Private sector healthcare provision is increasingly prevalent in the GCC, easing the cost burden on the state. But governments cannot rely on private companies to provide for all their healthcare needs.
The cost of renewable energy is now falling so fast that it should be a consistently cheaper source of electricity generation than traditional fossil fuels within just a few years, according to a new report from the International Renewable Energy Agency (IRENA).
From 1 October, the cost of tobacco and sugary drinks in the UAE spiked upwards, with the introduction of excise tariffs of up to 100 per cent. That was merely a precursor to a more wide-ranging value-added tax (VAT), which will be introduced in early 2018 and comes in the wake of a wave of other additional costs over recent years, including subsidies being lifted on fuel, charges levied on airport passengers and paid-for parking.
Rivalry between Russia and United States has gone public with a number of potentially mould-breaking deals The rivalry for influence across the region between Russia and United States broke out into the open as a series of proposed defence deals emerged in the first half of October. Saudi Arabia has suggested it could buy missile defence systems from both Moscow and Washington, Bahrain says it is also in the market for Russian missile defences and the UAE may be close to breaking from the regional norm for aircraft procurement with a deal to buy Russian fighter jets. It is not the first time Gulf Co-operation Council (GCC) states have shown interest in diversifying their defence equipment supply chains away from the US and European allies, but the developments around missile defences in particular put the issue in a stark spotlight.
Low oil prices have put Oman’s government under pressure, while regional political turmoil could make life even more uncomfortable. A new economic model is called for, but can the leaders in Muscat find one quickly enough?
The region might be going through a tough time as a result of low oil prices and political turmoil, but for investors in the region’s largest companies, there is still growth to be found.
The rapid growth of mobile apps raises questions about what banking might look like in the UAE in the future
Just like cash or a debit card, the future of banking can fit into the palm of your hand. Smartphone banking apps are reaching an ever wider audience and creating novel pressures for the country’s banks. Not only do they have to compete with each other to continually improve their digital services but they are also faced with tricky questions such as what to do with their branch networks. The answers they come up with will shape the UAE’s banking landscape for years to come.
Not all banks in the country have launched a smartphone app but the number is growing all the time. Those that have range from giants such as Emirates NBD and National Bank of Abu Dhabi (NBAD) to smaller players like RAK Bank. Typically, their apps allow customers to transfer money between accounts, pay utility and other bills, and locate nearby ATMs and branches.
Simply launching an app is not enough though. Once out there it needs to be regularly improved. Mashreq, for example, launched its first mobile app in 2008 and earlier this year released its fourth major upgrade. “The biggest change we have done is to the user experience,” says Aref Al Ramli, Head of Electronic Business and Innovation at Mashreq. “We have taken a bold step in animating the design. We’ve looked at it from the customer experience, making it easier to access with fewer clicks.”
While banks are investing in their digital services, they still have to make up ground. According to a November survey of 2,000 GCC bank customers by EY, 34 per cent of UAE respondents use a mobile banking service but only 45 per cent are happy with it. When asked why they don’t use mobile banking more, 51 per cent said they found it difficult to access. Other common gripes included slow transaction speeds and a non-intuitive user experience.
“Mobile banking has been a spectacular failure so far in the GCC,” says Ashar Nazim, Financial Services Customer Leader for the Middle East at EY. “The journey is still starting. There is a long way to go.”
While there is room for improvement, the direction of travel seems clear enough, with more and more customers using digital channels instead of visiting a branch. And banks are discovering that consumers have clear preferences for using different platforms for different things.
“While internet banking remains the platform of choice for service requests such as statements, applications for new products and information requests, mobile banking is becoming the platform of choice for transactions,” explains Sagheer Mufti, Chief Operating Officer at Abu Dhabi Islamic Bank. “We [saw] an increase of 71 per cent in the number of transactions conducted on the mobile app in 2015.”
In addition to straightforward banking apps, a few institutions have been experimenting with other services delivered via apps. Emirates Islamic Bank, for example, has developed the EI World app where, in return for carrying out transactions such as paying utility bills, users can accumulate points that can be redeemed for vouchers. Abu Dhabi Commercial Bank and Emirates NBD offer similar offerings.
