Commonwealth Health

Development of a strategic sector
Rajiv Biswas

Rajiv Biswas, specialist writer on business and economic issues reviews the growth of the health-related goods and services industries in the Commonwealth.

The health care sector is one of the most rapidly growing industries in the world. Total global sector output is now estimated to exceed US$3 trillion, and is projected to exceed $4 trillion by 2005. For many Commonwealth countries, the health care industry can provide important opportunities for creating high value-adding, knowledge intensive industry clusters that can serve as catalysts for economic development.

Globalisation has increased cross-border trade in health-related goods and services, including medical equipment, pharmaceuticals, hospital care and R&D.
While the UK has a long tradition of being a leading source of health-related exports, Australia, Singapore and India are among the countries that have achieved rapid growth in exports of health-related goods and services during the last decade. Advances in technology are also creating substantial opportunities in new health-related services such as telemedicine and biotechnology.
Privatisation, corporatisation and public-private partnerships in health care have contributed to increased exports of health care services such as health planning, hospital construction and management, hospital care and health education from countries such as the UK and Australia. This not only contributes to domestic economic development, but also can unlock valuable technical expertise for the development of health sectors in many developing countries.

Growth sector
There are a broad cluster of industry segments related to health, including health services, medical equipment, pharmaceuticals, and health-related R&D.
Increased real spending on health care is expected to occur in the OECD countries over the next three decades. An important factor driving growth in demand for health care is the ageing population in many European nations as well as in Japan, with health care costs for those over 65 significantly higher than for those of working age. The social welfare systems in place in most OECD countries imply that there will be substantial increases in national public sector health care spending as a result of their ageing populations.

While around 90 per cent of health care spending is currently by developed countries, the share of health-related GDP in developing countries is also rising as per capita incomes increase. Some developing countries, including in East Asia, also face ageing population pressures on their health care systems. These factors will therefore generate continued rapid growth in demand for world health care.

For many countries, there are substantial potential opportunities to benefit from the strong growth in demand for health-related products and services. Countries such as Singapore and India have developed global competitive advantage in various segments of the global health care industry. This can play an important role in contributing to national economic development, by creating a new high growth industry that is also a high value-adding sector. The establishment of growth clusters in the health care industry can also create positive synergies that can create global competitive advantage in industry segments by establishing a critical mass of skilled professionals, specialist companies and R&D facilities.

Trade & Investment Issues
Globalisation has led to rapid growth in cross-border trade and investment flows related to health manufactures, services and investment. Global trade in health products, such as pharmaceuticals and medical products, have been assisted by global liberalisation of tariff barriers to manufactures through multilateral trade negotiations under the GATT/WTO, regional trade liberalisation agreements such as ASEAN, and unilateral tariff liberalisation as part of domestic economic reforms.

Increased integration of international capital markets and reduced barriers to international investment flows have also helped to catalyse cross-border investment in health-related industries, assisting the establishment of plants for manufacturing pharmaceuticals and medical products. Globalisation has also facilitated the mobility of health-related R&D.
In health services, globalisation and advances in technology have resulted in rapid growth in cross-border trade. Health services were incorporated in the WTO General Agreement on Trade in Services (GATS) in the Uruguay Round, establishing a framework for liberalisation in trade in health services.
The GATS framework defines four modes of delivery of services, which provide a useful means of considering trade in health services.

Cross-border health services
Advances in communications technology have resulted in rapid growth in the global market for tele-health services, assisted by sharp falls in the costs of international communications. Market segments include tele-medicine such as diagnostics services, health-related call centres, and medical claims processing and administration.

Consumption abroad
There has been significant development of the market for international treatment of patients, as private health care facilities have grown in both developed and developing countries. While countries such as the UK have long been recognised as international hubs for patients, new entrants into this market segment include India and Malaysia.

Commercial presence
Cross-border investment flows in health-related industries are an important source of potential FDI flows, including into manufacturing facilities for health-related products, R&D facilities, and hospital infrastructure.

International health professionals
International movement of skilled health care professionals has been very significant, both between developed countries, and from developing countries to developed countries. However, developing countries have concerns about 'brain drain' and use of scarce public funds to train health care professionals who are subsequently recruited by hospitals in developed countries.
One solution may be to quantify the extent of welfare loss to developing countries, and create compensation mechanisms under which rich countries gaining from skilled worker migration compensate developing countries by funding additional health care training, such as by funding a new medical school or nursing school.

Intellectual property issues are a major concern of the developing countries in relation to health products, and the Doha Ministerial Declaration marked an important shift in emphasis away from past approaches to product patent regimes.
In response to the global pandemics such as HIV/AIDS and tuberculosis, the Doha Declaration calls for a new approach that recognises the importance of implementing and interpreting the TRIPS agreement in a manner supportive of public health and to promote access to medicines for all, with a separate Declaration on TRIPS and Public Health which addresses many of the concerns of developing countries.

In the TRIPS negotiations, members have put forward a number of alternative approaches to addressing the concerns of nations which have insufficient manufacturing capacity for pharmaceutical products.
The US has proposed that, subject to certain safeguards, developing countries with sufficient manufacturing capacity in the pharmaceutical sector should be permitted to export pharmaceuticals to other developing or least-developed countries facing public health problems, especially those resulting from HIV/ AIDS, malaria, tuberculosis and other epidemics.

Commonwealth examples of success
The achievements of a number of Commonwealth countries are discussed in the following sections, illustrating the considerable scope for health-related industries to become a strategic growth industry in other Commonwealth countries, and to contribute to exports of goods and services.

