Investing in the_saudi_arabian_healthcare_sector_final
1. Perspective Ghassan Barrage
René Perillieux
Richard Shediac
Investing in the
Saudi Arabian
Healthcare Sector
2. Contact Information
Abu Dhabi
Richard Shediac
Partner
+971-2-699-2400
richard.shediac@booz.com
Beirut
Ghassan Barrage
Senior Executive Advisor
+961-1-985-655
ghassan.barrage@booz.com
Dubai
René Perillieux
Senior Executive Advisor
+971-4-390-0260
rene.perillieux@booz.com
The authors wish to acknowledge the support received from
SAGIA. In particular, we wish to thank Dr. Salim Al-Malik for his
painstaking and valuable input, without which this work would
not have been possible.
Originally published as:
“Investing in the Saudi Arabian Healthcare Sector,”
by Ghassan Barrage, Ziad Fares, René Perillieux,
and Richard Shediac, Booz Allen Hamilton, 2007.
Booz & Company
3. The new Over the coming years, Saudi Arabia is likely to experience
a sharp increase in its healthcare needs. Most observers
SAUDI ARABIAN
believe that population growth, a slowly aging society, and
HEALTHCARE the conditions that affluence often exacerbates, such as obesity,
MARKET diabetes, and cardiovascular diseases, as well as cancer, will
create a tremendous new demand for healthcare services.
At present, the Saudi Arabian Today, the Ministry of Health (MoH)
government funds most of the is working with the Saudi Arabian
demand for healthcare capital and General Investment Authority
operating expenditures. However, (SAGIA) to prepare the sector for
analysts believe that government this essential but difficult transition.
alone will be unable to continue to As a first step, the two agencies have
meet this demand. They have studied the best practices of the
concluded that the only way to ensure countries with the most successful
that Saudi nationals’ health needs will healthcare systems and drafted plans
be met without adversely affecting that adapt these practices to the
economic progress is to increase unique needs and circumstances
private sector participation in the of Saudi Arabia. While MoH and
health care system. Only by attracting SAGIA are still working out the
partners from the private sector who details, the underlying goals have
can bring world-class medical already been established:
knowledge, management skills, and
capital to the sector will Saudi Arabia • Create a stronger institutional
be able to make high-quality health- set-up and effective regulatory
care available to everyone in Saudi framework to promote private
society. The government has recog- sector investment in healthcare
nized this situation, and has identified and the production and distribu-
healthcare as one of the key sectors tion of pharmaceuticals and
targeted in its wide-ranging privatiza- medical supplies,
tion program (Exhibit 1, page 2).
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4. • Develop a business environment pharmaceuticals and medical supplies then at what steps Saudi Arabia
that will make Saudi Arabia a more is clear: the Middle East’s largest intends to take to encourage private
attractive destination for private market of healthcare consumers healthcare businesses to operate in the
healthcare providers, and will become increasingly open to Kingdom, and finally, at which ser-
private investment. vices and what kinds of expertise will
• Attract investors and other partners be needed most during this transition.
