Saudi government’s focus on healthcare is evident from the last budget. Health and social affairs expenditure accounts for 12.2% of the total budget, the second highest expenditure in the year.
Allocations for health and social affairs spending grew by 16% year-on-year to reach USD 26.7 billion (SAR 100 billion) in the 2013 budget.
The government said 19 new hospitals and healthcare centers will be built, in addition to continuing work at 102 hospitals and five medical cities currently under construction. The five medical cities alone are expected to add 6,200 new hospital beds in the country.
Indeed, the scale of development is breathtaking.
Saudi Arabia has one of the fastest growing populations in the world, and Saudi nationals – which represent 75% of the population – enjoy free healthcare. In addition, the economy is expanding in the midst of a massive infrastructure development program.
That means the kingdom needs to develop medical centers not only in urban areas but also in remote region and new industrial cities that are cropping up in the kingdom.
The health ministry is currently working on 138 more hospitals, which once completed, will increase the total bed capacity of the country's healthcare system by around 44,000 beds. In the ninth development plan, the government aims to achieve a hospital beds-to-population ratio of 3.50 beds per 1,000 by 2015.
The Ministry of Health dominates the country's healthcare sector and accounted for the largest buildup of hospitals beds in the kingdom. The MoH increased beds' capacity to 34,370 by 2009 (latest figures available), compared to 28,751 in 2002.
Meanwhile, private sector only managed to increase hospital beds capacity by 2,684 over the same period to reach 12,817. The quasi-government sector added 639 to 10,939.
The issue of quality of the healthcare service is another major issue confronting the authorities. Saudis have complained of crowded hospitals, poor quality of nurses and doctors, often poor hygiene in medical centers and long waiting periods.
Saudi Arabia has also emerged as Ground Zero of the deadly Middle East Respiratory Syndrome (MERS), which has already taken the lives of nearly 150 people. Although MERS is less transmissible than the SARS virus, Saudi Arabia's position as a religious tourism hub gives the medical emergency added urgency.
There is, of course, a strong political dimension to the authorities' focus on healthcare service.
Despite being a G20 nation and among the world's three largest producers of crude oil, Saudis don't enjoy the healthcare services of a developed nation and some healthcare statistics are often below other regional peers such as Qatar, UAE and Bahrain.
The World Bank notes that Saudi Arabia and other MENA countries are "standing at a moment of exceptional possibility."
Rising demands for better delivery of health services coupled with deficiencies in health system performance precipitated regional discussions for transformational changes in health systems.
The disappointment with public sector-driven healthcare has compelled the Saudi authorities to open up the market to private players.
Some companies are already shoring up their finances to meet rising demand. Saudi Arabia's Sulaiman Al-Habib Medical Group (HMG) and Almana General Hospitals (AGH) are reportedly seeking initial public offers for their shares in 2014. National Medical Care Company launched a SAR 364.5 million IPO in Saudi Arabia last year.
Recently, Saudi Arabia's Al Hanouf Group said it is teaming up with US-based Mount Sinai Hospital to build a 1,000-bed hospital at a cost of SAR 700 million.
Another SAR 1 billion healthcare project is under way in Al-Jouf, which includes two hospitals comprising 300 beds each, a SAR 50 million dental hospital in Sakakah, in addition to a SAR 7 million diabetes center, according to officials.
Private equity firms are also eyeing the healthcare sector, with funds such as the TVM Healthcare MENA Fund, Intaj Capital II and Jadwa Healthcare Opportunities Fund especially focused on the sector.
PE and other private players are certainly drawn by the underlying macroeconomic fundamentals in the country and decades of under investment.
Saudi Arabia's healthcare spending stands at around 5% of GDP, compared to 18% in the United States, 5.4% in China and 11.8% in Germany and is even lower compared to some Gulf states.
"High returns on healthcare investments," according to Colliers, a management consultancy. "High quality, efficient private hospitals should achieve 20% net profit margins."
The private sector is also drawn to health insurance and financing, especially as Saudi Arabia's introduction of mandatory healthcare insurance for foreign nationals has seen insurance rise sharply.
"In the last few years the Saudi Arabian insurance industry remained one of the fastest growing insurance industries across the world with a growth rate of 33% between 2007 and 2011 on the back of introduction of compulsory insurance," Colliers said.
The kingdom's Tadawul Stock Exchange saw a spate of new healthcare insurance providers over the past five years, as the insurance sector took off in earnest.
"The health insurance sector is expected to grow at a fast pace on the back of increasing involvement of private companies and the obligation for foreign nationals and foreign pilgrims to buy insurance covers," Colliers noted.
"In addition, the most recent introduction of compulsory health insurance for private employees, irrespective of the size of the company they are working with, will further boost the health insurance market in the country."
"Investment in healthcare IT is expected to show strong growth in Saudi Arabia this year, as the kingdom increases budgets for major new projects in the sector.
Kingdom's IT expenditure is expected to reach SAR 15.3 billion (USD 4 billion), a growth of 6.6% this year," according to Naseba in a report on the country.
Furthermore, a data center at the Saudi Ministry of Health is expected to link 22 regional health directorates, 166 hospitals and more than 40 hospital management centers around the region.
In addition, the Saudi medical devices market is valued at SAR 4.1 billion in 2013 and expected to rise to SAR 6 billion by 2018, accounting for around 50% of the region's medical devices sector.
Saudi Arabia's healthcare sector offers opportunities for investors, but while the authorities are willing to spend heavily on the bricks and mortars of the healthcare infrastructure, the quality of healthcare and the shortage of human resources would continue to rein in growth.
Zawya
19 May
