Saudi Arabia’s healthcare system is transforming to ensure access to high-quality healthcare for all verticals of society, through improving access to healthcare and the value of healthcare, strengthening prevention, and improving healthcare traffic safety. Healthcare is a key national strategic priority as part of Saudi Arabia’s ambitious Vision 2030 roadmap. A component of the Kingdom's Vision 2030, the Health Sector Transformation Programme serves as a guide for expanding Saudi Arabia's healthcare infrastructure and restructuring insurance and services to offer all-inclusive, integrated healthcare. This opens the doors for strategic investment opportunities to savor the benefits of expanding the domestic healthcare sector of Saudi Arabia.
The Current State of the Saudi Healthcare Sector
Healthcare spending in the Gulf Cooperation Council (GCC) is largely championed by Saudi Arabia (nearly 60%), and the KSA government continues to place a high premium on this area.
Exhibit 1: GCC healthcare spending (USD billions)
Source: Statista
The healthcare and life sciences sector accounted for 14.5% of the country's budget in 2022, making it the third-largest recipient of government funds worth $36.8 billion. According to initial projections, healthcare and social development accounted for $50.4 billion in spending in 2023, representing almost 17% of the budget for 2023 and the second-largest line item behind education.
Saudi Arabia's healthcare industry is a hotspot for investment because of the country's vast population, business-friendly regulations, and policies that encourage international investment. By 2030, the Kingdom wants to construct $13.8 billion worth of healthcare facilities. Since the healthcare industry is by nature the least affected by business cycle variations, demand for healthcare remains consistent on a global scale. The current population of Saudi Arabia is over 36 million, and it is expected to grow to 39.4 million by 2030 and 77.2 million by 2050. To cater to the needs of this growing population, the Kingdom requires 13,700 doctors and 20,000 additional hospital beds by 2030, making healthcare among the top priority sectors of the country. Also, this opens up investment opportunities in this sector for both institutional and retail investors.
In 2021, the Private Sector Participation (PSP) Law was put in place with the aim of bolstering investor trust in PPP and the privatization process, supporting the investment process. In addition to strengthening the enforcement of PPP contracts, it offers a framework for direct public-private sector participation in projects or businesses, protecting private property rights and guaranteeing the State's ability to fulfill its financial responsibilities under PPP and privatization agreements.
The Saudi Arabian healthcare system is well-established and specialized medical services from cancer treatment to transplant procedures are offered by multispecialty hospitals. Although Saudi nationals are covered by the public sector for healthcare, both Saudi nationals and expats working in the private sector are now required to have private healthcare insurance. There are several key players in the Saudi healthcare sector. Ministry of Health (MoH), National Unified Company for Medical Supplies (NUPCO), Saudi Food and Drug Authority (SFDA), Council of Cooperative Health Insurance (CCHI), Saudi Authority for Intellectual Property (SAIP), Health Holding Company (HHC), Center for National Health Insurance (CNHI), and the National Center for Privatization (NCP). The HHC is in charge of developing and digitalizing the healthcare system in the Kingdom, with an emphasis on delivering treatment and medical services through health clusters. The NCP is creating privatization frameworks and preparing government assets and services identified for privatization to ensure quality outcomes.
Exhibit 2: A visualization of Saudi Arabia’s healthcare sector
Source: Journal of Public Health
The Ministry of Health’s roles as the regulator, provider, and payer have now been broken down into three main entities. The MoH will be the sole regulator, and the HHC will become the provider and take ownership of the 21 health clusters across five regions, which will ultimately become accountable care organizations (ACOs). The payer will be the national insurance system.