to the Middle East’s largest market This paper looks first at the demo-
for healthcare. graphic and economic trends that will
drive this transition and make Saudi
The takeaway for healthcare Arabia a promising market from the
providers and producers of perspective of a healthcare provider,
Exhibit 1
Saudi Arabia Privatization Program
Sector Targeted for Privatization Objectives of Privatization
- Telecommunications - Enhance effectiveness of national economy and promote competition √
- Sector Targeted For Privatization √ - Create investment opportunities for the private sector
- Water desalination; distribution and waste water treatment √ - Broaden participation of citizens in producing sectors of the economy
- Air transport and airport services √ - Promote local and foreign investment
- Postal services √ - Create employment opportunities for nationals
- Healthcare - Improve the quality and cost effectiveness of services provided to citizens
- Education - Reduce public spending
- Social services - Increase Government revenues
- Sports clubs
- Rail transport, roads (e.g., toll roads) and ports √
- Industrial cities √
- Government hotels √
- Grain silos √
- Municipal services
- Agriculture
- Government investments in public companies √
√ Underway
Source: Supreme Economic Council
2 Booz & Company
5. Growth Between now and 2016, the popula-
tion of Saudi Arabia is expected to
Nor will Saudi consumers be focused
entirely on access to advanced
Unsustainable grow by more than 20 percent, from therapies. Some surveys give the
Without 23 million to 30 million. Over the
same period, health expenditures are
Saudi health system a “C” grade,
ahead of Lebanon and Jordan but
Increased expected to increase dramatically, behind Kuwait and far behind most
Private Sector even faster than the rate of population
growth. Demand for hospital beds is
of Europe. Even in basic respects,
Saudi nationals are underserved
Participation likely to grow from 51,000 to 70,000, today. Just judging by such common
demand for hospitals is likely to rise metrics as numbers of hospital
from 40,000 to 54,000 — and the beds or physicians, Saudi Arabia
number of hospitals is likely to rise lags. At present, the Kingdom has
from 364 to 502. There are several 2.2 beds per thousand compared to
reasons MoH planners see such a 2.8 per thousand for Bahrain, 3.4
sharp rise in health needs: per thousand for the U.S., and 8 per
thousand for France. Physicians per
• Saudis will become older. Rising thousand are low as well, 1.7 per
affluence is expected to result in thousand for the Kingdom compared
longer lives for more Saudis. The to 2.1 in Japan and 2.5 for the U.S.
percentage of the population over
60 is rising, and is expected to more • But wealth will not always bring
than double by 2020. By 2020, the health. As most countries have
number of old people is expected to learned, affluence is not an unmiti-
grow from approximately 1 million gated benefit to health. This is true
(4 percent of the population) to in Saudi Arabia as well, where
roughly 2.5 million (7 percent of the greater material wealth is leading to a
population). At the same time, as deterioration of physical condition.
incomes increase, Saudis are likely Today, the average Saudi national is
to spend an increasing amount of overweight. The average Body Mass
money on healthcare treatments, Index (BMI) of Saudi nationals 15
such as leading-edge therapies. years and older is 30 kg/m2, far
above the global average of 23. A
Some surveys give the Saudi health
system a “C” grade, a bit ahead of
Lebanon and Jordan but behind
Kuwait and far behind most of Europe.
Even in basic respects, Saudi nationals
are underserved today. Just judging by
such common metrics as numbers of
hospital beds or physicians,
Saudi Arabia lags.
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6. score greater than 25 is considered • And the costs of treatment will the type and quality of healthcare
overweight. Many Saudis also continue to rise. Paying for care of that they expect to receive in the
smoke: roughly 24 percent of all such chronic conditions is difficult Kingdom. As a result, expenditures
adult males smoke, and 14 percent now and is likely to grow worse. on healthcare in Saudi Arabia are
of school children and adolescents. For example, the spending on expected to escalate very rapidly.
Such bad personal choices are cardiovascular diseases, already
likely to continue to translate into high today, is expected to grow Past experience at MoH suggests that
expensive and chronic conditions. rapidly to reach around one fifth the long-run trend is toward rapidly
For example, diabetes is rampant: of healthcare expenditures by increasing expense for healthcare.
about 20 percent of the Saudi 2016. Also, modern advances in Between 1999 and 2005, govern-
population over 20 years old has medicine are continuously bringing ment saw a 7.2 percent annual
type 1 or type 2 diabetes, compared increasingly complex and expensive compounded annual growth in its
to 5 percent of the global popula- treatment. With more extensive healthcare budget. The Kingdom
tion. Treatments for diabetes and travel, and rapidly spreading spent US$13 billion on healthcare in
cardiovascular diseases are information through the media and 2005, and this spending is expected to
expected to triple and quadruple the Internet, Saudis will become grow to over US$20 billion by 2016
respectively in the coming 20 years increasingly demanding in terms of (Exhibit 2).
