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Saudi health care booms as state scrambles to close gap
Reuters
File - A foreign woman waits at the entrance of a hospital in the center of the capital Riyadh, on May 14, 2013. (AFP PHOTO/FAYEZ NURELDINE)
File - A foreign woman waits at the entrance of a hospital in the center of the capital Riyadh, on May 14, 2013. (AFP PHOTO/FAYEZ NURELDINE)
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RIYADH/DUBAI: Stock market listings planned by two of Saudi Arabia’s biggest private hospital operators point to a boom in its health care industry, as political pressures prompt the government to pour huge sums into the underdeveloped sector.

Many areas of Saudi consumption, including the retail industry, housing and travel, have ballooned in the past decade because of oil-fueled growth in national income. But health care has lagged, partly because of government inefficiency and bureaucracy.

Now the mediocre quality of state-run health care 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 health care 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 over-expenditure,” said Mohammad Kamal, an analyst at financial firm Arqaam Capital in Dubai.

The standard of Saudi Arabian health care 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 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.

Abdul-Karim al-Thobeiti, a Saudi engineer working in the public sector, said he would never set foot in a state-run hospital because they were 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 health care 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 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 health care 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.

Some companies have already tapped the market. Dallah Healthcare raised 540 million riyals ($144 million) in an initial public offering of shares at the end of 2012, while National Medical Care Co conducted a 175 million riyal IPO last March.

Major global players are also looking for ways to boost their presence. General Electric, 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.

The development of a private health care 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 foreigners, who hold more than half the jobs in the sector, with Saudi nationals. Today, 20 percent of workers at health care 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, health care 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 health care 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 Center, 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.”

 
A version of this article appeared in the print edition of The Daily Star on January 20, 2014, on page 5.
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Story Summary
Stock market listings planned by two of Saudi Arabia's biggest private hospital operators point to a boom in its health care industry, as political pressures prompt the government to pour huge sums into the underdeveloped sector.

Health care has lagged, partly because of government inefficiency and bureaucracy.

This may change as the government ramps up health care budgets.

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.

Today, 20 percent of workers at health care companies are required to be Saudi citizens.

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.
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