Singapore's Life Sciences
Singapore has developed an integrated biomedical services strategy to become the global hub for bio-medical sciences in Asia. The country's economic development strategists identified life sciences as a strategic growth industry in the late 1980s. A key plank for advancing this vision was the development of a number of research institutes and centres in subsequent years.

These include the Institute of Molecular & Cell Biology, the Bioprocessing Technology Centre, the Bioinformatics Centre, and the Lilly-NUS Centre for Clinical Pharmacology. The most recent additions include the Genome Institute of Singapore in 2000, and the Institute of Bioengineering in 2002. The Singapore government is continuing to play a dynamic role in catalysing further growth of this industry, and has established dedicated infrastructure, including the Biopolis facility for biomedical sciences and the Tuas Biomedical Park.
Singapore is developing the Life Sciences cluster across the whole industry value chain, including pharmaceuticals, medical equipment, and medical R&D. With total health care expenditure in Asia projected to grow at 10 per cent per year over the medium term, Singapore is also establishing a reputation as a leading regional health care hub, with the development of several large Singapore-owned hospital chains providing treatment for private patients in private hospitals and clinics in Singapore and abroad.

Biomedical sciences is now one of the key new strategic manufacturing sectors targeted by the government, and has developed rapidly. It accounted for 5 per cent of manufacturing output in 2001. The main sub-sector, pharmaceuticals, contributes around 80 per cent of output in this sector, and 90 per cent of total new investment in 2001. In the first six months of 2002, pharmaceutical production expanded by 73 percent. Many of the world's leading manufacturers of health-related products have established production and R&D facilities in Singapore, including GlaxoSmithKline, Schering Plough, Novartis, Aventis and Astra Zeneca.

The biotechnology sub-cluster in Singapore has seen an increase in activities from biotech companies, start-ups, research institutes and centres. Positive growth should also continue in the medical devices sub-sector, based on Singapore's high manufacturing standards and the strong R&D support from the hospital and medical services sector, which now is a regional leader, with research institutes, hospitals and universities.

Indian health care industry
India has already developed substantial clusters of excellence within its health care sector, including in pharmaceuticals, medical equipment, as well as in hospital care. India is also a major international supplier of skilled health care professionals, including to the UK, US and the Middle East.
India's pharmaceutical industry is the largest amongst developing countries, and is one of the top twenty pharmaceutical producing nations in the world. Indian pharmaceutical production accounts for around 9 per cent of global pharmaceutical volume.

Total production is estimated at around $3 billion per year, of which around $1 billion is exported. Bulk drugs account for a large share of total pharmaceutical exports. During 2000-2001, the total value of bulk drugs and pharmaceuticals produced exceeded $1.2 billion, with exports of $840 million. India's low cost production of generic drugs is an important source of affordable supplies to other developing nations which lack market scale and manufacturing capacity in pharmaceuticals.

Under the WTO GATS, India will be required to comply with international patents for pharmaceutical products from the beginning of 2005.
India is one of the world's largest markets for medical devices, although this segment has been heavily reliant on imports. However, domestic production is rapidly developing in the medical equipment manufacturing sector, mainly driven by strong domestic demand, although export levels are also increasing.
India has also been developing its capability as a health care hub, with Mumbai and New Delhi among the cities with highly advanced private hospitals and clinics that provide health care for international patients.

Bangalore has developed a strategic plan to establish itself as a major international health care hub, following its success as a leading international IT hub. Bangalore already has a large number of high quality private hospitals and research facilities, and has also been building on its strong information technology infrastructure to support development of its health care industry.

Australian Health Industry
Australian exports of health-related goods and services have grown strongly over the last decade, and now exceed $1 billion per year. Strong growth in exports has been achieved in pharmaceuticals and medical instruments, and new growth sectors include high technology products. There has also been significant Australian foreign direct investment in private hospitals and clinics abroad, as well as in the provision of hospital management, hospital design and construction, and health planning services. Australian educational institutions are increasingly focusing on provision of nursing training for the Asia-Pacific region.

Australia has also been building its R&D capabilities, with many medical research centres that have a high international reputation, many of which are linked to public and private hospitals. Biotechnology clusters are also developing, including the Australian Technology Park universities consortium in Sydney, the Bio21-Parkville biotechnology development in Melbourne, BioHub-Westmead, the Cellulose Valley Technology Park and Thebarton Bioscience Precinct in Adelaide.

The Australian government has also developed R&D through establishing centres of excellence for research in medical science and technology, including Co-operative Research Centres in Tissue Growth and Repair, Cellular Growth Factors, Eye Research and Technology, Cardiac Technology, Vaccine Technology, Diagnostic Technologies, Aboriginal and Tropical Health, Discovery of Genes for Common Human Diseases, Asthma, and Cochlear Implant and Hearing Aid Innovation.

A number of Commonwealth countries have made significant progress within the last decade in building their competitive advantage in the global health care industry. There is considerable scope for other Commonwealth countries to also adopt similar strategies, and develop competitive advantage in segments of the global health care industry.

This can provide an important new source of dynamic economic development, as clusters of excellence are established, building high value-adding industries, creating skilled employment opportunities, and attracting new investment flows.
There is considerable scope for strategic alliances between Commonwealth countries to assist in the development of health industries across the regions of the Commonwealth. While the advanced health care industries of developed Commonwealth countries provide an important source of technological expertise, there is increasing scope for South-South partnerships in health care, as developing countries such as India, Malaysia and South Africa develop their health industries.

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