Exhibit 2
Saudi Healthcare Market
Care Provisioning Breakdown by Source−2005 Projected Saudi Expenditures−2006 to 2016
(Number of Hospital Beds) (US$ Billion)
Private Beds 11,135
$20.0
22% Conservative
Projections CAGR
(2006–2016)
4.0%
78%
$13.0
Government Beds* Total = 51,130 Beds Dental/Other 3%
39,995 Pharmaceuticals 9%
Health Expenditure Breakdown by Source−2005 Administration 12%
(US$ Billion)
23%
Outpatient Services
Private Spending
US$3.2 Billion
25%
Inpatient Services
53%
75%
Government Spending* Total = US $13 Billion 2005 2016(E)
US$9.8 Billion
* ‘Government’ includes non-MoH entities such as the Armed Forces, National Guard, Red Crescent Society, etc.
Source: Central Statistics Department, MoH Statistics
4 Booz & Company
7. A Blueprint Currently, the government dominates Specifically, the MoH has developed
the healthcare sector in Saudi Arabia. a plan to fundamentally restructure
for Change Private sector spending for health its activities in order to reduce its role
care in Saudi Arabia accounts for as the payor of first resort and at the
25 percent of the total, compared to same time boost its capabilities as a
55 percent for the U.S. or 76 percent regulator of private healthcare ser-
in India. Increased private sector vices. This plan calls for the following
participation in healthcare is generally main changes in the current MoH
accepted as essential to achieve the healthcare system:
Kingdom’s objective to increase
the efficacy of the Saudi healthcare 1. MoH will concentrate its health-
system while reducing the burden on care provision activities on preventive
government spending. Present plans and curative primary care
call for a transition of the Kingdom
to a mixed healthcare system, in 2. A new government entity will be
which government participation is established, the General Organization
limited largely to healthcare coverage for Hospitals, separate from MoH,
of the poor and military, with a and all MoH hospitals assets will be
variety of private healthcare options transferred to this new organization
available to everyone else (Exhibit 3). to prepare the ground for increased
Exhibit 3
Evolution Planned for the Saudi Healthcare Sector
Best-in-Class/Desired Health System Position
Saudi arabia
Level 1: Level 2: Level 3: Level 4:
“Government-Sponsored” “Emerging” “Intermediate” “Market-Driven”
Health System Health System Health System Health System
HEALTHCARE HEALTHCARE HEALTHCARE HEALTHCARE
Patient Patient Patient Patient
DELIVERY DELIVERY DELIVERY DELIVERY
SERVICE SERVICE SERVICE SERVICE
REGULATION REGULATION REGULATION REGULATION
FUNDING FUNDING FUNDING FUNDING
• Predominance of public sector • Emergence of private sector involve- • Widespread private sector healthcare • Near-absence of public sector
activities— ‘Command and ment in healthcare and increasing delivery options healthcare
Control’ model private insurance
• Public sector provisioning limited • Government role limited to ensuring
• Private sector involvement limited to • Decreasing burden on government to selected patients (e.g., the oversight, with limited subsidies
few care providers due to private insurance poor/military)
• Comprehensive regulations to ensure
• Mounting pressures for establishing a • Increasing healthcare regulations fair play
comprehensive regulatory framework
Increasing Private Sector Participation
Degree of Private Sector Ownership
Degree of Government Ownership
Source: Booz & Company
Booz & Company 5
8. public private partnerships in health-
care provision
3. A National Health Fund will be
established under the Ministry of
Finance, also separate from MoH,
to fund directly healthcare services
provided to patients
The initial phase of this program will
last three years, and will concentrate
on modernizing the overall govern-
ment IT infrastructure, establishing a
new healthcare regulatory framework.
In parallel, SAGIA is working
with various government entities
to improve the overall investment
environment in Saudi Arabia. The
Investment tology, cardiology, and diabetes.
