Saudi health care sector: Where are the opportunities?
After writing four articles on this promising sector, this week I will conclude my health care series with part five tackling a highly important supporting service to hospitals and health centers around Saudi Arabia which is the health care catering market.
The health care food catering market in Saudi Arabia is worth an estimated SR2.6 billion ($600 million) and growing at 4.8 percent a year in real terms.
The number of annual meals served grew at a compound annual growth rate (CAGR) of 4.8 percent from around 132 million in 2012 to 159 million in 2016 driven by the consistent growth in the number of hospitals and number of beds in the Kingdom which have grown at a CAGR of 2.8 percent and 4.8 percent, respectively, over the past five years.
Out of total allocations of SR890 billion ($237 billion) in the 2017 budget, health and “social development” account for SR120 billion, an increase of 15 percent on the previous year.
Much of this spending is aimed at boosting infrastructure, including plans for 38 new health centers with a total of 9,100 hospital beds. This comes on top of 23 new hospitals and 4,250 beds that were added last year as well as two additional medical cities with a total of 2,350 beds.
As a result, the market (number of hospital beds) over the next five years and beyond is likely to grow between 4 percent and 7 percent per annum in real terms driven by two core drivers.
The first driver is the projected growth in the population as Saudi Arabia has one of the fastest growing populations in the world, indicating a spiraling future demand for health care facilities.
The second driver is to meet the country’s target by bringing health care penetration rates closer to international levels from 23 to 27 hospital beds per 10,000 inhabitants. (High-income countries bed density reaches 54 beds per 10,000 inhabitants.)
According to official sources, while there are fewer than 100 companies eligible to bid on health care food catering opportunities being tendered by the government, fewer than 20 are classified and qualified to take on such a business (which have the provision of food catering services to health care facilities above SR42 million). Of these qualified companies, between three and seven are active and leading the health care catering market segment. The rest operate principally on the fringe, particularly covering secondary areas.
Expansion of health care centers and hospital beds, along with the shortage of highly classified catering companies, will make the sector highly attractive in the next five to 10 years, which might open new doors for investors to set up new companies or merge with existing ones or even partner with leading global operators.
• Basil M.K. Al-Ghalayini is the Chairman, CEO of BMG Financial Group.