Potentially more interesting are the moves to develop services via other online platforms and apps, including social media networks like Facebook and Twitter. In October 2014, Commercial Bank of Dubai opened a branch on Facebook that offers many of the same functions as a dedicated banking app. Last year, Emirates NBD started offering balance enquiries and other services on Twitter.
There are security concerns that tend to limit the scope of such initiatives, but all banks need to keep an eye on such developments lest they lose ground to their rivals, particularly among the next generation of customers. However, not everyone is convinced there is enough demand.
“We’re not hearing any strong signals from our customer base that they need us to facilitate their banking on their social media channels,” says Suvrat Saigal, Managing Director and Head of Global Retail at NBAD. “We’re focusing our resources on where we know our customers want us to improve, rather than take a me-too approach to channel investment.”
However, what seems inevitable is that digital channels will become ever more important for banks and, as smartphone technology becomes increasingly sophisticated, more people will want to bank via their phones. This, in turn, raises a question about the role of traditional physical branches and whether banks even need them. Most executives insist there is still a role for branches, particularly when it comes to dealing with more complex services such as investment advice, but at the very least the expansion of branch networks is likely to slow down.
“Branches will continue to be important,” says Mosabah Al Qaizi, Head of Electronic Banking Services at Dubai Islamic Bank. “We envision that they will be leaner in size with a focus on performing more complex transactions.
“Our aim will also be to continue opening more technologically advanced express banking centres and expanding our full function ATM network, while we see a slowdown in opening large brick-and-mortar branches.”
Through the longer term, the need for branches could be even further eroded. The EY survey found that 60 per cent of customers in the UAE would willingly switch to a digital-only bank.
Gulf banks are starting to experiment with wearable technology, but consumer attitudes to the new devices remain uncertain.
In November, Emirates NBD launched a novel service in the UAE banking market. The bank’s Fitness Account is a savings account that allows customers to earn higher rates of interest the more physical activity they do. Such initiatives are possible thanks to the development of smartwatches like the Apple Watch and Samsung Gear and wristbands like the Fitbit, all of which can keep track of the number of steps someone takes in a day or how far they run.
Globally, sales of smartwatches have yet to really take off. Juniper Research, a UK-based technology consultancy, says that 17.1 million smartwatches were shipped last year, with Apple accounting for just over half of the total. The rest of the market was dominated by cheaper devices with more basic functionality that are not well suited to the complexity of banking services.
Others put the sales figure higher. Gartner, another research firm, estimates that 30 million smartwatches were sold across the world last year, and it expects the number to rise to 50 million this year and 66.7 million in 2017. Even at these levels, however, the smartwatch is a long way from becoming a ubiquitous part of modern life. Other devices have fared even worse.
For example Google Glass, a high-tech headset designed to be worn like a pair of spectacles, was launched with great fanfare in 2013, but then was withdrawn from sale in 2015 after failing to capture the imagination of anyone beyond a small constituency of early adopters.
Not much traction?
The cautious attitude of consumers inevitably raises a question about how much demand there will be for banking services on devices like smartwatches and perhaps helps to explain the tentative approach of many banks.
According to a survey by Misys, a London-based software firm, only 15 per cent of banks around the world have a wearable app at the moment, although 52 per cent say they will have one in place over the next 18 months and 72 per cent say it is on their road map for the next three years. Banks in the UAE are no more keen than their peers elsewhere. “The potential for wearable technology in the banking space is yet to be realised in the UAE,” says Mosabah Al Qaizi, Head of Electronic Banking Services at Dubai Islamic Bank.
Of course, it is not simply a case of smartwatches. Other devices could start to become more prominent in the years ahead such as smart wristbands or rings and as technology improves so will their sophistication. At the moment though, the idea of wearable technology for banking services is still characterised more by future potential than current opportunity, and it makes sense for most banks to concentrate on improving their other digital services.