Compelling Investment Opportunities
Under Vision 2030, the KSA regime is planning to invest over $65 billion to develop the country’s healthcare infrastructure, which includes reorganizing and privatizing health services and insurance, launching 21 “health clusters” across the country, and expanding the provision of e-health services. Saudi Arabia currently has 78,000 beds in circa 500 hospitals where the private sector provides approximately 40% of the current capacity. By 2030, the private sector is expected to contribute to around 65% of the national healthcare system. Approximately 8,200 beds would be needed extra, along with an increased focus on community, long-term conditions, and rehabilitation facilities. By 2035, it is anticipated that a further 20,000 beds will be needed to meet the needs of the aging and growing population. These numbers reveal that the Saudi healthcare sector will require substantial investments in the next few years to achieve the goals outlined in the Vision 2030 plan.
Exhibit 3: Vision 2030 Health Sector Transformation Program
Source: Ken Research
The Ministry of Health is planning to launch health clusters across the nation. These clusters are a set of independent companies that focus on specialist services. The government aims to detach the MoH from overlooking hospitals and health centers and entrust the network of new companies with improving healthcare quality. Each cluster will have the ability to serve nearly one million people.
So far the MoH has launched two clusters; the Riyadh First Health Cluster and the Riyadh Second Health Cluster. Along with health cluster ideas, MOH prioritizes increasing the number of internationally accredited hospitals, doubling the number of primary healthcare visits per capita from two to four, decreasing the rates of unhealthy lifestyle effects such as smoking and obesity, improving the quality of therapeutic healthcare services, and expanding digital healthcare innovation.
The rise of non-communicable diseases among adults has become a serious matter of concern for the Saudi government. NCDs are the culprits behind a striking 69% of deaths in Saudi Arabia. Additionally, nearly 18% of the adult population has diabetes, while more than 40% are struggling with obesity. The nation is focused on taking high levels of preventive measures to overcome these unhealthy lifestyle issues. For example, in 2021, Saudi Arabia spent 25% to 35% of the total healthcare budget to fight diabetes, obesity, and cardiovascular diseases. Doubling the number of primary healthcare visits per capita from two to four, along with prioritizing preventative care screenings to manage chronic diseases are the government's long-term plans to eradicate these conditions.
The need for chronic healthcare is expanding as well, particularly to address Alzheimer's, dementia, Parkinson's, and multiple sclerosis among the aging population. By 2030, it is anticipated that 250,000 Saudi nationals will require home healthcare services due to the country's expanding population and rising life expectancy rates for both men and women. Rising rates of lifestyle diseases in Saudi Arabia are expected to cause secondary illnesses including heart attacks that require at-home medical care. The number of Saudi Arabians categorized as disabled is currently 7% and is projected to rise by 1.3% annually between 2020 and 2030, increasing the demand for home healthcare services. All these facts combined bring the possibility of meeting a sizable unmet need for home healthcare services in KSA through strategic investments that may yield lucrative returns in the long run.
Exhibit 4: A snapshot of the Saudi health tech market
Source: Ken Research
The following are some healthcare industry subsectors with the highest level of favorable conditions for investments.
- Dental services: rising demand, increased insurance coverage, and higher disposable coverage.
- The health insurance sector: mandatory insurance requirements and stricter enforcement are boosting demand.
- Medical devices manufacturing: Saudi government entities are working with Original Equipment Manufacturers (OEMs) and contracting manufacturers (CMOs) to localize and specifically manufacture medical devices.
- Pharma and Biosciences: KSA is the largest purchaser of pharmaceuticals in the GCC region. Saudi Arabia is planning to localize drug manufacturing.
- Mental health sector: The rapid increase in mental health cases in Saudi Arabia coupled with the lack of robust solutions available today to address these issues has created an investment opportunity in this space.
It is anticipated that to increase capacity in these areas and to drive industry growth, the government will employ public-private partnership (PPP) models, opening new investment opportunities in the coming years.
Recent Investments and Projects
Nine priority areas have been identified thus far for public-private partnerships (PPP): primary care, hospitals, medical cities, laboratories, radiology, pharmacies, rehabilitation, long-term care, and home care. MoH is optimistic about attracting 100 PPP projects in health services with $12.8 billion in private-sector investment over the next five years. It is important to note that 19 PPP projects are already underway with a total investment worth $2.9 billion.
