Babies are set to become big business in the UAE as the government looks at ways to tackle the low birth rate among Emiratis. This presents new investment opportunities in long-term demographic changes, which should not be ignored by investors.
A renewed focus on fertility is not just applicable to the UAE. In broader emerging markets, a new study links fertility to savings rates and economic growth, and explains why the risk of debt distress is higher in countries with higher birth rates.
As investors focus on long-term factors such as sustainability and climate change, fertility – and its impact on the economy – should not be ignored.
Birth rates among Emiratis have dropped rapidly over the last half century, from 6.9 births per mother in the 1960s to 1.4 in 2017, according to data from the World Bank. The average for the region is 2.8.
In a bid to stimulate population growth, the UAE is offering to pay for three rounds of in-vitro fertilization treatment a year for Emirati women.
As a result, the fertility sector is projected to grow at a compound annual growth rate of 15% a year, an opportunity spotted by private equity firms across the Gulf.
Colliers International said in January 2019 that the Middle East IVF market is worth $1 billion.
You can talk about financial inclusion and mobile money all you like, but if your country has a total fertility rate above three, bank deposits/GDP will probably be 30% of GDP or less, and your real interest rates will be the highest in the world- Charles Robertson, Renaissance Capital
This January, Gulf Capital, an alternative asset manager with $3 billion assets under management, acquired a 100% stake in IVI-RMA Middle East, a fast-growing provider of fertility treatment services in the GCC.
With the $100 million-plus investment – one of the biggest private equity deals in the region for some time – Gulf Capital plans to create an IVF fertility platform, increasing the number of clinics to nine and expanding operations regionally and in Asia and Europe.
As a specialist in the UAE and Oman, IVI-RMA Middle East has assisted with over 12,000 pregnancies in less than four years, Gulf Capital says.
Experts say the fall in birth rates is due to changing lifestyle patterns – including more women in the workforce and the availability of contraception.
Another factor specific to the UAE is a rising infertility rate, particularly among men, often caused by lifestyle factors such as rising rates of diabetes and obesity and, somewhat counterintuitively, Vitamin D deficiency.
Compared with a global rate of 10%, infertility in the MENA region runs at 15% or higher, according to the Colliers International report.
In response, the UAE government has reversed laws introduced in 2012 on embryo and egg freezing for unmarried women and couples.
Experts are also betting that medical tourism could become big business in the UAE – an avenue for diversification away from oil revenues.
Youthquakes and elderquakes
Beyond immediate investment opportunities, falling birth rates have several other implications for demographics and the economy.
A Yale University study published in 2018 concluded that fertility rates in most Arab countries will drop below the replacement level – the number of children needed to maintain current population levels – by the year 2100.
The study’s author, Marcia Inhorn, calls it “one of the most dramatic fertility declines in world history” and that it could dramatically change the region’s demographics. Rapid downturns in fertility rates create a bulge in the 15 to 30 age bracket.
While countries such as Saudi Arabia say their youthful population – some studies say as much as 70% of Saudis are under 30 – is an advantage and an investment opportunity, Inhorn says there are risks associated with having large numbers of young men, especially if they are unemployed.
She says this “youthquake” is a factor in the problems facing resource-poor countries such as Egypt, Morocco and Tunisia, where millions of un- or underemployed young people are stuck in a “prolonged adolescence” in which “economic futures are grim” – with wide social, political and economic challenges.
And from young to old.
Inhorn adds that sharply declining fertility leads to rapidly ageing populations.
“These elderquakes… could provoke potential crises of caretaking for millions of future Arab senior citizens,” she writes.
Private equity firms are already investing heavily in healthcare more generally, but may now want to consider future financing for the grey market.
Fertility and growth
Fertility is a subject that is not only interesting investors in the Gulf. Renaissance Capital’s chief economist Charles Robertson has drawn a link between fertility rates and economic growth in emerging markets.
He notes that lower fertility rates lead to higher savings rates and therefore support economic growth and development.
The study finds that when a family has fewer children, the ratio of adults to dependents improves and GDP growth per capita trebles.
Having more than three children means low savings, high interest rates and ultimately “no money,” he says.
“You can talk about financial inclusion and mobile money all you like, but if your country has a total fertility rate above three, bank deposits/GDP will probably be 30% of GDP or less, and your real interest rates will be the highest in the world,” says Robertson.
He adds that in countries such as Ghana, Egypt, Kenya and Pakistan, where the fertility rate will drop below three by 2035, the risk of debt distress is much lower.
There, savings and bank deposits will grow, meaning that countries will have access to cheap domestic borrowing.