“Banks continue to face challenges with their digital strategies, so it is no surprise only a small percentage support wearables,” says Balazs Vinnai, General Manager of Digital Channels at Misys.
For now, most banks in the UAE are just keeping an eye on the segment, rather than jumping in to the market. The approach of National Bank of Abu Dhabi (NBAD) is typical of many. Suvrat Saigal, Managing Director and Head of Global Retail at NBAD, says it is “excited by the potential applications that could become available” and adds “we are closely monitoring this area”.
Pay with wearables?
Some banks are moving ahead with services, however. Mashreq’s latest version of its Snapp mobile app includes an Apple Watch component. The bank’s customers will be able to view balances for their current and savings accounts on their watch, as well as details of recent transactions, discount offers and ATM and branch locations.
There are other services that could yet boost the use of wearable technology, in particular using a watch or another device to make payments, perhaps by placing it up against a reader. The Misys survey found that two thirds of banks identified such proximity payments as the most attractive potential area for wearable apps.
“Early adopters have already started using wearable technology and we see there is huge scope for it to expand to payments,” says Aref Al Ramli, Head of Electronic Business and Innovation at Mashreq Bank. “That is the main potential for the future.”
Healthcare tourism is a $60bn industry and presents an enticing opportunity for hospitals and medical authorities in Dubai and Abu Dhabi
Every year, the UAE healthcare authorities send several thousand locals abroad to hospitals in Germany, the UK, the US and elsewhere.
For patients it means they receive the treatment they need in areas such as oncology, neurosurgery and cardiology that are unavailable locally. But this comes at a price. Dubai Health Authority (DHA) says it spent an average of AED162,000 ($44,000) on treatment for every patient it sent overseas in 2013.
But for each Emirati going abroad, many more are coming to the UAE to receive care, particularly to Dubai Healthcare City (DHCC). Since it was set up in 2002, DHCC has become the biggest medical tourism destination in the region.
The two hospitals and 120 outpatient centres in the city looked after 260,000 international patients in the first half of 2015. The greatest number come from across the GCC, but patients also come from other parts of the Middle East, Europe and Asia.
Infertility treatment is the most common procedure for visitors, followed by cosmetic, dental, cardiac, and orthopaedic treatments. The care they receive can often be life-changing.
In 2014, DHCC treated a 51-year old Qatari man with complex spinal treatment, which allowed him to walk again.
Other patients find they need to make multiple visits. In June 2007, Suha Bashayreh, a Jordanian teenager, was involved in a traffic accident that meant both her legs had to be amputated. She first visited DHCC in May 2009 for prosthetic rehabilitation, and has returned several times since then for follow-on treatment.
As well as improving peoples lives, the sector is also providing a welcome boost to the economy. The local Alpen Capital estimates medical tourism was worth $1.7bn to the UAE in 2013. But in many ways the country is just scratching the surface.
Globally, 12-15 million people travel every year for medical procedures, spending about $40bn-$60bn in the process, according to US-based medical tourism organisation Patients Beyond Borders. Most people prefer to stay fairly close to home, with 85 per cent travelling by flights that last a maximum of six hours, says the organisation.
That presents the UAE with a large potential market, including India, East Africa, Southeast Europe and more besides.
Because of cost, convenience and cultural preferences, most patients wish to keep medical travel regional, says Josef Woodman, CEO of Patients Beyond Borders.
This is good news for the UAE, which carries opportunities to draw from a wide array of countries in the region. Also, the healthcare lag in other GCC countries gives the UAE at least a decade of opportunity to establish itself as the regional destination of choice for short-haul medical travellers.
More investments are being made to tap into that potential. DHCC is expanding, with a second phase taking shape on a large plot adjoining Dubai Creek. Projects on the site include the WorldCare Wellness Village, which will focus on diseases such as obesity, hypertension and diabetes, and which is being developed by the US WorldCare International.
Such schemes should help Dubai close in on its target of attracting more than 500,000 medical tourists a year by 2020, as well as with its Dubai Health Strategy 2021, launched in January with the aim of bolstering the emirates position as a regional medical hub.