With the intention of investing up to $1 billion in Saudi Arabia, Burjeel Holdings, a major player in the UAE healthcare industry, signed a Memorandum of Understanding (MoU) with the Ministry of Investment (MISA). Target investment sectors will include digital health initiatives, hospitals and specialty medical treatment facilities, and clinical research initiatives within the healthcare ecosystem.
There are a few recent success stories that took place in the KSA's healthcare investment revolution that sparked hope among both investors and the government. The joint venture between the American company Medtronic and Pioneers Systems, a local Saudi company, successfully assembled the first production line of basic portable ventilators in Saudi Arabia and then moved to the advanced Intensive Care ventilator. On the other hand, a company named Bexa came up with a solution for breast scanning: a pressure sensor that predicts masses within the breast and enables accurate and pain-free exams without radiation. This venture has been successfully piloted at the women's health clinic in Riyadh. In addition, Digital Diagnostics, a healthcare technology firm engaged in developing AI tools that use high-quality picture analysis to identify illnesses, is teaming up with MoH to deploy its autonomous AI platform that detects diabetic retinopathy, (probability of blindness in people with diabetes) helping the Kingdoms efforts to fight NCD related disabilities.
These success stories reveal the meaningful impact that can be achieved by investing in private healthcare companies in Saudi Arabia.
Investing in the Booming Niches in the Saudi Healthcare Sector
Investors can gain exposure to the booming healthcare sector in Saudi Arabia through different types of funds and direct investments. Identifying a lucrative niche to invest in, arguably, will yield the best investment returns in the next five years. The mental health sector is one such niche that is beginning to blossom in Saudi Arabia with a newfound interest among both policymakers and investors to bridge the gap between the demand and supply for mental health solutions by removing common barriers such as limited time availability and unaffordability of existing services.
Tanmeya Capital, as the fund manager, is raising SAR 18 million to acquire FamCare, a tele mental health platform that has already been tested successfully in Saudi Arabia by offering both B2C and B2B services. FamCare is well-positioned to address some of the major barriers in the mental health space highlighted earlier, and the platform already has more than 200,000 registered users. The fund is targeting an IRR of 20% with a target average distribution of 10%. To fuel growth, FamCare has already formed strategic alliances with the Family Affairs Council, Princess Nourah Bint Abdulrahman University, and the Ministry of Human Resources and Social Development. FamCare is planning to foster several other strategic partnerships to enable enrollment growth in the future.
Acquiring an existing, established telehealth services provider makes economic sense given that it mitigates the risks involved in venturing into a young, fast-growing subsector in the healthcare industry. Tanmeya Capital is offering potential investors an opportunity to own a stake in FamCare as the platform nears a pivotal business point.
Tanmeya Capital’s Extended Care fund, with a targeted net IRR of 25%, is another option for investors seeking exposure to the healthcare sector in Saudi Arabia. This fund aims to support the underserved extended care sector in Saudi Arabia with a focus on investing in home healthcare services, virtual healthcare services, specialized long-term care facilities, and rehabilitation centers. The fund aims to fill a clear market gap in the extended care sector at a time when the demand for extended care is tipped to increase multi-fold in the coming years with 1 in 6 people expected to be over 60 years by 2030.
Conclusion
The Saudi healthcare sector is well-positioned to grow at a robust pace in the coming years, and there are pockets in the industry that are likely to grow exponentially, including the mental health subsector. Strategically gaining exposure to these fast-growing subsectors in the Saudi healthcare market is likely to lead to outsized returns. The key will be to choose an investment vehicle that offers meaningful exposure to this sector while being backed by an experienced team of industry experts. The Saudi healthcare market’s long-term growth will be driven by an aging population, increasing lifestyle diseases, and the government’s recently launched initiatives to tackle these challenges. Underserved market niches such as extended care and mental care present opportunities for outsized returns as public-private partnerships are increasingly being formed to bridge the gap between demand and supply in these domains.
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