Oct. 10, 2017
In April 2016, Saudi Arabia announced its Vision 2030, a comprehensive blueprint that aims to diversify the country's economy by shifting away from dependence on oil and strengthening other sectors. Shortly thereafter, in June 2016, the Kingdom approved the National Transformation Program 2020 (NTP) as the vessel through which the government would realize its Vision 2030 goals, with healthcare as a central focus.
According to US-based consultancy Aon Hewitt's “2016 Global Medical Trend Rates" report, Saudi Arabia's healthcare sector is set to witness incredible growth, at a rate of 12.3% until 2020, ultimately amounting to USD71.2 billion. Of the approximately 150 major healthcare infrastructure projects underway in the GCC until 2018, 87 of them are taking place in Saudi Arabia.
Saudi Arabia accounts for some 47% of the GCC's USD42-billion worth of investments in healthcare infrastructure. The Ministry of Health plans to invest more than SAR23 billion on healthcare projects over the coming five years, during which time it hopes to encourage private investments. Vision 2030's main objective is to source such investments from private players, increasing private healthcare expenditure's share of total healthcare expenditure from the current 25 to 35% by 2020—SAR 3 billion to SAR 4 billion.
POPULATION GROWTH CHALLENGES SUPPLY
Rapid, continued growth of Saudi Arabia's population, coupled with a strong influx of expatriates, has placed increasing pressure on the country's healthcare sector. The Kingdom has the largest and fastest-growing population in the GCC with a 2.2% annual growth rate. Colliers estimated the 2016 population of Saudi Arabia to be 31.6 million, 22.8 million of which were nationals. By 2020, total population is expected to rise to 32.7 million and, by 2025, to 36.7 million, according to Colliers. Meanwhile, Saudi Arabia has the world's fifth-highest rate (33%) of obesity, high rates of type II diabetes, and high incidences of trauma and accidents.
The Ministry of Health owns 60% of all hospitals within the Kingdom, all of which offer free basic healthcare services to Saudi nationals. In 2012, Saudi Arabia covered some 66% of total healthcare spending. In 2013, the Kingdom spent approximately USD36 billion—4.8% of GDP—on healthcare, according to Deloitte. It allocated USD28.8 billion to health and social welfare in its 2014 budget, including the funding of 11 new hospitals, 11 medical centers, and two medical complexes. With this boost in investment, the Ministry of Health hopes to increase hospital capacity from 28,000 beds in 2014 to 68,000 beds by 2019.
However, the rise in population is encouraging the government to open the market to private institutions and insurers in order to fill the supply gap and improve medical facilities across the Kingdom. Saudi Arabia experiences shortages in doctors, nurses, and beds when compared to other developed countries—the Kingdom has the lowest number of beds, nurses, and doctors per person among all the other countries in the GCC. Increased privatization will stand in where state assistance cannot and improve the quality and efficiency of healthcare in Saudi Arabia.
Dr. Khalid Bin Mohammed Al Shaibani, Deputy Minister for Planning and Health and Director Vision Realization Office of the MOH, told TBY, “The MOH today has a conflict of interest. It provides care through a network of more than 365 hospitals and 2,500 primary care centers, but is at the same time the governor and the regulator." Al Shaibani emphasized the government's attempts to move toward the privatization of hospitals. “We have started what we call the “pathfinder" engagement [….] we hope that by 2030, we will have corporatized and granted them autonomy. Doing so would reduce the level of decision making to as close to the patient as possible and allow hospitals to develop competitiveness."
LUCRATIVE INSURANCE MARKET
The Kingdom's insurance sector is expected to grow by 17% per year over the next five years. Backed by the government's enforcement of existing regulations, health insurance dominated insurance growth—it accounted for some 52% of gross written premiums in 2014. From 2013 to 2014, gross written premiums grew 22%, from SAR12.9 billion to SAR15.7 billion, respectively. From the first half of 2015 to the first half of 2016, gross written premiums grew from SAR19 billion to SAR19.2 billion. In the first half of 2016, insurance density stood at SAR1,245, a 10.4% increase on the first half of 2015, when insurance density rested at SAR1,236.
By the end of the first half of 2016, Saudi Arabia's insurers hit a total profit of SAR820.4 million, a substantial rise from their consolidated profit of SAR262.7 million in the first half of 2015. Meanwhile, the return of equity in the first half of 2016 rose to 12.4%, from the 9% in the first half of 2015.
There are 35 licensed insurance companies in Saudi Arabia. Bupa, Tawuniya, Medgulf, and Malath dominate the insurance market, accounting for 22.3%, 20%, 11.1%, and 7.5% of the total health insurance market, respectively. From the first half of 2015 to the first half of 2016, Bupa's shares increased 140 basis points (bps) and Tawuniya's shares increased 262bps, while Medgulf's shares fell 291bps.
Health insurance is the leading segment, making up 51% of the total insurance market. It is followed by vehicle insurance (32%), general insurance (14%), and saving and protection (3%). Three health insurance companies control 83% of the market. Bupa and Tawuniya's health insurance market share increased 305 and 385bps, respectively, from the first half of 2015 to the first half of 2016.
These figures spell a lucrative market for health insurers. The most recent push in its growth is the Council of Cooperative Health Insurance's issuance of new regulations that require all private-sector employers to register their employees and their dependents under a single policy for mandatory health insurance.
According to Saudi Arabia's Vision 2030, the National Transformation Program plans to spend more than SAR23 billion on new initiatives, including the localization of the pharmaceutical industry. The goal is to increase the percentage of local pharmaceutical manufacturing as part of the total market value from 20 to 40%.
Saudi Arabia has a 59.4% regional market share of the purchase of pharmaceutical products in the GCC region. The Kingdom spent USD8.46 billion in 2015 on pharmaceuticals, with a 10% annual growth rate. In 2015, per capita spending on pharmaceuticals stood at USD268 million and this figure is expected to increase to USD400 million by 2020. According to BMI Research, Saudi Arabia's pharmaceutical market is estimated to reach a value of SAR51.2 billion by 2020.
There are currently 27 pharmaceutical manufacturers operating in the Kingdom, but imported pharmaceutical products comprised 80% of the domestic market in 2014. The government hopes to reverse this trend.
So far, foreign companies have jumpstarted production of antibiotics, diabetic treatments, cardiovascular drugs, and anticoagulant facilities at the King Abdullah Economic Industrial Valley in Saudi Arabia. In April 2015, Saudi Pharmaceutical Industries subsidiary Dammam Pharma received a SAR54.1-million loan from the Saudi Industrial Development Fund to finance a part of its project to construct a pharmaceuticals plant in the eastern province of Dammam.
In 2015, AJA Pharmaceutical Industries, a subsidiary of Saudi Chemical Company, received a SAR157.5-million short-term loan agreement from the Gulf International Bank for partial financing of AJA Pharma's new 120,000sqm manufacturing facility in Hail Industrial City.