Sri Lanka’s healthcare industry is poised for rapid growth in the coming decades, which bodes well for private hospitals, pharmaceutical companies, and nutraceutical companies in the region. This post provides an overview of Sri Lanka’s economy and healthcare industry and provides justification as to why companies should be monitoring developments in Sri Lanka and other countries in South Asia.
Opportunity Overview
Growth prospects are favorable
Sri Lanka recently became an upper-middle-income country in 2019. Although Sri Lanka’s GDP per capita rose above $4,000 recently, well above many frontier markets, the country’s healthcare spending per capita still lags behind other frontier and emerging markets. The country’s healthcare expenditure per capita was only $127 as of 2017 according to the World Bank, which leaves ample room for growth in the future. As incomes rise, people in Sri Lanka will demand higher quality services from private hospitals, and also spend more money on nutraceutical products as they become more health-conscious.
Avoiding macroeconecomic setbacks: Investing in healthcare in Sri Lanka in the past decade has been one of the best ways for investors to access an industry that outpacing the country’s overall economic growth rate. Sri Lanka’s economy was hit by multiple economic setbacks in 2016-2019, which resulted in lackluster economic conditions and a weakened external position, yet Sri Lanka’s healthcare industry has still been a defensive way to access Sri Lanka’s long term growth narrative.
Aged demographics
Nearly 10% of Sri Lanka’s population is over the age of 65, and this number will likely double by 2030. Private hospitals are consequently well positioned to deliver strong growth in the coming years as a result of this demographic trend. Furthermore, Sri Lanka’s younger population will also spend more on healthcare as their incomes rise, and also increasingly require more advanced diagnostic services. According to FItch, the country’s private hospital beds grew at a CAGR of 21% between 2010-2014 compared to the 10% growth experienced in the public sector.
Healthcare expenditure poised for rapid growth
Sri Lanka’s healthcare expenditure as a % of GDP was only 2.5% according to the World Bank, well below the levels seen in other countries such as Vietnam ( 7.1%), Thailand (6.5%), and India ( 4.7%). This number will likely increase as consumers increasingly begin to use private hospitals, although over 70% of hospitals in the country are public hospitals. However, the growth rate of private hospitals in Sri Lanka has been nearly double that of public hospitals, as rising incomes have resulted in an increased demand for higher quality healthcare services. Sri Lanka’s private hospitals are likely to see stable growth in the coming decades as investors increasingly choose private hospitals over public hospitals. According to the World Bank, around 95% of inpatient care and 50% of outpatient care is provided by the public system, while the private sector accounts for the remaining 5% and 50%, respectively. Private hospitals can benefit from attracting patients who demand higher quality services in the future, especially in the area of diagnostic services. The high prevalence of various NCDs in Sri Lanka also necessitates a stronger private sector healthcare system in the future.
Medical Tourism
Sri Lanka’s medical tourism industry also has ample growth potential, although medical tourism arrivals still lag behind the levels seen in countries such as Thailand and Malaysia. This area is poised for further growth in the future, though it will be harder for Sri Lanka to increasingly attract medical tourists from developed countries, considering that these patients generally prefer more established options like Thailand. The government recognizes the long-term potential of this industry and has consequently set favorable growth targets for medical tourism in Sri Lanka.
Nutraceutical companies should monitor developments in various frontier and emerging markets in South Asia, notably India, which has a large population and very favorable growth prospects. However, the concept of nutraceuticals is still common in Sri Lanka, as the country did launch its first nutraceutical store several years ago.
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