Opportunities also exist to establish
aspiration is that Saudi Arabia Opportunities community in several areas.
will be ranked among the 10 most
competitive economies in the world, Ambulatory care and testing centers.
in terms of investment attractiveness. The high incidence of chronic diseases,
To achieve this objective, programs a government-sponsored focus on
are underway to further open and preventative care, and the increasing
All these changes are likely to create
liberalize the economy, enhance the numbers of people on private health
vast new opportunities for interna-
availability of manpower and other insurance is also likely to create
tional healthcare companies and
national resources, establish improved opportunities for physician practice
other healthcare providers. Over
regulations, and reduce government groups, disease management clinics,
the coming decade, a variety of
red tape. and diagnostic imaging sectors.
opportunities are likely to open
up in virtually every aspect of the
Generic pharmaceuticals. The
Saudi healthcare sector, as outlined
growth in population as well as the
in Exhibit 4, and summarized
drug coverage mandated under the
briefly below.
new insurance law will encourage
domestic manufacturing of products
Tertiary care. Long waiting periods
such as analgesics and vitamins,
at public hospitals, bed shortages,
as well as more complex products
increasing incidence of chronic dis-
such as prescription antibiotics
eases, and the deteriorating quality of
and beta-blockers.
care in with some areas are creating
opportunities for multidisciplinary
Medical devices manufacturing.
hospitals, specialized centers of excel-
Rapidly growing market and more
lence including such complex areas as
effective regulations will make it
oncology and organ transplants.
more attractive to produce locally
many common medical supplies
Secondary care. The high incidence
and devices, such as sterile bandages,
of chronic diseases such as cardiovas-
catheters, and dentures, EKG
cular diseases, and diabetes as well
machines and X-ray film.
as the capacity saturation at public
hospitals and the limited availability
Insurance. All employers will be
of specialists mean that there are
required to provide health insurance.
great opportunities for specialty
Initially, this policy will be applied
centers in plastic surgery, derma-
6 Booz & Company
9. to non-Saudis, but eventually, it will national electronic records system and residency programs must be
be extended to cover all workers for healthcare. Accordingly, health developed. Accordingly the govern-
employed in the economy. systems integrators and potentially ment supports the development of
telemedicine specialists are likely to more medical education facilities,
e-Health. The growth in the numbers be in high demand. and some of these will be available
of players in the health care sector for private sector investment. Saudi
as well as the increasing sophistica- Education. In some ways, the most Arabia will actively seek to create
tion of care available is likely to basic medical shortage that Saudi partnerships with leading educational
generate complexity. To cope with Arabia now faces is a shortage of institutions to build the country’s
this development, the MoH wishes doctors and nursing staff. To satisfy medical education capacities.
to encourage the establishment of a current needs, more medical schools
Exhibit 4
Investment Opportunities
Market Maturity Needed
Mature Nascent
High
Substitutive 1ry/Ambulatory
HMO
Insurance Care
e-Health
Commercial/
Clinical R&D Education Pharmaceutical Fine
Imaging/Diagnostic Facilities Chemicals
Services Low Risk
Medical Devices
Other Pharma/ Laboratory
I
n-Vitro Diagnostics Services Tertiary Care
Secondary
Care
Proton Medium Risk
Therapy Medical Devices
Economic Value Add
High Priority
Opportunities
Preferred Provider
Organization
Generic
Pharmaceuticals
Prescription Pharma
Over-the-Counter
Pharmaceuticals
Other
Opportunities
Supplemental
Insurance
Clinical Management
Services
Long Term
High Risk Medical Non Clinical Care
Devices Management Services
Low
Source: Booz Company
Booz Company 7
10. Conclusion driven healthcare system. The fully
nationalized system that served an
earlier era well is no longer suited
for the complex, dynamic country
that Saudi Arabia is now becoming.
For both economic and public health
Saudi Arabia is in the midst of an reasons, the government is committed
exciting transition to a more open, to a course of change that will in
market-driven economy. Over the the end create a system that is more
past ten years, the government has responsive to the health needs of
pushed a variety of changes that have Saudi consumers.
made Saudi Arabia a better place to
do business, including its decision to This transition to a market-driven
join the World Trade Organization. healthcare system will not only
In fact, if present trends continue, be good news for Saudis and the Over the next few decades, Saudi Arabia
by 2010, SAGIA believes that Saudi Saudi economy. For international is expected to face a sharp increase in
Arabia may well be one of the ten healthcare providers and investors, its health care needs. A rising population,
a growing percentage of Saudi nation-
best places to do business in the world. the coming liberalization of the
als over 60, and a surge in the illnesses
sector will mean increased access of affluence are all expected to create
One crucial component in this to the largest healthcare market in tremendous new demand for health care
program—for citizens individually the Middle East, and an exciting services. Planners within the Saudi gov-
and for the nation as a whole—is opportunity to help millions of ernment believe that the current, largely
the creation of a more market- Saudis live longer, healthier lives. state-funded health care system will be
unable to meet these needs. To cope with
that growth in demand, plans are being
made to encourage the development of
a private health care sector. This is likely
to create a tremendous opportunity for a
broad range of foreign health care com-
panies to participate in the Middle East’s
largest health care market.
