health Insurance (UHI) by 2019 under a new scheme called Jaminan Kesehatan Nasional (JKN). As of January 2014, about 120 million Indonesians (government servants, police and army personnel, and poor) were automatically included under this scheme. The government has already allocated about 20 trillion rupiah (US$1.6 billion) to cover health insurance premiums for the poor in 2014.

Indonesia UHC

One of the features of the Indonesian UHI is the participation of the private sector wherein a number of hospitals and clinics have signed-up under the JKN.

When implemented fully, UHI is expected to create significant demand for companies operating in the industry, as the scope of the services is bound to increase. However, uncertainties exist regarding the smooth transition of the social health insurance mechanism from the current (prior to 2014) multiple-scheme-based system to a single system. The foundation design and the support infrastructure would determine the long term success of UHI.

 

INFRASTRUCTURE
Key Stakeholders

  • Indonesia has a decentralized administrative system since early 2000s wherein each of the 33 provinces is divided into districts and each district is further divided into sub-districts. District Governments are the direct authority in prioritizing the sectors (including health) for development
Healthcare Service Delivery

  • Public healthcare service delivery is based on a hierarchical referral system, which includes primary health clinics (PHC), district and provincial hospitals (secondary care) and specialty hospitals (tertiary care). Secondary health care is further classified as (Kabupaten (rural) and Kotamadya (urban)

  • Depending on the range and quality of healthcare services, hospitals are classified in to four categories

    • Level D – District-level hospital headed by a General Practitioner (GP) and provides some basic inpatient care. These are just one step above the primary health center
    • Level C – District-level hospital, which provides four basic specialties (surgery, internal medicine, pediatrics, and OBGYN services) and three supporting specialties (anesthesia, radiology, and pathology)
    • Level B – Provincial level hospital providing more specialist services as compared with level C hospitals. Specialist medical clinics, including pulmonary clinics and eye clinics, and medical supporting care are also included
    • Level A – These are described as ‘Centers of Excellence’ with sophisticated equipment with state-of-the-art facilities. This level includes specialist hospitals, such as Maternal and Child Hospital, Cancer Hospital, Coronary Hospital
KEY CHALLENGES
Capacity Constraints

  • Indonesia faces capacity constraint in terms of the number of hospitals as well as resources (qualified doctors, nurses and other staff). Public healthcare system is characterized with high occupancy rate at hospitals, and the situation is likely to worsen as more people come under the coverage of the government-sponsored health insurance scheme

  • Though a three-tier referral system exists, there is a lack of integration resulting in the by-passing of the lower-tier facilities and overcrowding at the secondary and tertiary level

Uneven Concentration of Healthcare Personnel

  • Indonesia has 25 health workers per 10,000 people (against WHOs minimum benchmark of 23); however, most of them are concentrated in urban centers, leaving rest of the country (especially the rural area) without sufficient number of health personnel

  • Healthcare professionals need to be compensated adequately to create a pool of resources large enough to meet the demand of a healthcare system catering to about 250 million people

 

DESIGN
Beneficiary Classification

Prior to the implementation of UHI in January 2014, certain sections of the population were already covered under different schemes, such as:

  • Askes (for civil servants and pensioners)
  • Jamkesmas (poor and near poor)
  • Jamsostek (private formal sector workers)
  • Jamkesda (district-level schemes for near-poor)
Healthcare Insurance Financing

  • Expenditure on public healthcare services under UHI is provided through taxation revenues and member contribution

  • Formal sector employees (both public and private) will pay 5% of the salary as premium wherein the employer will makes 4% contribution. Informal workers, the self-employed and investors, will pay monthly premiums of between Rp 25,500 (US$2.15) and Rp 59,500 (US$5.1) each

  • The government would be paying for the premiums of the rest of the groups (mentioned in ‘Beneficiary Classification’)
Payment System

