BMI View: While the losses incurred by Yiaco, the largest drug distributor in Kuwait, highlight a deteriorated near-term operating environment, with markedly lower price s as a result of the ongoing Gulf Cooperation Council (GCC) medicine price unification process, drugmakers will continue to perceive high long-run returns. Exhibiting a high and very costly burden of diabetes and cardiovascular conditions, Kuwait's aging population will continue to receive rising access to quality health services as compulsory health insurance schemes are rolled out to a growing segment of the population.
Headline Expenditure Projections
Pharmaceuticals: From KWD287mn (USD1.01bn) in 2014 to KWD300mn (USD1.01bn) in 2015; +4.7% in local currency terms and +0.6% in US dollar terms. Forecast revised downwards from Q215 .
Healthcare: From KWD1.56bn (USD5.49bn) in 2014 to KWD1.67bn (USD5.64bn) in 2015; +6.9% in local currency terms and +2.7% in US dollar terms. Forecast revised downwards from Q215.
In our Q315 Pharmaceutical Risk/Reward Index Kuwait scores 58.1 out of 100. Falling from a Q215 score of 58.5, the country retains its position as the third most attractive market in the region behind Saudi Arabia and the UAE. The burden of diabetes will continue to expand in the region as the population ages and adopts increasingly sedentary lifestyles. Increasing insurance coverage and rising income levels will lead to greater spending on diabetes, and commercial opportunities will be sought by multinational pharmaceutical companies, health insurers and providers.
Key Trends & Developments
In May 2015, YIACO Medical, the largest drug distributor in Kuwait, reported a decline in revenue in 2014 to KWD107.2mn (USD354.8mn), compared with KWD115.2mn (USD381.6mn) in 2013. Vice Chairman of the Board of Directors, Dr Ershaid Abdulhadi Al Houri, stated that the decline in revenue seen in 2014 was a result of lower medicine prices in Kuwait due to the ongoing GCC medicine price unification process.
In April 2015 Kuwaiti authorities introduced regulations on the issuance of new foreign worker visas in an effort rebalance the number of locals and foreigners in the country. Under the new cabinet ruling, the country's expatriate population would be maintained, with foreigners only granted visas to replace those leaving the country. In 2015, expatriates accounted for around two-thirds of the country's population of 3.3mn. Several schemes for reducing the expatriate population have previously been announced, including an unsuccessful proposal to cut 100,000 foreign workers each year until 2023.
In April 2015 the Kuwaiti government announced a hike in medical fees for expatriates in the country for public hospitals and health facilities. Citing Health Ministry under-secretary, Khalid Al Sahalawi, the Kuwaiti Times reported that high numbers of expats were linked to severe bottlenecks in the public health system, which in turn caused long backlogs for x-ray and laboratory services. Meanwhile, a newly proposed company was scheduled to build three hospitals and 15 health centres to treat expatriates covered by government health insurance programme in a bid to discourage them from using public hospitals.
BMI Economic View
Inflation in Kuwait will head slightly higher over the coming quarters, pushed up by rising housing costs. Price rises will be capped as we expect the discount rate to rise from 2.00% currently to 2.50% by year end In line with the US Fed's move. Kuwait will continue posting sizeable fiscal surpluses even in the context of much lower oil prices, ensuring that the country does not need to tap its foreign reserves. Current spending will be reduced slightly, with expats likely to be targeted, while we expect capex spending to pick up on the back of the 2015-2020 Development Plan. We forecast Kuwait's fiscal surpluses to be around 6% of GDP over the coming five years.
BMI Political View
Kuwait's foreign policy concerns will ease over the coming quarters, primarily on the back of our expectation that Iran will reach a deal with the West over its nuclear programme. In addition, Iraq's security concerns will lessen slightly over the coming quarters as we expect Islamic State to be defeated, which bodes positively for Kuwait's stability. Yemen stands in contrast to this trend and we expect Kuwait to become drawn into the regional coalition's opposition to the Houthis.