It is often claimed that investing in the developing world is much more risky than buying medical assets in Europe or the USA. But is this really true?

Stepping back, you can see several risks generally associated with such investments.

Reputational loss – This is when a scandal hits an operator which leads to a media fire storm. The classic case is Carema in Sweden but we have seen the same in the UK (NHS) and Germany (Casa Reha). Medical tourism from countries like the UK has also been damaged by scare stories. A free and independent media makes the risk of reputational damage much greater. So it should be much more of a danger in developed democracies with active media.

Tariff falls and budget ceilings – This is where a payor, typically a state payor but in some cases an insurer, cuts prices or limits budgets. Classically, this is something state payors do. In Europe over the last five years, almost every country has seen incidents (France, a new freezing of the MCO tariff), Germany (budget ceiling impositions on lab tests), Netherlands (budget ceilings on ambulatory clinics), Spain, Italy and Greece (unilateral cuts in tarrifs), etc. others such as Norway and Denmark have introduced competitive contracting.

The threat from private medical insurance is also real. UK insurers have been squeezing prices hard, Spanish labs and hospitals have also suffered as insurers use their market power.

The one place where this is not a threat is in a free market where individuals are paying cash. In much of the developing world this is 50% or more of the healthcare services sector. It is also worth noting that attempts to enforce regulatory changes in developing countries are often much easier to circumvent than such changes in the developed world. In Turkey hospitals found many ways round rules limiting the extra amount they could charge NHS funded patients. This would be unthinkable in Germany or the UK.

Rule of law and property rights – This is where property rights are not respected and assets are seized. The classic case here would be BP in Russia. But in healthcare services we have seen similar issues in some European countries as payors switch sales away from established private providers forcing them out of business. In the past, we have seen such landgrabs in Sweden and the UK.

Whilst local, corrupt elites may suddenly demand that foreigners hand over assets, there is certainly no appetite for the nationalisation of hospital assets. Developing countries are not eager to shoulder such burdens.

The threat from political/civil unrest and war – This is clearly much more of a threat in developing countries. But the threat is generally receding around the world. It is interesting to note that Abraaj Capital (who we interviewed this week) says the revolutions and wider Middle Eastern unrest has had no impact on their operations in Egypt apart from dramatic foreign exchange swings.

Spending is more discretionary than you thought – Over a third of the Greek private hospital market post crash was from families paying very high prices for births. Again, the presence of state payors means that these risks are much higher in developed countries than they are in the developing world. Greeks were able to simply switch to the Greek NHS.

On balance then you might conclude that healthcare services is a safer investment in developing countries, than in so-called “safe” developed countries!