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 Many areas of Saudi consumption, including the
retail industry, housing and travel, have ballooned in the past
decade because of oil-fuelled growth in national income. But
healthcare has lagged, partly because of government inefficiency and
bureaucracy.
Now the mediocre quality of state-run healthcare has become a
political liability for the government, especially in the wake of
the 2011 uprisings elsewhere in the Arab world, which underlined the
risks of social discontent. Many Saudis complain about overcrowded
hospitals and shortages of medications.
So the government has embarked on a drive to reform the sector,
building hundreds of hospitals, providing interest-free loans to
private companies and changing health insurance rules.
This could make Saudi Arabia the world's fastest-growing major
healthcare market over the next few years, helping to diversify the
economy beyond oil and providing a bonanza to foreign companies
selling medicines, equipment and services.
"It is a case of chronic underinvestment and reactive
overexpenditure," said Mohammad Kamal, an analyst at financial firm
Arqaam Capital in Dubai.
CATCHING UP
The standard of Saudi Arabian healthcare provision has long
contrasted with its wealth. The kingdom, which the IMF ranked 30th
in the world by GDP per capita for 2012, has 2.2 hospital beds per
1,000 residents, according to Arqaam, lower than the global average
of 3.0 and far below the average of 5.5 in developed countries.
Local newspapers routinely report complaints about issues such as
overcrowding — with some patients receiving intravenous drips in
hospital corridors — and poor hygiene and maintenance, resulting in
pest infestations and infections.
Abdulkarim al-Thobeiti, a Saudi engineer working in the public
sector, says he will never set foot in a state-run hospital because
they are either fully booked or poorly maintained.
"If you want to make an appointment to see a doctor you have to wait
for months, unless you have some connection or know someone who can
pull a few strings," Thobeiti said.
This may change as the government ramps up healthcare budgets.
Spending has already jumped from $8 billion in 2008 to $27 billion
last year, and Saudi asset management firm NCB Capital expects it to
soar to $46 billion in 2017.
In addition to building new state-run facilities, the government is
offering private companies interest-free loans covering up to a half
of the cost of building new hospitals.
And, although the move has yet to be announced officially, Saudis
employed in the public sector are expected to become eligible for
state-funded health insurance within the next few years, Arqaam and
other analysts say.
This would enable them to use private healthcare services without
paying extra fees out of their own pocket.
Today, the overwhelming majority, about 83 percent, of Saudi
Arabia's 8.4 million health insurance holders are expatriates whose
employers are legally obliged to cover their insurance costs,
according to Arqaam.
The insurance reform could swell the pool with more than a million
Saudi public servants and about 5 million of their dependents,
Arqaam estimates. This implies a surge in demand for private Saudi
healthcare firms, which are turning to the stock market to finance
expansion.
Sulaiman Al-Habib Medical Group and Almana General Hospitals will
seek to list their shares on the local bourse in 2014 or early 2015,
bankers told Reuters in November.
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Some companies have already tapped the market. Dallah Healthcare
raised 540 million rials ($144 million) in an initial public
offering of shares at the end of 2012, while National Medical Care
Co conducted a 175 million rial IPO last March.
Major global players are also looking for ways to boost their
presence. General Electric (GE), one of the biggest manufacturers of
medical equipment, has said it will build an assembly facility in
Saudi Arabia.
"Looking ahead at 2014, we continue to see a buoyant healthcare
sector for the kingdom," said Mazen Dalati, chief executive of GE
Healthcare in the country.
STRONG DEMAND
The development of a private healthcare industry is good news for
the Saudi government as it tries to diversify the economy and boost
employment of citizens in the private sector to make the country
less vulnerable to a big drop in oil prices.
Higher state spending will not necessarily translate into quick
improvements, however, as shown by the slow progress in the last few
years of Saudi Arabia's $67 billion housing program, which was
stalled by red tape and weak coordination between ministries.
Analysts doubt in particular that the government will meet its own
hospital construction targets.
For private providers, human resources could become a bottleneck,
especially if the government presses ahead with a plan to gradually
replace foreign workers, who hold more than half the jobs in the
sector, with Saudi nationals. Today, 20 percent of workers at
healthcare companies are required to be Saudi citizens.
The government is looking for ways to reduce the shortage of
qualified personnel, including through partnerships with foreign
firms such as GE.
Reflecting such obstacles, healthcare firms' stock prices have lost
steam since the post-IPO rallies commonly enjoyed by new Saudi
listings. While the overall stock market has risen 16 percent since
June, shares in Dallah are up just 11 percent, and National Medical
Care has lost 8 percent.
Future expansion of healthcare facilities, however, will be driven
not just by increased government spending but also by fundamental
factors such as the continuing growth of Saudi Arabia's young
population and the high incidence of lifestyle-related diseases.
One in every three people in the country is obese, according to the
local Obesity Research Centre, whose researchers are looking into
whether Saudis are genetically predisposed to the condition.
"Saudi Arabia has an exceptionally high incidence of diabetes, heart
disease and congenital disorders," said John Sfakianakis, chief
investment strategist at Saudi investment firm MASIC. "The insurance
sector changes will provide extra demand for sure."
(Editing by Andrew Torchia and Will
Waterman)
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