Energy Reform To Boost Healthcare Spending

BMI View: After we identified Mexico as 'the most promising emerging pharmaceutical market' in September 2013, the approval of the energy reform bill has reinforced our view that over the long term healthier fiscal revenue will encourage the government to further increase public healthcare spending and improve the national medical service standards. Multinationals will have greater opportunities to fully capitalise on Mexico's strong pharmaceutical and healthcare market growth.

BMI has made an upwards revision to the long-term forecast for Mexico's healthcare expenditure on the approval of an energy liberalisation bill on December 12, 2013. The legislation, which has ended up being more progressive than the bill initially proposed by President Enrique Peña Nieto, will bring significant macroeconomic benefits to the country, mainly through greater investment and export growth. We believe that the energy reform can potentially change Mexico's healthcare market landscape.

We note that Mexico's healthcare expenditure as percentage of GDP is the lowest among OECD countries. At 6.3% in 2013, it is also significantly lower than other major Latin American countries: Brazil (9.4%), Argentina (8.3%) and Chile (7.7%). We believe that although it will take a number of years before results are felt from the country's oil production, over the long term, healthier fiscal revenue due to the energy reform will encourage the government to further increase public healthcare spending and improve national healthcare standards.

Relatively Low Compared With Regional Peers
Healthcare Spending % Of GDP In Major Latin American Countries (2013)

Energy Reform To Boost Healthcare Spending

BMI View: After we identified Mexico as 'the most promising emerging pharmaceutical market' in September 2013, the approval of the energy reform bill has reinforced our view that over the long term healthier fiscal revenue will encourage the government to further increase public healthcare spending and improve the national medical service standards. Multinationals will have greater opportunities to fully capitalise on Mexico's strong pharmaceutical and healthcare market growth.

BMI has made an upwards revision to the long-term forecast for Mexico's healthcare expenditure on the approval of an energy liberalisation bill on December 12, 2013. The legislation, which has ended up being more progressive than the bill initially proposed by President Enrique Peña Nieto, will bring significant macroeconomic benefits to the country, mainly through greater investment and export growth. We believe that the energy reform can potentially change Mexico's healthcare market landscape.

We note that Mexico's healthcare expenditure as percentage of GDP is the lowest among OECD countries. At 6.3% in 2013, it is also significantly lower than other major Latin American countries: Brazil (9.4%), Argentina (8.3%) and Chile (7.7%). We believe that although it will take a number of years before results are felt from the country's oil production, over the long term, healthier fiscal revenue due to the energy reform will encourage the government to further increase public healthcare spending and improve national healthcare standards.

Relatively Low Compared With Regional Peers
Healthcare Spending % Of GDP In Major Latin American Countries (2013)

The Local Government Has Traditionally Committed To Improve Its Healthcare Services:

Mexico is one of the few developing countries that have a publicly funded universal healthcare system. Launched in 2003, its national health insurance programme, Seguro Popular, has proved to be successful according to a review published in The Lancet. The scheme guarantees access to over 250 medical interventions, including all services provided in ambulatory clinics and general hospitals. It also covers a package of 18 expensive interventions, including treatment for cancer in children, HIV/AIDS, and cervical and breast cancer.

In September 2013, President Enrique Peña Nieto unveiled the fiscal reform proposal to bolster government revenue. The exemption of medicines to VAT and the creation of universal social security have improved our long-term outlook of the country's healthcare market.

Healthcare Forecast Revision

We believe that the Mexican government will benefit from taxation and regulations of its energy industry. However how much the private sector is going to enjoy the energy liberalisation remains unknown. As the impact of a more open energy sector will take several years to feed-through, we estimate that between 2013 and 2017 public spending in healthcare to grow at a similar speed to that of previous five years, with 9.7% compound annual growth rate (CAGR) calculated in local currency terms. Between 2018 and 2022, government healthcare spending is going to enjoy double-digit growth due to the more promising fiscal income outlook. For the next ten years, we estimate that the private healthcare spending to grow in line with Mexico's final private consumption growth rate.

By 2022, total Mexican healthcare spending will increase to MXN2,368bn (US$213.8bn), accounting for 6.88% of GDP. Although it is still two percent lower than the current OECD average, the increasing proportion of healthcare expenditure will significantly improve the national healthcare services. Government healthcare expenditure will cover over 56% of the total spending in 2022 to address issues such as low coverage of advanced medicines and treatments in the public sector. Multinational drugmakers will have even greater opportunities to fully materialise their commercial benefits in the country if the small and under-developed private health insurance sector expands and modernises.

Strong Growth
Mexico's Healthcare Expenditure Outlook

BMI Economic View: In terms of Mexico's macroeconomic picture, we note that the country's fiscal balance, balance of payments position, investment and growth story all will benefit. Indeed, while we had long indicated that Mexico looks set to be a strong growth story over the next decade, this will supercharge the country's growth story and could see it become one of the dominant Latin American economies by the end of the decade.

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