The activity is not restricted to the DHCC free zone. In November, the UKs Kings College Hospital (KCH) announced it will build a hospital with 80-100 beds in the planned Dubai Hills area in Mohammed Bin Rashid City, supported by a small network of clinics.
The clinics will open over the course of 2016 and 2017, with the hospital following in 2018. It will specialise in paediatrics, endocrinology, orthopaedics, obstetrics and gynaecology, as well as other acute and general medical services.
KCH already runs a clinic in Abu Dhabi, which mostly caters to locals and expatriate residents. The new clinics in Dubai are likely to have a similar mix of patients, but Simon Taylor, director of commercial development at KCH, says the firm is interested in attracting patients from other countries to the new hospital.
There is the possibility of attracting inward medical tourists from other places in the Gulf, says Taylor. Thats something well be interested to see if we can develop.
On the whole, Abu Dhabi is less developed than Dubai. There are 39 hospitals and other healthcare facilities in the emirate accredited by Joint Commission International (JCI), a US-based standards body. In Dubai, by contrast, there are 73. Dubai also benefits from having more extensive air connections and a deeper pool of high-quality accommodation.
What Dubai has got going for it is the fact that its a central transport hub, says Taylor. Its very easy to get into Dubai, so thats a big advantage. Its also got extensive, good-quality hotels. Its got the infrastructure.
There are challenges, however. Overall, there are some $90bn-worth of healthcare construction projects planned or under way across the Middle East and North Africa (Mena) region, with $72bn of them in the GCC, according to regional projects tracker MEED Projects. Some of these will be competing for medical tourists, for example the International Medical City project in Oman, which is being developed by Saudi-based Apex Medical Group at a cost of about $650m.
The relatively high cost of care in the UAE is another issue the country needs to grapple with, as it is bound to put off some less affluent travelers. However, price is just one factor that people consider when they travel for medical care, and not always the most important one.
The UAE is definitely more expensive than India or Thailand, but its still [cheaper] than a lot of other places in Europe and the US, says Jonathan Edelheit, CEO of the US-based Medical Tourism Association.
For some people its not about the pricing, its about making sure theyre getting quality. When you deal with insurance companies or governments that send patients abroad, pricing isnt the key factor. Their main factor is quality and good outcomes.
One reason why the UAEs pricing is higher than in some destinations is that all its healthcare, all the doctors and nurses, have to be imported. That is a disadvantage the country has to overcome and the way its going to overcome this is by focusing on quality.
If the UAE manages to do this, there are some important potential economic benefits. Medical tourists often spend more than regular tourists, as they tend to stay for longer and travel with family members or other companions, who help to fill hotel rooms.
Investment in hospital-building programmes and the employment created in those facilities also contribute to economic activity. Healthcare authorities should also find that once more facilities are in place locally, they no longer have to send so many of their own citizens abroad for treatment.
Its going to help really boost economies in the GCC, says Edelheit. A lot of GCC countries are spending billions sending patients abroad and if they can increase the quality [of their own healthcare facilities] they can start keeping these patients at home and save [that money].
GCC military budgets are under pressure, but fears over a resurgent Iran may prompt higher spending
The wars around the Middle East are causing unprecedented suffering for the people of Syria, Yemen and Libya. They are also testing the abilities of the regions armed forces like never before.
After years of pouring billions of dollars into their military machines during the oil boom, governments in the Gulf and elsewhere are now starting to discover whether all that money was well spent.
A Saudi-led coalition is fighting against Houthi rebels in Yemen from the air and GCC troops have been deployed on the ground, leading to a significant number of deaths of service personnel.
At the same time, many of the GCC states have been involved in the Syrian war too. For now that has been restricted to helping the US-led air campaign and providing funds and weaponry for rebel groups, but there has been speculation that Riyadh might place troops onto the ground there too.
