Protecting a strategic sector

By Aziza Sami
A storm of protest has swept through Egypt's health sector following the news two weeks ago that seven private hospitals are considering a merger negotiated and funded by a foreign investor. The minister of health and head of the medical syndicate have declared their intentions to fight this merger which they say will lead to a foreign monopoly.
Concerns regarding such a merger are compounded by the absence of an anti-trust law -- a situation leaving the sector open to the possibility that a foreign-based monopoly might be swiftly formed in this strategic sector. A sector, which, in the words of Head of the Doctor's Syndicate Professor Hamdi El-Sayed "must not be left totally to the forces of the market."
Equally important, the ongoing debate raises questions about the repercussions of globalisation on Egyptian professionals and about the way foreign investment and ownership are to be negotiated during the transitional period before Egypt is required to lift all barriers to the movement of services such as healthcare, accountancy, legal consultancy and insurance.
Authorities' criticisms of the planned merger are based on the view that in a period when the Egyptian medical sector should be preparing for the time when any foreign doctor or investor will be able to "open shop" in the domestic market, a foreign investor may be able to monopolise an important segment of the healthcare sector. Although these hospitals are private, they service a sizable portion of the population through the public health insurance system.
In an unusually strong warning directed against the merger, Minister of Health Ismail Sallam and El-Sayed have vowed to try to block what they have described as the possibility of "a foreign monopoly" in Egypt's private healthcare sector.
The reaction came in response to the news two weeks ago that a merger, brokered by the Egyptian company Global Capital, is being negotiated between the British-based Anglo-Egyptian Association and seven Egyptian hospitals and medical centres. These are: Nile Badrawi, Al-Salaam of Mohandessin, Al-Shorouq, the Cairo Specialised Hospital, the International Eye Centre, Al-Borg Laboratories and the International Urology Hospital.
The minister of health and head of the Doctors Syndicate emphasised that it is not the principle of a merger in the healthcare sector that they object to. "If it had been a 100 per cent Egyptian merger we would have supported it because of its obvious economic viability," El-Sayed told Al-Ahram Weekly. "What we are protesting is that a foreign-based conglomerate is being formed in the absence of an anti-trust law -- something that will be to the detriment of the Egyptian patient and the Egyptian medical profession," said El-Sayed.
Minister of Health Ismail Sallam says, "There is nothing to guarantee that once a conglomerate has been formed that it will not successively purchase smaller private hospitals. Having become the sole private provider of healthcare, it might then engage in exploitative practices related to pricing and other issues. Such a situation where one company is allowed to become so strong is not countenanced in the capitalist economies themselves, as the breakup of Microsoft in the US well shows."
El-Sayed puts the issue in context of the GATT and its repercussions. "Our concerns are exacerbated by the fact that such a merger will take place during the transitional period, even before we start implementing the WTO-ordained General Agreement on Trade in Services [GATS] by virtue of which -- beginning in the year 2005 -- professional services such as medicine, accountancy, insurance and legal consultancy will be totally liberalised," El-Sayed said.
He continued, "It [the merger] will mean that this foreign-owned consortium will turn to foreign banks for funding and to multinational insurance companies to develop a health insurance system. It will create a network of foreign doctors and treat only the categories of patients it chooses, which will obviously negatively affect the large number of Egyptian patients who are treated in those private hospitals under the current [public] health insurance system."
"All of this makes us very concerned and apprehensive that Egyptian medical professionals might be supplanted by strangers in our own country," said El-Sayed.
Al-Ahram Weekly addressed the issue to Professor Fathi Iskander, chairman of Mohandessin's Al-Salaam Hospital, who said that the reason he and the other potential partners are considering the deal is that "Egyptian private hospitals in general are facing financial difficulties. Bank loans carry interest of 15-17 per cent and we need [better terms] than that. Operating these hospitals as a consortium would reduce costs dramatically, increase sources of funding and improve the quality of administration and services." Regarding the issues raised by the minister of health and head of the Doctors Syndicate about GATT and the potential for monopoly, Iskander said that these are "things which are not happening now and for which I have no answer."
Asked about the terms of the impending deal, about which several conflicting reports have been published, Iskander said, "About four months ago I was contacted by Dr Magdi Ishaq, an Egyptian-born British national who heads the Anglo-Egyptian Association." This organisation comprises Egyptian and British investors working with a group of private hospitals in England. "Ishaq told me that his association believes it could make a contribution to the market for private medical care in Egypt," Iskander said.