8 Booz Company
11. About SAGIA
The Saudi Arabian General Investment Authority (SAGIA) is a service entity aiming
to provide services and facilities to promote investment and economic development
in the Kingdom of Saudi Arabia. SAGIA was established in April 2000 under the
directives of the Supreme Economic Council (SEC) as a catalyst to promote inward
investments, facilitate exchange of best practice between the public and private
sectors, as well as act as an intermediary between the global business community
and the Saudi Government and its ministries and agencies. It also aims to contrib-
ute to economic policy-making substantiated by research and strategic criteria.
SAGIA’s role is complementary and supportive to the bodies directly concerned
with the various investment sectors and working to finalize the investors’
procedures. The mission of SAGIA is to create a probusiness environment
while providing comprehensive services to investors, and fostering investment
opportunities in energy, transportation and knowledge based industries
Six core roles maximize SAGIA’s impact on Saudi economics and investor interests.
About the Authors
1. Facilitation: SAGIA’s promise to investors begins by providing comprehensive
transactional support services that transcend licensing and extend through to the
Richard Shediac is a partner with completion of a project and beyond.
Booz Company based in Abu Dhabi.
He leads the firm’s healthcare activities in 2. Investor-to-Opportunity Matchmaking: Targeted and focused matchmaking
the Middle East and has participated in defines SAGIA’s marketing and promotion activities.
various strategy, operations improvement, 3. Special Incentives for Lesser-developed Regions: In cooperation with regional
and organization projects in the Middle
authorities inside Saudi Arabia, SAGIA’s regional development focus leverages a
East, Europe, and Asia.
region’s strength for the investor’s profit.
Ghassan Barrage is a senior executive 4. Special Incentives for Entrepreneurs: Feeding the leaves and branches of a
advisor with Booz Company in Beirut.
healthy economy requires cultivating an entrepreneurial spirit. SAGIA does this by
He has extensive management consulting
partnering with The Centennial Fund, a national, non-profit foundation dedicated
experience in strategic planning and
organization development in various to mentoring and funding Saudi entrepreneurs.
industries in Europe and the Middle East, 5. Dedicated Sector Services: SAGIA offers its comprehensive investment
including healthcare.
facilitation package to all investors seeking opportunities in any of the economy’s
René Perillieux is a senior executive open sectors. To maximize the Kingdom’s competitive advantages and set the
advisor with Booz Company in Dubai. stage for further economic diversification, however, SAGIA dedicates sector-specific
He leads the firm’s work with European resources and services in Strategic Business Units.
public health organizations and
6. Pro-Business Advocacy: Being competitive in the global economy means a
providers, and specializes in strategy,
innovation, technology management, business environment characterized by healthy practices, policies, and procedures.
and large-scale transformation for Easing Your Path
private and public organizations.
The Saudi Arabian General Investment Authority (SAGIA) is the gateway to
investment in Saudi Arabia, easing the path of investors and facilitating their
progress through the required procedures by providing comprehensive services.
The focal points for investors are SAGIA’s One Step Shops in Riyadh, Jeddah and
Dammam. Here investors receive personal attention as they are furnished with all
necessary information, including details of the benefits and incentives to which
they are entitled; guided through the licensing process; and given direct access to
all relevant government ministries and agencies in the one location. Post-licensing
services such as assistance with land acquisition, site development and the
obtaining of utilities is also available.
For potential investors the web portal, www.investinsaudi.com, ensures easy
and effective access to SAGIA and provides regularly up-dated investor-related
business information and details of SAGIA-identified opportunities.
For more information kindly visit our website: www.sagia.gov.sa
Booz Company 9
