THE POWER OF IDEAS

Saudi Arabia 2016 | ECONOMY | ROUNDTABLE

TBY talks to some of Saudi Arabia's top business leaders on the privatization program and outlooks for 2016.

Abdulrahman Al Zamil
ABDULRAHMAN AL ZAMIL
Chairman
Zamil Holding & Chairman of CSC
HE Dr Faisal Alsugair
HE DR FAISAL ALSUGAIR
Chairman
Saudi Civil Aviation Holding Company (GACA)
HE Mohammed Al Hussein
HE MOHAMMED AL HUSSEIN
Secretary General
Council of Cooperative Health Insurance (CCHI)
Tawfiq Al Ohali
TAWFIQ AL OHALI
Acting CEO
National Unified Procurement Company for Medical Supplies (NUPCO)

What is the status of the privatization program and what impact will it have on the businesses you represent in Saudi Arabia?

ABDULRAHMAN AL ZAMIL Saudi Arabia has historically been an important focus of investors. In the last 40 years, Saudi Arabia basically started from scratch. In the early 1970s, King Faisal established real working funds, an agricultural fund, an industry fund, and a real estate and housing fund, among others. We all started with nothing, but these funds have been crucial to the growth of the country. Another reason for the success of Saudi Arabia has been joint ventures. We brought the best companies and experts to Saudi Arabia to start joint ventures with local companies, and this kickstarted our industries here. Today, Saudi Arabia is fourth in the world in petrochemicals, with 107 million tons produced a year, and non-oil exports are at almost $60 billion a year. The Saudi economy has been growing in leaps and bounds. Local consumption of non-oil products is now at $200 billion annually. As per the ongoing privatization process, young entrepreneurs and businessmen here today have all been recruited from successful private sector companies and organizations. Half of the Council of Ministers are directors, executives, and presidents of leading private-sector businesses. People have been talking about the fall in oil prices and the hardships associated with that. For the private sector, this is the best thing that could have happened. It means the government is paying more attention to the private sector and to the need to diversify the economy. For the first time, people want the private sector to be prioritized, and there has been a transformation in all areas of the economy. I am sure I speak for everyone here when I say we have never been busier than we are now.

HE DR FAISAL ALSUGAIR The discussion about privatization has been going on for a long time, and it has had its fair share of detractors and critics. Now the current environment has enabled privatization to accelerate and grow, providing better efficiency, better customer services, and better economic conditions and taking a lot of the burden off the government. Our number-one objective is to improve the quality of services. KPIs can be applied to employees in privatization. In privatizing, we can apply KPIs to employees. Secondly, privatization can guarantee financial independence. Today, a huge part of the budget is allocated to civil aviation for the sake of managing, running, and developing airports. It makes companies become financially and operationally independent, and able to generate money for the government rather than just spending it. Another crucial issue is that privatization encourages proper governance by separating the regulator from the operator. A government-run entity cannot do all that. Our airports today are both operators and regulators, but this is wrong. GACA started this process four years ago. We are now ready, and we have a program that is in the final stages of approval by the government and the privatization committee. We were going to privatize everything over a period of three years. In the end customers will see better service, they will see their rights in a clear and transparent way, and they will have a regulator to go to if there is a problem. An interesting example of what we have already achieved is Medina Airport. After we privatized Medina Airport in 2012, we had 40% more Saudi national employees working at the airport, which proves that fears of privatization having a negative effect on the employment of Saudis is unfounded. It has had the reverse effect in the case of Medina Airport, where Saudization increased by 40%. The income generated by Medina Airport for the government has tripled over that same period. What used to be a drain on government resources now makes SAR300-400 million a year for the government. It has been a huge success, and we expect to repeat that success in all the other airports around the country. Technically, Medina Airport was a BTO because the government owns the assets; we will use the same model in Riyadh and Dammam airports.