All this is coming at a time when military budgets are coming under pressure from the sharp drop in government revenues as a result of low oil prices. While there has been plenty of discussion about cutbacks to capital spending programmes in Saudi Arabia and the lifting of fuel subsidies in the UAE, less has been reported about the impact that the tighter fiscal environment is having on their armed forces. Yet the signs are that here too governments are taking a more cautious approach.
By some measures, the amount being committed to military spending is still increasing. According to the International Institute for Strategic Studies (IISS), a London-based think-tank, defence budgets across the Middle East accounted for 6.5 per cent of regional gross domestic product (GDP) in 2015. That marks a slight rise on the 6 per cent figure for the year before, although the difference is at least partly explained by military budgets holding steady at a time of declining GDP for oil exporters.
Overall, the growth rate of spending decelerated last year, in spite of the costs involved in the operations in Syria, Yemen and elsewhere. IISS says that regional defence spending rose by 1.2 per cent in 2015, after taking into account inflation and exchange rate changes.
In dollar terms the amount actually fell, from $212bn in 2014 to $205bn last year, as a result of the fall in value of some of the regions currencies against the dollar. Figures come with a significant health warning, though, given the secrecy surrounding military budgets in most countries.
The Middle East is getting harder to assess and to estimate the spending, says Giri Rajendran, research associate for defence and economics at IISS. There are more countries in turmoil which means budgetary documentation is getting poorer. Our estimate is that, from the Arab Spring in 2011 until 2014 spending was increasing at about 10 per cent per annum. Last year in 2015 we think it decelerated quite considerably to 1 or 2 per cent [growth].
Overall spending in the region is still dominated by Saudi Arabia, which has the third largest defence budget in the world, behind only the US and China.
Riyadhs $81.9bn outlay is now equivalent to 13 per cent of the countrys GDP and makes up 42 per cent of the total military spend across the entire Middle East and North Africa (Mena) region.
The next largest military spending programme is Iraqs, at $21.1bn, followed by Israel with $18.6bn and Algeria with $10.8bn. Among the remaining GCC states, the biggest spenders are the UAE and Oman.
One country which is likely to be eyeing an increase in military spending in the years ahead is Iran. Secondary economic sanctions imposed on the country as a result of its nuclear programme were lifted in January, in the wake of the implementation of the Joint Comprehensive Plan of Action (JCPOA) with the EU, US, Russia and others.
Some sanctions remain, however, notably on the sale of military weapons. These will remain in place for a further five years in the case of conventional arms and for eight years in the case of ballistic missiles and related technology.
Nonetheless, the clock is counting down and Tehran can at least look ahead to a time when it will be able to start modernising its creaking air force, navy and army, which have been struggling with obsolete equipment for many years.
A considerable proportion of Irans inventory is so old that it can be considered obsolete, says John Chipman, director general of IISS.
Most of Irans front-line combat airpower dates back to the 1970s and [is] kept in service by a combination of local maintenance skills and parts bought on the grey market. The same goes for land and naval forces, with the T-54/55 and Chieftain main battle tanks, and the Alvand-class corvettes among those showing their age.
Despite the limitations of its outdated equipment, Iran continues to be actively involved in projecting its political and military power around the region, most notably in Syria and Iraq. Saudi Arabia has also been flexing its military muscle, although it has relatively little to show for its year-long operation in Yemen, with no decisive weakening of the Houthi forces it is battling against.
The danger is that, as Iran starts to invest in its armed forces once again, the GCC states will feel compelled to act, potentially setting off an arms race in the Gulf, with the US and Europe supplying their GCC allies and Russia and China selling their skills and technology to Iran.
It could also prompt the GCC states to finally start cooperating more closely with each other, as the US has long been urging them to do.
Previously, Gulf states assumed that they would retain a qualitative edge over Iran. If Iran re-arms, this assumption may no longer hold, says Chipman.
While the US has exhorted Gulf states to better coordinate these capabilities, the US still remains at the hub of regional missile defence. If Iran re-arms, this may spur greater cooperation among GCC states, building on the military ties now seen in Yemen.
Military spending may have decelerated over the past year, but it seems that the trend could well be a short-lived one.