On the back of the rising aged dependency ratio, demands for long-term care and welfare expenditure are expected to rise in Taiwan, adding further weight on the government's fiscal burden. In this respect, we particularly highlight the rising importance of elderly care, which will benefit nursing home providers, medical device companies and pharmaceutical firms looking to enter developed countries in the region. Meanwhile, generic drug firms will benefit from the increased use of generic medicines in the region, although the common theme of price containment will bring downside risks to the pharmaceutical industry.
Headline Expenditure Projections
- Pharmaceuticals: TWD161.33bn (US$5.51bn) in 2013 to TWD168.88bn (US$5.93bn) in 2014; +4.7% in local currency terms and +7.6% in US dollar terms. Forecast increased from previous quarter due to a change in the drug price adjustment policy.
- Healthcare: TWD1016.09bn (US$34.68bn) in 2013 to TWD1,064.64bn (US$37.36bn) in 2014; +4.8% in local currency terms and +7.7% in US dollar terms. Forecast slightly lower than the previous quarter's projections.
Risk/Reward Rating: Taiwan moved up two spots to overall third position in our latest Pharmaceutical Risk/Reward Rating (RRR) assessment of the 18 key markets in the Asia Pacific region, scoring 65.7 out of 100 behind Japan and Australia respectively. This stems from improvement in industry and country rewards scores. While it is a small pharmaceutical market, Taiwan boasts above-average Rewards and Risks, propped up by factors such as the high per capita consumption of medicines and an excellent chance to capitalise on the mainland-China market. Taiwan has a very strong active pharmaceutical ingredient (API) industry and although it is small, which makes the domestic market competitive and particularly constrained, it provides specialty chemicals and high-quality APIs for global needs. The now-annual price adjustments will certainly fuel the need for local companies to outgrow the small domestic market.
Key Trends & Developments:
In January 2014, China's Health and Welfare Minister Chiu Wen-ta urged the World Health Organization (WHO) to include Taiwan's National Health Insurance (NHI) programme in its list of the top 10 healthcare systems. Taiwan's ever-improving NHI was recently praised by renowned international media outlets. The NHI programme is making steps towards a coverage ratio of 100% of the population, without a significant increase in medical expenditure. Other key features of the programme include medical record access and prescription provision with the help of a national health card - which help reduce paperwork, subsidise care for the old and disadvantaged, and give the country an 80% satisfaction rate.
In December 2013, Chunghwa Post, Taiwan's postal system, stated that it may branch into another market by providing basic healthcare services to aged people in order to generate additional revenues. Faced with declining volumes of letters sent, coupled with an ageing population, this could result in commercial opportunities for the postal agencies. Moreover, postal agencies are potentially better able to provide such services than healthcare entities, given their wide network. However, we stress the need for postal employees to be equipped with basic health or first aid knowledge if they are to provide a value-added service for the ageing population.
In November 2013, the Centres for Disease Control (CDC) in Taiwan denied a rise in the prevalence of HIV drug resistance among people with HIV, which the Taiwan AIDS Society President, Lin Hsi-hsun, attributed to the CDC prescribing cheaper drugs. According to a regional study conducted by the National Taiwan University Hospital, the prevalence of HIV drug resistance doubled from 8% in 2012 to 16% in 2013.
In November 2013, Taiwan's President Ma Ying-jeou has announced that the government aims to increase the number of nurses in the country by 9,200 over the next two years. The initiative is part of efforts by the government to handle the shortage of nursing staff in the country. The additional nurses are likely to be working by 2016. Of the 9,200 extra nurses, 200 will be employed in remote areas of the county, Ma Yingjeou said. The Ministry of Health and Welfare also offers a sum of TWD5bn (US$169mn) in subsidies over a two-year period in a bid to retain medical experts in the fields of internal medicine, surgery, obstetrics/ gynaecology, paediatrics and emergency care, Ma Ying-jeou added.
BMI Economic View: Taiwan's economy accelerated strongly in Q4 2013, leading the island to record a full-year 2013 real GDP growth of 2.2%, marginally eclipsing our forecast of 2.1%. Despite our optimism in the near term, we remain less upbeat on Taiwan's growth trajectory through 2014. We expect the economy to face key downside risks from a slowing Chinese economy, as well as a possible correction within the local property market, which would inadvertently affect private consumption and lead to a slowdown in the construction sector. Additionally, we highlight two factors - the structural rebalancing of China's economy and increasing incidence of political deadlock in Taiwan - that we believe will hurt Taiwan's economy in the long run. Taking the above factors into account, we are happy to remain below consensus with our real GDP growth forecast for 2014 coming in at 3.0%, versus 3.5%.
BMI Political View: Taiwan and China are slated to hold ministerial-level talks for the first time in six decades in February 2014. We believe this is likely to presage further official exchanges between the two sides, with much of the impetus for deeper political ties coming from Beijing. The nascent stages are unlikely to see material changes in the cross-Strait relationship and should be confined to establishing formal dialogue and possibly consular offices. We do not expect Beijing to aggressively pursue reunification in the near term, given the government's penchant for stability. Rushing the process would only serve to create an unwanted backlash from the Taiwanese public which would, in turn, make progress towards China's aim of reunification tougher.
Interestingly, the government of Taiwan plans to reduce its own defence spending despite the potential military threat from China. It plans to reduce the number of troops in its army to 215,000 in 2014 from the present 240,000. On the domestic front, as a result of President Ma Ying-jeou's floundering popularity, even members of Ma's own KMT party have begun to quietly dissociate themselves from him for fear he would drag down their prospects during the upcoming local elections in 2014. A poor performance by the ruling Kuomintang (KMT) then will mean that the party is likely to see a diminished chance of securing the presidency in 2016. This will, in turn, entail strong risks of a reversal in the warm cross-strait ties that Ma has built up since 2008, consequently altering the country's economic trajectory.
Moreover, Beijing is unlikely to want to push through with any major policies until then given that it would be left unsure if Ma's successor would honour the agreements. Even without looking too far ahead, unless the Taiwanese government start to make material efforts to mend the country's increasingly fractious political environment, we do not expect much breakthrough in the economic and political relations between Taiwan and China in the coming years, at least until more certainty about the country's political leadership can be established.