Business Monitor Online
June 9, 2017 Friday


Healthcare Market Limited By Demographics and Weak Economy



Healthcare expenditure in Armenia will expand at a slower rate than
its regional peers, reflecting the country's weak economic footing.
Compounding the bearish outlook is the small population and negative
demographic profile. We note that the introduction of a compulsory
health insurance system would significantly shift the market
landscape, although this is not planned until 2020 at the earliest.



BMI View: Healthcare expenditure in Armenia will expand at a slower
rate than its regional peers, reflecting the country's weak economic
footing. Compounding the bearish outlook is the negative demographic
profile. We note that the introduction of a compulsory health
insurance system would significantly shift the market landscape,
although thisis not planned until 2020 at the earliest.Armenia's
healthcare market will provide few opportunities for multinational
pharmaceutical firms and medical device manufacturers, given its small
market size and limited growth outlook. Total expenditure on
healthcare is the third smallest in the Central and Eastern Europe,
behind only Kyrgyzstan and Montenegro. Moreover, the country's small
population size (3.03 in 2016) is likely to decline over the long term
due to the high degree of emigration coupled to a low birth rate.
Indeed, according to the National Statistics Service, the number of
births declines in 2016 by 2.3% compared to 2015. This will
significantly limit potential growth opportunities.

Recent Updates In June 2017, Armenian MPs opposed the privatisation of
a number of healthcare facilities as part of the government's
privatisation program for 2017-2020. In June 2017, the Ministry of
Health announced the government's intentions to begin working on a
draft law on compulsory health insurance to be submitted to parliament
by 2020.

Market Outlook Not Reflective Of Frontier Status
Armenia - Healthcare Market Breakdown

f = BMI forecast. Source: World Health Organization (WHO), BMI
Between 2016 and 2021, we forecast that health expenditure Armenia
will increase at a compound annual growth rate (CAGR) of 8.1% in local
currency terms and 6.8% in US dollar terms, from AMD221.8bnbn
(USD466mn) to AMD327.5bn (USD647mnn) in 2021. Over our extended
10-year forecast period, we project that healthcare expenditure will
reach AMD560.5bn (USD1.02bn) in 2026, posting a local currency CAGR of
9.7% and a US dollar CAGR of 8.1%. As a percentage of GDP, healthcare
expenditure was 4.3% in 2016 and is forecasted to rise to 5.3% by
2026. Per capita, healthcare spend was USD154 in 2016 and is set to
increase by 2026 to USD356.Despite healthcare spending forecast for
robust growth, we remain downbeat on the outlook for the Armenian
market. Given the market's frontier status, it represents a potential
for significant expansion highlighted by the small per capita
expenditure on healthcare. However, the market will underperform
relative to the majority of its peers in the CIS region. While the
country's economy is set to recover from its recession in 2016, this
return to growth will be stymied by the high reliance on remittances
from Russia (itself only set for a sluggish economic recovery) and
poor labour market dynamics. The government has repeatedly highlighted
the need for greater cost-efficiency within the healthcare sector
through 2017 to improve healthcare outcomes and reduce endemic corrupt
practices, posing downside risk to public expenditure growth. Further
compounding the weak outlook for healthcare expenditure growth is the
high reliance on out-of-pocket payments, with private healthcare
expenditure accounting for more than 55% of total healthcare
expenditures.We note that the potential for Armenia to follow the lead
of some of its regional peers, notably Georgia, Kazakhstan and
Azerbaijan, in implementing a compulsory health insurance system in
place of its current inefficient model would pose significant upside
risk to our long-term outlook. According to the country's Minister of
Health, a draft law on compulsory health insurance will be developed
trough 2018-2019 for consideration by parliament in 2020.