  • For primary health care, the payment system is to be based on monthly capitation (based on registered users), and the Diagnosis-related group (DRG) system (to classify hospital cases into groups to determine cost) would be applicable for hospitals

  • Amount under DRG system will be fixed on the basis of negotiations with the hospital associations in various regions
Benefits

  • The UHI covers comprehensive benefits, including the treatment of commonly occurring illness, such as influenza as well as expensive medical treatment, such as heart surgery, dialysis, and cancer therapies
Co-payment (Reimbursement) System

  • At present no co-payment regime has been planned at the point of care. Healthcare services are to be fully reimbursed to the healthcare facilities on behalf of the patients
Reimbursement System for Drugs

  • Drugs specified under the formulary list are covered under the social sector health insurance plan. As mentioned above, the drugs used for the treatment are covered by the zero-co-payment system
KEY CHALLENGES
Concern about Quality

  • There are apprehensions that the quality of health services may suffer under the current provisions of the universal healthcare schemes

    • According to the Indonesian Medical Association, the government is paying substantially low amount for the poor, which may not be able to cover expensive treatment, such as cancer therapies. Hospital may struggle to cover costs due to lower reimbursement rates, which may discourage private hospitals from participating in the UHI. This would lead to overburdened state-run hospitals (and hence erosion of quality)

Ensuring Comprehensive Coverage

  • A large population comprising informal sector is yet to be covered under UHI. It would be a challenge for the government to motivate this section of population to be a part of the scheme. Contribution from the informal sector in the form of premium is crucial, as the Indonesian UHI would primarily draw its finances its expenses through it (along with the contribution from the formal sector employees)

Addressing the Grey Areas

  • There is lack of clarity about the role of private insurance after the implementation of UHI, as several private employers who have obtained private insurance for their employees may end-up paying double premium

Opportunities for Healthcare Companies

Healthcare Service Providers

  • The current set-up does not provide enough incentives for the private sector healthcare providers; however, the UHI policy envisages a space for private players. Also, the government has indicated about increasing the premium paid for the poor gradually, therefore private clinics and hospitals have significant opportunities to increase their business as well as to fill the resource gap in the Indonesian healthcare system

Medical Device Manufacturers

  • Irrespective of the implementation of the UHI, there was significant growth potential for the medical device companies due to years of under investment in the hospital equipment and devices such as MRI, Tomography scanners, mammography etc. A wider UHI coverage would require purchase of such equipment, to cater to the increasing demand

  • It is expected that new health facilities would come up in the regions where the newly insured population resides i.e. outside Java and other large cities. This would boost the demand for equipment and devices

Pharmaceuticals Companies

  • UHI is expected to create additional demand for medicines, as the population that was previously unable to purchase medicines comes under the coverage. Demand for generic medicines is expected to increase, as the government focuses on procuring low-cost medicines to keep the cost of UHI down

A Final Word

Considerable ground needs to be covered before Indonesia realizes the goal of 100% healthcare access coverage. The current state of the healthcare infrastructure as well as the healthcare benefits that have been designed (for the population under coverage as of January 2014) pose challenge in creating a working (and efficient) UHI system.

Success of UHI primarily hinges on the inclusion of informal sector population. Introducing an informal sector-specific mechanism for the premium contribution, attractive enough to ensure participation, would be the key in this direction. More clarity about the role of private insurance will help towards creating a system capable enough to cater to 250 million plus population.

Size of the Indonesian healthcare market already presents ample opportunities for pharmaceutical as well medical device manufacturers. 100% coverage under UHI will further boost the prospects of these firms. The expected expansion of healthcare infrastructure beyond the developed regions (cities) is likely to create demand for equipment as well as medicines.

Existing capacity constraints in the public healthcare system may augur well for the private health care service providers. As of now, given the geographical challenges and regional disparity in healthcare services, the goal of 100% coverage under UHI looks a distant dream without the participation of private sector. Therefore a workable payment system needs to be devised to ensure greater participation of the private sector players.

by EOS Intelligence EOS Intelligence No Comments

Is Non-Oil Sector the New Champion of the Nigerian Economy?