Explaining the progress on the merger thus far, Iskander said that following his initial contact with Ishaq, Hossam Badrawi, chairman of Nile Badrawi, took the lead in examining the potentialities of involvement with the British association. Then, a non-disclosure agreement was signed by the British association and its future Egyptian partners and negotiations were begun concerning the formation of a holding company, to be based in London, and an executive council of shareholders to be based in Cairo. The value of each hospital was then assessed.
This represents the work done thus far on the merger. To effect the merger, according to Iskander, the plan is to transfer half of the capital and debts to the shareholders of these hospitals, and the remaining 50 per cent of the capital would then go to the Anglo-Egyptian Association.
Doctors working in the Egyptian hospitals and medical centres have expressed concern about the percentage of foreign ownership and management rights for each shareholder in the event that a deal is concluded. "We are still working out the details," said Iskander, "but I cannot imagine that a department in my hospital related to kidney dialysis would be done away with without my being consulted," he said in an attempt to dispel rumours that key services might be discontinued due to financial restructuring.
Regarding Iskander's assertion that the Anglo-Egyptian Association would own no more than 50 per cent of the conglomerate, the Doctors Syndicate's El-Sayed said "The British investors, in making offers that the hospitals cannot resist, are not fools. And, any talk of them accepting a deal for less than a majority share -- with the decision-making rights that such a share implies -- is not credible." He added that the Anglo-Egyptian Association, "whose proclaimed capital is only 350,000 sterling and whose shares are over 50 per cent owned by an obscure British investor [whose name has not been publicly disclosed], is an obvious cover-up for some other entity."
Brushing away this allegation, Iskander conceded, nevertheless, that "information is still lacking about the British investor [the Anglo-Egyptian Association as a whole]. All we know is that it is a holding company with links to KPMG's London operations." KPMG is a multi-national accounting and consulting firm.
Iskander said that he was sent a letter of intent by Ishaq in which "some aspects were either missing or not entirely clear. It said nothing about the upgrading we had agreed upon, and did not include a business plan -- for Al-Salaam Hospital -- delineating what the services, departments and daily operations would look like [after the merger]."
Iskander said that the Egyptian private hospitals agree that there are outstanding issues regarding financing, accounting and legal aspects and the form of international contract to effect the merger that would all need to be discussed.
Iskander denied the statement made by the head of the Doctors Syndicate Hamdi El-Sayed to Al-Ahram weekly that "Al-Salaam has pulled out of the deal, because of the pressures currently being exerted against the merger by both healthcare authorities and shareholders inside the hospital."
Al-Salaam Mohandessin's chairman also denied allegations by sources linked to Al-Salaam hospital saying that the hospital's shareholders had voted against the merger. "How can a deal be voted down when its final conditions have not even materialised?" asked Iskander.
El-Sayed is not the only voice in the medical community concerned about the merger. Dr Ahmed Hamid Attiya, senior chest consultant and fellow of the American College of Chest Physicians, says that such a step will negatively impact on medical professionals opportunities for employment. "Egypt's medical community has for 70 years produced doctors of world class calibre, because it has traditionally kept its links with scientific advancement. So, the problem is not with the quality of doctors," said Attiya. "To bring in a foreign investor of this magnitude into the healthcare establishment, therefore, cannot be warranted for reasons other than economic viability. But economic reasons alone should not obscure all of the other considerations involved."
Legal consultant and former Head of the Capital Market Authority Mahmoud Fahmi says that "the emergence of monopolies is possible within the existing legal framework because there is no anti-trust law." Regarding the possibilities that the Anglo-Egyptian Association, as a holding company, might be able to engage in monopolistic practices, Fahmi said, "A holding company for hospitals can be listed on the stock exchange and buy the stocks of other companies as well, because there are no restrictions on foreign ownership of stocks."
As the situation now stands, says Fahmi, the only obstacles in the way of such a merger are those that could be put in place by the minister of health, using his prerogative to prevent the licensing of an organisation under the stipulation that the provision of healthcare should be in the public's interest.
El-Sayed, who currently heads parliament's helth committee, vows that he will "use extreme means of pressure to fight this merger. Just as the advocates of the free market and its forces will use their means, so will we -- in all the legal ways possible. As a syndicate representing the national medical sector, we will make a distinction between Egyptian and foreign doctors and we will fight the conclusion of any work contracts with them. We will prevent foreign doctors from working in private hospitals. And, in parliament, we will ask what is preventing the government from passing the anti-trust and anti-dumping laws."
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