In line with BMI's view that public healthcare spending in Saudi Arabia would be greatly boosted by government initiatives in 2012 there has been a flurry of activity in the public healthcare sector in Saudi Arabia at the start of 2012. Concurrent with this trend has also been an increase in the number of private equity-sponsored medical projects. Both of these trends will support healthcare, pharmaceutical and medical device spending in the future.

Headline Expenditure Projections

- Pharmaceuticals: SAR14.54bn (US$3.88bn) in 2011 to SAR16.07bn (US$4.29bn) in 2012; +10.5% in both local currency and US dollar terms. Forecast almost unchanged from Q212.

- Healthcare: SAR79.16bn (US$21.14bn) in 2011 to SAR89.10bn (US$23.79bn) in 2012; +12.5% in both local currency and US dollar terms. Historic data up slightly from Q212 due to new World Health Organization (WHO) data, forecast up slightly due to high public healthcare budget.

- Medical devices: SAR5.73bn (US$1.53bn) in 2011 to SAR6.52bn (US$1.74bn) in 2012; +13.9% in both local currency and US dollar terms. Forecast almost unchanged from Q212.

Risk/Reward Rating

Saudi Arabia's composite score increased in Q212 to 55.7, up from 54.2 the previous quarter. This increase takes the country up BMI's proprietary Risk/ Reward Ratings (RRRs) to fourth place out of the 30 markets in the region. Globally, Saudi Arabia rose to 36th of the 95 countries surveyed. Its score is propped up by the country's wealth and a sizeable population (exceeding 28mn in 2011). Furthermore, its forecast growth rate has been increased in Q212 due to favourable public and private healthcare investments.

Key Trends And Developments

- The Gulf Cooperation Council (GCC) is looking to introduce a pan-regional IT system that will link the medical records of prospective workers and expatriates from 11 'labour exporting countries' to the GCC Health Ministers' Secretariat and to the ministries of health of the GCC states. This is part of the regional drive towards better integrating Health Information Systems (HISs) to improve the quality and efficiency of patient care.

- In January 2012 at the 72nd session of the GCC's Health Ministers Council, ministers announced the formation of a unified drug pricing unit for the region, which would be responsible for setting pharmaceutical prices for branded drugs across all countries so the maximum profit margins for distributors and retailers combined would not exceed 45% of the cost insurance and freight (CIF) import prices.

- The Ministry of Health signed a contract to begin the construction of the first stage of the King Faisal Medical City in the southern province, which is to cost over SAR642bn (US$171.2mn). Once completed, the healthcare city will cost over SAR4bn (US$1.07bn). The contract for the first stage of the project for a 500 bed capacity facility was assigned to Al Fouzan Trading and General Construction Company. The first stage of the hospital is to take three years to construct.

- In late December 2011, the Saudi government said it will increase its healthcare budget for 2012 by 26%. Though BMI remains slightly more conservative in our forecasts of public healthcare expenditure growth for the year, we think that the government's announcement is very positive for the healthcare and pharmaceutical industries. Furthermore, we feel it plays into our view that the Arab Spring would have strong upside risks for public healthcare spending, as King Abdullah and the Shura Council continue to prioritise healthcare to promote social stability.

- In November 2011, Julphar announced its intention to enter into a joint venture with Saudi branded goods distributor Cigalah, to build a SAR300mn (US$80mn) pharmaceutical manufacturing plant in Jeddah to produce and sell pharmaceuticals locally and regionally. This comes on top of the company's announcements that it will build a new manufacturing facility in Algeria and that it will begin producing insulin by the end of 2011.

BMI Economic View

We retain our sanguine outlook on Saudi Arabia's growth prospects in 2012. Heavy government spending, coupled with loose monetary policy, will keep domestic consumption and fixed investment growing healthily through the year, though we expect the net export position to worsen as oil production slows.

BMI Political View

The Saudi royal family depends on steady oil revenues to maintain its tight grip on the population. As a result, a sustained downturn in global oil demand could lead to substantial unrest and, potentially, regime change over the long term.

Click for Report details:Saudi Arabia Pharmaceuticals and Healthcare Report Q2 2012