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The 1970s’ oil discovery transformed Nigeria from a largely agro-economy to a more oil-dominated one. Over the last several decades, oil played a significant role in Nigeria’s positive growth story, and its emergence as one of the key economic hubs in Africa. Interestingly, however, the last few years have seen a revival of non-oil sectors, such as agriculture, once the key economic driver of the country. What does this ‘change’ mean for Nigeria and how does oil fit into the bigger picture?

Post Nigeria’s independence in 1960, the country’s economy was primarily agrarian, with mainstay products such as cocoa, rubber, palm oil and kernels, groundnut, and cotton; the agriculture sector accounted for 60% and 75% of the country’s GDP and total employment, respectively. During the 1970s, the Nigerian government undertook various measures to exploit the naturally available oil reserves, such as extending oil exploration rights to foreign companies in Niger Delta’s offshore and onshore areas, to tune the economy to one which is oil-centered (petroleum revenue share of the total federal revenue increased from 26% in 1970 to 70% in 1977). The oil-centered Nigerian economy reached its peak in 2008 when oil accounted for about 83% of the country’s total revenue. In recent years, the oil sector has been experiencing a decline with its share in total revenue falling to 75% in 2012, largely due to a stagnant crude-oil production at 2 million barrels per day (mbpd) (2.3 mbpd in 2012 and 2.2 mbpd in 2013). A steep fall has also been observed in crude-oil exports to the USA (Nigeria’s main oil export market), which contracted by 11 percentage points in a single year, falling from 16% of Nigeria’s total oil exports in 2012 to 5% in 2013.

Upon closer introspection of the reasons for the declining dominance of oil in Nigeria, various factors come to surface. One of the main reasons is the delay in the approval of the Petroleum Industry Bill (PIB), which aims to ensure the management of petroleum resources according to the principles of good governance, transparency, and sustainable development; this delay has been stalling further investments in the oil sector. Perpetual oil thefts, pipeline vandalism, weak investment in upstream activities, and insignificant discoveries of new oil reservoirs have also hampered the growth of this sector. As a result, oil giants have been selling off their stakes in various onshore as well as offshore blocks. For instance, Shell sold 45% of their interest in OML 40 onshore block to Elcrest Nigeria Limited (an independent oil and gas company) and Petrobras (a Brazilian multinational energy corporation) is planning to auction its 8% and 20% stakes in Agbami oil block and offshore Akpo project, respectively.

So, where does this leave the Nigerian economy?

Apart from the unsatisfactory performance of the oil sector, Nigeria’s economic environment faces risks from security challenges prevailing in the northeastern part of the country, conflicts related to resource control in the Niger Delta region, and high levels of corruption (case in point being the suspension of Nigeria’s central bank’s governor over misconduct and irregularities).

Nigeria Government Policies

In the midst of all these challenges, the non-oil sector (described as a sector which is not directly or indirectly linked to oil and gas, and include sectors such as agriculture, telecommunication, tourism, healthcare, and financial services) is emerging as the new champion of the Nigerian economy.

This is mainly due to various policies adopted by the government in the light of the looming oil sector, along with the complementary effect of factors such as increase in private consumption and FDI.

 

FDI in NigeriaIn addition to government policies, FDI has played a key role in nurturing the non-oil sector. Nigeria has experienced a compounded annual growth of 20% in the number of Greenfield FDI projects from 2007 to 2013; 50% (total number of projects being 306) of these projects were service-oriented. The telecom sector particularly witnessed strong growth by attracting 24% of all FDI projects, while coal, oil, and natural gas received only 8% of foreign direct investment during 2007-2013.

Private consumption (forecast to reach US$231.2 billion in 2014) has also fuelled the growth of the Nigerian non-oil sector. The largest consumer market in Africa, Nigeria’s consumer spending (an indicator of private consumption) has increased from US$94.3 billion in 2007 to US$309.9 billion in 2013.

