18 Sep 13 Rising spend on health care to drive Saudi Medical Device market

It is definitely a golden era for the Saudi healthcare industry with the government planning to increase its public healthcare spending manifold. The government has already allocated USD 65bn specifically for the development of healthcare in the country, which represents ~ 17% of the total budget as per the Ninth Five-Year Development Plan Announced by the Saudi Arabian cabinet. As per the plan, a total of 117 new hospitals, 750 primary health care centers and 400 emergency centers will be established in the kingdom of Saudi Arabia.These new healthcare establishments will be fitted with cutting-edge medical devices and furnishings which will create huge opportunities, especially for medical device manufacturers around the world. The Saudi government has already signed contracts worth USD 800m with private companies for a range of healthcare services, including supply of medical products, medical equipment, medical devices and laboratory equipment.

Saudi medical device industry to reach USD 300m by 2017

Currently the Saudi medical devices industry stands at around USD 170m and is expected to grow at a CAGR of ~13% for the next 5 years to reach around USD 300m by 2017.

The growth is expected to ride on the tremendous growth in the healthcare industry in Saudi Arabia where in a slew of brand new multi-specialty hospitals and health care facilities are expected to come up. The majority of the new demand for medical devices is expected to be for sophisticated devices to equip these new facilities.

The Saudi medical market is the largest market contributing to nearly 50% of the total medical device market in the Middle East.

Currently local production of medical devices in Saudi Arabia is very limited. There are only a few key manufacturers of medical devices such as SPIMACO, Alshifa Medical Syringes Manufacturing Co. Ltd and Samir Photographic Supplies.

Imports account for nearly 75% of the current medical device market

The current market for medical devices is dominated by imports, which contributes to nearly 75% of the total medical device market. Imports have been increasing at a very healthy rate since the last 5-6 years and are expected to show a similar high growth rate going ahead.

The USA and the UK contribute the most to the imports of medical devices in Saudi Arabia. Other important exporting counties include Japan, Germany and the European Union. Imports of MRI scanners radiology equipment and orthopedic instruments have seen the highest growth of around 11% CAGR over the last five years.

There are around 400 importers and distributors of medical devices in Saudi Arabia, but the largest government-controlled importer of medical devices is the National Company for Unified Purchase of Medicines and Medical Appliances, while private sectorincludesplayers such asthe AMICO Group and el-Seif Development Company.

Increased government spending and rising life style illnesses will drive the medical device industry

Increased government spending will continue to be the biggest driver for the medical device market in Saudi Arabia. The Saudi government has embarked on multi-billion-dollar hospital and research facility projects as overall healthcare expenditure in the region increases.The biggest projects include the King Abdullah Bin Abdulaziz Project for the Development of Security Forces Medical Complexes which will cost USD 6.7 billion and is expectedto be completed in 2014 andaUSD 1.2 billion, 1,500-bed facility, King Abdullah Medical City which is also under construction.

Growing per capita income and changing life styles are leading to an increase in life style diseases in Saudi Arabia. Nearly 50% of the Saudi population above the age of 45 is diabetic and more than USD 1 billion is spent annually on treatment for diabetes; heart diseases are increasing at an average 5% annually; nearly 25% of the population are regular smokers (a major cause of respiratory diseases); around 30% of the population is afflicted with hepatitis C or B; over 11,000 Saudis are suffering from kidney failure and nearly 40% of them are in need of kidney transplantation.This points to increased spending on health care by Saudi nationals in coming years which will boost the market for medical devices.

Further, the Gulf countries are becoming a very attractive target for clinical research because of their improving infrastructure and increasing cost of clinical trials in the West.

High duties could pose a concern

Currently all medical devices imported into Saudi Arabia are charged custom duties of around 12% with the exception of certain specific devices such as radiology equipment which are exempt from duties. This is quite high if compared to other regional neighbors such as UAE where the duties are much lower at around 5%.

Picture looks rosy but entrants need to tread carefully

Saudi Arabia has been making a serious attempt to invest in non-oil sectors, especially in areas such as infrastructure and healthcare to make the economy’s growth more sustainable. It is expected to enter the league of trillion dollar economies by the year 2018. This is expected to drive industries such as the medical device and medical equipment industry.

Thoughthe picture looks very bright for global exporters of medical devices to Saudi Arabia, it is important that they understand that the Gulf is not the easiest of markets. Hence itis strongly recommend that they should consider conducting detailed research studies to understand feasibility as well as evaluate prospective local partners before entering this market.

Aniket Pargaonkar

As a project manager with ValueNotes, Aniket managed Indian & international clients from across industries such as engineering products and lighting & lighting equipment.

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