HE MOHAMMED AL HUSSEIN Since the 1980s, the government realized that regardless of how much it spends, it will never meet demand. So privatization is key in this field. At our council, we have a scheme that covers private health insurance for about 10.5 million people, 3.5 million of those being Saudis. The visitors' visa also establishes compulsory health insurance. Even if he or she visits for two days, they will have health insurance. CCHI has about 2,500 providers, most of which are private. We still need private health insurance to grow; we need hospitals and health clinics to grow because demand is constantly rising. The government will motivate investments in private healthcare and the privatization of government hospitals either by partnership or operation. In five years, the figures will have totally changed. Demand for health services is expected to double by 2019 compared to 2012. We are still trying to see what obstacles are left to attract private investors. One such obstacle is the human resources gap. There is about a 50% gap between supply and demand in human resources. The government and The World Bank insist on having a good training system to cover the gap I mentioned. That gap cannot be met by the government alone, so private investments will play a huge role in the sector. CCHI's 2020 strategy offers a lot of attractive opportunities and initiatives for private investors. The entire sector is geared toward privatization, and that is the only way we will be able to meet Saudi Arabia's rapidly growing future needs. It is also important to note the effect that the digital transformation has had on the health sector. We can now go to any hospital and all the information is in the system. Of course, this transformation requires a lot of investment and work, but it is truly helping transform the health sector significantly. The Ministry of Health is working on a new program that will give everyone his or her own medical card. That is a huge project, and once it goes ahead with it, we will see a lot of changes for the better. Another project covers insurance, making all insurance transactions 100% digital. It will contain all medical and insurance information and history, every visit, and every transaction.

TAWFIQ AL OHALI The government established NUPCO as a GPO company as part of the reforms carried out in the health sector to ensure that we give our patients the best quality service and products. The government established it as a profitable private company in order to move away from the government. Saudi Arabia has been spending a lot on pharmaceuticals, medical disposables, and medical equipment, but no matter how much is spent, the demand keeps getting higher and higher. Also many are not satisfied with the quantities of drugs on the market, the lack of certain drugs, the unavailability of others, and the waste of existing drugs. This company was established to elevate the standards of pharmaceuticals, create an efficient supply chain that ensures these drugs reach the patients who need them at the right time in the right dose and at the right hospital, and to address issues of wastage. Part of the initiative that we are working on at our transformation center is how to manufacture pharmaceuticals in Saudi Arabia and how to give manufacturers incentives to come here, to make sure that we bring the best quality and technology to Saudi Arabia and localize it. We will establish JVs with a few global companies as well, and we will bring their technology and know-how to Saudi Arabia to ensure that, whatever we do, it will be state of the art in terms of quality, supply chain, and rules and regulations. It will also ensure transfer of knowledge to the Saudi population in the longer term. We have not yet fulfilled our mandate; in fact, we have only just started with the royal decree that has been granted to us. In the coming three to five years we will handle the whole supply chain of pharmaceuticals, medical supplies, and medical equipment, at least for the Ministry of Health. This will help elevate standards, decrease costs, and bring good asset management to the sector, leading to a better utilization of the health sector budget. As part of the IT Integration and Health Information system, we are building a system that tracks pharmaceuticals and supplies from the manufacturer until they get to the patient. That will minimize the waste that results from shopping around. It will also minimize cheating and abuse of the system and will protect consumers.

What is your outlook for 2016?

ABDULRAHMAN AL ZAMIL I am extremely positive because of the new trend that I have seen in my business and my industry. We are fighting with specialist committees and chambers to make sure that everybody spends government money to recruit and train Saudis. When Aramco set out to meet the demands of this transformation, it committed 70% of its procurement spending to local products, whereas before it was 35%. Every major company is looking at that. Today, electricity is almost 75-80% procurement, which is billions. The same is going on with desalination. We are positive because we see real changes and real players instigating and leading these changes. This is not just talk anymore. This is really happening. Oil prices will go back up, but we should not relax because of that. This change has to continue; it has to keep moving forward; and it has to be successful. The future of the people, the country, and even the region hangs in the balance.

HE DR FAISAL ALSUGAIR Stress from short-term economic pressure has helped remove obstacles that were in our way in terms of privatization, and it has helped us accelerate our programs. It has been a very positive event for us in the medium and long term. I see a positive outlook for 2016 and beyond.

HE MOHAMMED AL HUSSEIN I believe everybody should be positive. Yes, oil prices have been a big challenge. Saudi Arabia has known the importance of diversifying its economy for decades, but it never really took that challenge on seriously. Now it is happening for real, and things are changing for the better. We see real efforts underway, we see an understanding of the importance of privatization, a concerted effort to move away from oil reliance, and an acceptance of the importance of education, training, and technical competence to develop Saudi manufacturing and industrial capacity to meet the challenge of employment and the needs of a rapidly growing country and population.

TAWFIQ AL OHALI Even though it is a very challenging year to meet patient demands with existing budget constraints, I too see this situation as positive for Saudi Arabia. All sectors realize this is the time to support this company and move forward, because this is the future of the supply chain in the medical field. We are more cost-conscious, more efficient, eliminating waste, and utilizing budgets far better.