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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.
Opportunities
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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