The cumulative effect of all these factors has proven exceptionally positive for the non-oil sector. This is evident from the increase in percentage share of the sector in the Nigerian GDP. Agriculture remains the largest contributor, among both oil and non-oil sectors, with a share of 22% in GDP, in 2013. Other non-oil sectors such as manufacturing (GDP share increased from 4% in 2010 to 6.8% in 2013), construction (GDP share increased from 1% in 2010 to 3.1% in 2013), wholesale and retail trade (GDP share increased from 13% in 2010 to 17% in 2013), transport and communication (GDP share increased from 3% in 2010 to 12.2% in 2013) have also strengthened their position in Nigeria’s growth story.

Moreover, non-oil sector’s contribution to government revenue has improved from US$154.3 million in 2000 to US$3,018.2 million in 2011, which is a significant increase. A growth has also been observed in non-oil exports, which have increased from 1.28% in 2000 to 3.59% in 2010, in terms of percentage contribution towards total exports.

The Nigerian non-oil sector has also been attracting a number of investments in recent years, for instance:

  • July 2014: Procter & Gamble, a multinational consumer goods company, announced the construction of a new manufacturing plant worth US$250 million, in Nigeria’s Ogun state. The manufacturing plant is expected to employ 750 Nigerians and offer opportunities to 300 SMEs

  • February 2013: Indorama, a global chemical producer, launched a Greenfield urea fertilizer project worth US$1.2 billion, in Nigeria’s Port Harcourt. The project claims to support Nigerian and West African requirements for affordable fertilizers

 

Apart from giving credit to an increase in private consumption, investments in the non-oil sector must also be attributed to the measures undertaken by the Nigerian government. To showcase the attractiveness of the Nigerian economy, the government undertook a GDP rebasing exercise (GDP calculations are now performed on 2010 year’s figures instead of 1990’s). The exercise led to a better coverage of the informal sector, addition of new industries, and increase in the contribution factor of sectors such as service, manufacturing, and construction.

According to the National Bureau of Statistics, Nigeria’s GDP is valued at US$498.9 billion as compared with US$263.7 billion, prior to rebasing, in 2013. In spite of several criticisms around the authenticity of figures, rebasing of the GDP gave a strong competitive edge to Nigeria, among other emerging and developing economies, by showcasing a high GDP to allure investments. Additionally, implementation of the government’s Industrial Revolution Plan is expected to continue driving the country’s manufacturing sector. Since regular and ample power supply is a critical issue in Nigeria, the plan has implemented reforms in the power sector which aims to facilitate a continuous power supply, thereby, supporting the manufacturing sector by reducing power generation related costs and encouraging further investments.

 

Final Words

While the oil sector did well to provide Nigeria with a strong foundation and help build basic infrastructure to support a long-term growth potential, the rekindling of the non-oil sector is likely to strengthen Nigeria’s growth story and help it attract much needed foreign investments to create a balanced economy.

The approval of the PIB, post 2015 elections, might improve the oil sector performance, which should go hand-in-hand with non-oil sector development, making Nigeria an attractive market for global investors. It will be important that the Nigerian government undertake continuous reforms in both sectors to ensure the emergence of a strong economy, able to compete with the more established emerging markets of the world.

by EOS Intelligence EOS Intelligence No Comments

Vietnam’s Social Health Insurance – Strong Foundation, Lacking in Support Infrastructure

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Vietnam is a lower-middle income country (GNI per capita US$1,550 as of 2012) with a population of about 89 million (14th most populous country as of 2012). Entitlement of healthcare to every citizen is imbibed in Vietnam’s constitution, and the country has taken steps to achieve it. National Strategy on Protection and Care of the People’s Health (2001) increased the state’s role in ensuring basic healthcare services to all Vietnamese. The Law on Health Insurance (2008) was formulated with the objective of achieving universal health insurance coverage.

