Mon 12 May 2014
Filed under: Health,News
When Myanmar opened to the West, one of the first sectors multinationals were most excited to pursue was the healthcare market. Because of the country’s internally forced exile from the world’s stage, Myanmar’s healthcare system has long been starved of western pharmaceuticals, medical devices and diagnostic equipment. Currently, Myanmar’s government-supported public healthcare provides basic care and some acute disease management; however, the little bit of capacity that is available is sporadic. For the last several decades, the WHO, UN and various NGOs have all made up the difference between what a functioning public healthcare system should have been able to provide – in particular with respect to communicable diseases – and what little the government system was actually capable of delivering. Historically, Myanmar’s government has spent approximately 2% of its Gross Domestic Product (GDP) on healthcare; impoverished Laos spends 4.5% and Cambodia 5.6%. As a result of Myanmar’s inadequate spending on healthcare, the WHO ranked Myanmar’s healthcare system dead last out of the 190 countries ranked with respect to “overall health system performance.”
Roughly a year ago, when we completed the first survey of Myanmar’s healthcare system, it was already obvious that in the country’s biggest cities consumers were interested and expressing a willingness to pay for higher-quality western medicines. We sat down with consumers in markets, doctor’s offices and clinics to complete our survey. Most of the interviewees expressed broad confidence in the care they receive from their local doctors. Families also had a strong preference to pay more money if they could get their hands on western medicine. Not surprisingly, these expectations were related to their belief that western therapeutics would be of higher quality and have more efficacy than those they could buy from local producers. But, as multinationals know all too well in emerging economies, while the consumer’s appetite for western healthcare is an important trigger for growth, on its own this desire is inadequate to drive meaningful commercial success. Within a country like Myanmar, several other pieces have to be in place for sustainable success.
First, as I shared last week, most policy analysts watching Myanmar are quick to point out, the country continues to struggle with a handful of unresolved political questions that have the potential to prove destabilizing, at least in the short-to-mid term. Chief among these are the ethnic and religious divides in the country’s northern region, long-standing and still unresolved issues that occasionally present themselves even in Myanmar’s larger cities. Thus far the response of the current government has been reasonably even-handed, which reflects a realization on its part that the country needs stability in advance of the upcoming 2015 presidential election, an event outsiders are closely watching as a means to gauge Myanmar’s political stability and whether new foreign direct investment makes sense.
Second, sustainable success in Myanmar requires the local economy to grow. While government spending on healthcare is increasing, much of what will drive the growth for multinationals in Myanmar will be out of pocket spending by individual consumers. Consequently, their ability to pay for western medicine is directly related to the country’s economic growth. The World Bank estimates that Myanmar’s GDP growth between 2012-2013 was 6.5%, while the Asian Development Bank projects that economic growth should be 7.8% over the next two years. This growth is being driven primarily by foreign investments in energy, infrastructure and transportation. Jovi Seet, who manages PriceWaterhouseCooper’s efforts in Myanmar, noted that foreign direct investments into Myanmar are thus far being directed at many of the country’s longest standing problem areas: “If you think about where the country most needs development – physical infrastructure, power, connectivity – there has been improvement in allowing FDI in these areas.” Additional reforms in the country’s FDI laws should further accelerate inbound investment over the course of the next several years, assuming the political transition remains peaceful and orderly.
Third, for multinational healthcare companies, the Myanmar government’s expanded funding for healthcare over the last twelve months is an important signal for further investment. When we were in the country, it was encouraging to hear broad agreement from the Ministry of Health that money was being re-allocated towards healthcare. Since then, the country’s FDA has received significant new funding which has greatly expedited new drug registration, allowing multinationals to get new products into Myanmar more quickly than before. There are many calls on this funding, and one of the more pressing questions is how to reinforce Myanmar’s public health administration such that new investments are wisely made, and best directed at what will benefit the country’s people.
Dr. Varun Sethi, General Manager for DKSH Healthcare’s business in Myanmar, one of the largest distributors for multinational pharmaceuticals, consumer health and medical devices in the country, recently shared with me that he sees the growing government-led spending on pharmaceuticals as the most encouraging sign. Dr. Sethi pointed out, “Over the last year, we have seen the Ministry of Health expand and formalize the tendering process in public hospitals, albeit in a decentralized fashion. This process began in 2012, but funding was limited to roughly USD 8 million. In the 2013 fiscal year that ended on March 31, 2014, government estimates put that number at USD 40 million and the next phase beginning this fiscal year will see the public hospital pharmaceutical tenders grow to an estimated USD 70 million.”
Accessing this market is obviously key, which is the fourth key to sustainable success in Myanmar; namely, having competent local distribution. Early pharmaceutical and medical device entrants such as GE Healthcare, GSK and Roche, have all made investments in cultivating local training and distribution in an effort to first identify key stakeholders within the healthcare system and government. As anyone with experience in emerging economies in general knows, in-country success many times relies on relationships and trust. We found that for the handful of multinational companies who had extensively expanded into Myanmar, their success was tied to the quality of their distribution partner. The market is highly fragmented, with multiple points of sale that are rarely immediately obvious to a foreign company. Dr. Sethi pointed out that in his experience, many multinationals are coming to understand that in Myanmar “success is not a slam dunk – before they can get a ton of business they need to pay attention to some basic issues like registration which can delay and unnecessarily complicate their ability to sell into Myanmar.”
Overall, Dr. Sethi and other pharma companies we interviewed who are early into their pursuit of a domestic market in Myanmar remain positive about the ability of multinationals to be successful in Myanmar. In a short span since 2012, when the current reforms began under the U Thein Sein government, local consumers have had access to more choice than ever before and not just for healthcare products. As Dr. Sethi pointed out, “since the market has opened up, consumers have a lot of choice on different ways to spend their money – not everything is going to healthcare – now they have options they never had in telecommunication, consumer appliances and general consumer goods. While they are doing better economically, their purses have not expanded as quickly as their choices on what to spend the money they have.”
For Myanmar’s healthcare system to begin clawing its way forward, there are at least four structural changes that will be necessary. First, the public financing schemes that fund government provided healthcare will need to be reformed and funded. Second, the Ministry of Health will need to ensure there are not too many competing agenda items without clear priorities on where limited money is going to be spent. Third, FDI policies need to be developed specific to healthcare, in particular hospitals and domestic pharmaceutical manufacturing of basic formulary medicines. Fourth, major efforts to modernize the country’s medical schools will need to take shape. Reflecting these challenges, multinationals selling in Myanmar will need to continue to invest in local distribution, marketing and relationship-building among doctors, pharmacists and dealers who have historically been not only key points of sale in the country, but also trusted by consumers to differentiate between products and manufacturers. While today the narrative about Myanmar’s potential may have gotten a bit ahead of the actual facts on the ground, the country’s underlying strength is built on strong and diverse natural resources, a young and able workforce and a deep desire to again become part of the global economy.