This article is part of a series focusing on universal healthcare plans across selected Southeast Asian countries. The series also includes a look into the plans in The Philippines, Cambodia, Vietnam, Indonesia, and Thailand.

As of 2011, more than 60% population were covered under the Social Health Insurance (SHI) scheme. The government is aiming to cover rest of the population (primarily the people from the informal sector) by 2014.

If achieved, Vietnam would be among few Asian countries with 100% Universal Health Care (UHC) coverage for its citizen. For a private sector player (pharmaceutical company, medical device manufacturer, or a healthcare service provider), this should materialize in to increased sales, as the number of customers (which otherwise are faced with financial constraints to avail healthcare services/products) grow.

Vietnam UHC

However, from a long term perspective, sales prospect are likely to depend on the government’s ability to maintain service levels, to tackle emerging healthcare challenges within UHC mandate, and to ensure availability of finances for SHI. The current design and the support infrastructure would determine the long term success of SHI (and hence the prospects of the companies from healthcare industry).

 

INFRASTRUCTURE
Key Stakeholders

  • The Ministry of Health (MOH) is responsible for developing programs and policies, budgeting, personnel allocation, direction and supervision of national institutions

  • The Provincial Health Bureau administers the provincial healthcare care system. Each province consists of District Health Bureau responsible for district level administration of the healthcare services

  • The Commune Health Station (CHS) in each district provide healthcare services at Commune Level. District People’s Committee is responsible for the funding of the healthcare services in each district
Healthcare Service Delivery

  • CHS providing primary healthcare services is the entry point in the public healthcare system in Vietnam

  • District hospitals offer basic inpatient treatment, emergency services, and pre-natal and delivery services. Provincial hospitals (including specialty clinics) provide outpatient and inpatient services

  • National hospitals are the most advanced with specialties such as oncology, endocrinology etc.

  • Current hospital infrastructure:

    • HC: ~11,000
    • District Hospitals: ~1,300
    • Provincial Hospitals: ~ 500
    • National Hospitals: ~ 45
    • Private Hospitals: ~ 1,00
KEY CHALLENGES
Regulatory Framework for Private Healthcare

  • Private healthcare infrastructure has flourished in Vietnam as the government intended to reduce burden from the public healthcare system. However, due to lack of regulations, the private system has failed to complement the public one as expected

Burdened Public Healthcare

  • People mostly rely on private system for outpatient care, though they may prefer to visit the public system for inpatient services. Therefore, healthcare at primary level has not developed as expected, putting more pressure on secondary and tertiary healthcare infrastructure

Uneven Concentration of Healthcare Personnel

  • Distribution of human resources is not even, as most of the doctors and support staff is concentrated in the urban centers. Due to it, rural population may not be able to avail the benefits of social health protection, despite being under coverage

 

DESIGN
Beneficiary Classification

SHI members are classified in to the following six groups:

  • Civil servants and formal sector workers
  • Pensioners, meritorious people, beneficiaries of social security/protection allowances, and veterans
  • The poor and near-poor
  • Children under six years of age
  • School children and students
  • All remaining population
Healthcare Insurance Financing

  • SHI is funded through government budget, employer and employee contribution, and Vietnam Social Security (VSS). The ‘Healthcare Fund’ for SHI is managed by the VSS.

  • SHI premium is fixed at 4.5% of the salary/pension/protection allowance/unemployment benefit wherever applicable. The government pays for the premium of poor, children under six years, and meritorious people. For unemployed and pensioners, VSS pays the premium. Group 5 (from above) is eligible for 30% subsidy in the premium, fully paid by the government
Payment System

  • SHI member are enrolled either at CHS or district hospitals. Capitation system covers all the costs incurred by CHS and district hospitals for providing healthcare services to SHI members.

    • There is a provision for the refund of capitation payment in case the funds are not fully utilized by CHS/District Hospital in a particular year.

    • In case of deficit of funds (i.e. more SHI members than planned avail services in a particular year), the provincial social security office reimburses CHS/District Hospitals

  • Secondary and tertiary hospitals are covered by fee-for-service payment system.
Benefits

  • Inpatient Service – Birth Delivery, Emergency Services, Other inpatient Services (nursing, tests, catering, pharmaceutical)

  • Outpatient – Public health services, primary care services, specialist services, pharmaceuticals, tests, and scans

  • Other Services – Dental care, mental care, dialysis, and transplants
Co-payment (Reimbursement) System

  • For Inpatient Services – Pensioners, poor, and members receiving social protection allowance (5%), others (20%)

  • For Outpatient Services – No co-payment for services at CHS; for others, same as applicable for inpatient services

  • Other Services – Same as applicable for inpatient services
Reimbursement System for Drugs

  • Drugs specified under the reimbursement list (consisting of more than 800 pharmaceutical products as of now) qualify for co-payment system (mentioned above).

  • SHI members can avail co-payment benefit only if the required drug is available at the CH/Hospital they are registered at. There is no reimbursement if the drug is purchased from a private drug store
KEY CHALLENGES
Enrollment of People still Outside the SHI Coverage

  • While there is clarity in the Vietnamese social health insurance beneficiary classification system, a large population still remains outside its ambit. The government needs to introduce a better mechanism to ensure enrollment of the section of the population (e.g. informal sector) who have less incentives to join the scheme (at present), as compared with other groups

Corruption

  • Due to rampant corruption in the public hospitals, the patients have to pay extra despite a well defined payment mechanism, or else the services are alleged to be unavailable despite being under social health insurance coverage.

Adequate Funding Mechanism to Ensure Long-term Viability of SHI

  • As the population under coverage increases, the government may need a better taxation policy to fund the services or else the Health Fund is expected to fall short to meet expenses. In 2013, VSS proposed the government to increase health insurance premiums from 4% to 6%, which the government declined in view of the weak economic condition.

Opportunities for Healthcare Companies

Healthcare Service Providers

  • Contractual healthcare services are not a popular trend in Vietnam; however, subjected to a robust regulatory framework with respect to its linkage with the social healthcare insurance system, private players have considerable opportunities to complement the overburdened public healthcare system in the country

Medical Device Manufacturers

  • There is a critical shortage of medical devices, such as MRI, Tomography scanners, mammography, etc. in public hospitals. With the SHI, public hospitals would need to purchase such equipment, to cater to the increasing demand, this providing a platform for medical device manufacturers in the country

  • There is a provision for private investment in public hospitals for the purchase of medical equipment. Greater opportunity lies in provincial hospitals, which lack medical equipment despite witnessing a large number of patient visits every year

Pharmaceuticals Companies

  • Vietnam is among few countries, which cover outpatient cases under the social health insurance system

  • Pharmaceutical companies have significant potential to increase sales as a result of wider coverage (once SHI is implemented), and by focusing marketing and sales efforts on the inclusion of their drugs in the reimbursement list

A Final Word

One of the key priorities for the Vietnamese government is to meet the target of 100% population coverage. For a populous country, such as Vietnam, the public healthcare system is hamstrung by the lack of infrastructure (a crucial factor in determining the success of UHC in the long term), which is aggravated by the concentration of healthcare in specific regions (e.g. urban centers). Design of Vietnamese UHC appears to be robust in terms of clarity in beneficiary classification and wider coverage of healthcare services (e.g. outpatient services). However, to ensure success, the government would be required to bring the informal sector population within the UHC ambit.

For healthcare industry participants, there are opportunities for pharmaceutical as well medical device manufacturers, with the expected expansion of public healthcare services in Vietnam. There may be a case for healthcare service providers as well in case the government decides to experiment with contractual healthcare services (to compensate for the lack of public healthcare infrastructure).

A comparative with other countries in the region should provide a better perspective on the actual potential of Vietnam as a prospective destination for devices and drugs companies alike.

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