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Healthcare Opportunities in the GCC

16 January 2020

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By: Marcel Trost

One of the most interesting sectors for foreign investment in the Gulf Cooperation Council (GCC) member states is the healthcare sector. For a variety of reasons, countries such as the United Arab Emirates (UAE) and Saudi Arabia aims to modernize their health systems and bring them up to the level of countries with established and well- developed health systems, which has led to a continuous increase in government spending on health care.

At the same time, the governments of the oil-rich countries in the Gulf region have to ensure a medium and long-term reduction in government spending, including in the healthcare sector, due to the lower oil price, which is why incentives for private companies in the healthcare sector are increasing. In the UAE and Saudi Arabia in particular, this creates great potential for foreign companies and investors. The following is an overview of developments in the healthcare sector in the UAE and Saudi Arabia and shows why now is a good time for foreign companies and investors to consider engagement in one of these countries.

United Arab Emirates

In the UAE, two-thirds of all healthcare costs are covered by the state. While the health care budget for the entire UAE in 2018 was AED 51.4 billion (converted approx. USD 14 billion), according to preliminary estimates, it increased last year by more than 17 percent to AED 60.3 billion (converted approx. USD 16.5 billion). In the Emirates of Abu Dhabi and Dubai in particular, the further development and modernization of the healthcare system are advancing at a rapid pace.

Goal: Status as a regional “Medical Hub”

Abu Dhabi and Dubai are competing for the future status of being a medical hub in the region. The aim is not only to provide Emiratis and residents with a high level of medical care but also to become a hub for medical tourism for patients from the entire region. Dubai alone is expected to receive around 500,000 patients from abroad for medical treatment this year.

At the same time, the number of treatments of the local population abroad is to be further reduced. In the case of more complex diseases, Emirati patients are sent to Great Britain, Germany, Thailand, and the USA, in particular, which is very cost-intensive for the governments since the treatments are covered by national health insurance.

The ministries are aware that these ambitious goals can only be achieved with enormous effort and with the support of foreign health experts and companies, as the recent quality initiatives of the Emirates of Abu Dhabi and Dubai show.

Creation of “Centre of Excellence”

An attempt is being made to develop certain standards for hospitals and other medical facilities that correspond to the standards in countries such as Germany or the USA. If the standards are met or adhered to by the respective institution, the responsible health authority can certify this institution as a “Centre of Excellence”. Specialized hospitals and health care providers should be encouraged in this way to become a model institution in their respective fields of speciality, representing a particularly high degree of treatment quality and professional expertise. Some standards have already been developed for certain specialist areas, for example by the Department of Health in Abu Dhabi for an adult cardiac surgery. The key factors that determine the standards include clinical outcomes, patient experience, patient safety, quality of care and treatments, employee satisfaction as well as training and development opportunities for physicians and non-medical staff.

Partial elimination of the sponsorship obligation for companies in the healthcare sector

The UAE government has created a further incentive for foreign companies in the healthcare sector with an amendment to the Foreign Direct Investment Law (Federal Law Now. 19 of 2018) and a Positive List announced last year. For the activities in the UAE mainland mentioned in the Positive List, i.e. not in one of the numerous Free Zones, it is now no longer necessary to have a local partner as a sponsor in the company.

Until now, there has been the requirement – without exception – that foreign companies could only establish a company in the mainland if an Emirati or a company wholly owned by Emirati nationals held at least 51% of the shares in the company. Even though in practice all participation and profit-sharing rights have been transferred to the foreign shareholders against payment of a sponsorship fee through so-called sponsorship agreements, this requirement has often kept foreign companies from establishing their own company in the mainland.

Currently, the Positive List already contains the following activities:

  • Manufacture of medical and dental instruments and supplies;
  • Manufacture of pharmaceuticals, medicinal chemical and botanical products;
  • Medical and dental practice activities;
  • Hospital activities (subject to the approval of the concerned parties based on economic needs tests that consider the number of hospitals, medical and health centers in specific areas. The economic needs tests are not required in Dubai Healthcare City);
  • Other human health activities (activities for human health not performed by hospitals or by medical doctors or dentists).

If a company whose activity is not included in the Positive List seeks exemption from the sponsorship requirement, it can apply for an exemption from the sponsorship requirement from the relevant authority if the activity is not included in the Negative List. The new FDI Law describes the procedure for such a case. It can also be assumed that other activities will gradually be added to the Positive List and thus exempt from the obligation to include a local partner.

Saudi-Arabia

In Saudi Arabia, there are increasing efforts to further modernize the health care system, too. For example, estimated government spending on healthcare in 2019 has risen to SAR 172 billion (approx. USD 47 billion), an increase of 8 percent compared to 2018. This trend is expected to continue in order to achieve the ambitious goals of Saudi Vision 2030.

Promotion of the private sector – especially through Public-Private Partnerships (PPPs)

In this context, the government is promoting privatization through investment in the private health sector, in particular by granting loans for the construction of private hospitals and so-called Public-Private Partnership models (PPPs) in addition to reducing public spending on healthcare in the long term. One example from last year is the award of a concession to operate the radiology department of seven state-owned hospitals in the Riyadh region to a private operator with the Saudi state holding a minority stake of 20% in a joint venture company. Saudi Arabia recently presented a draft Private Sector Law, which is intended to facilitate and better regulate privatization and PPP projects. Among other things, foreign companies are to be put on an equal footing with Saudi companies. The law also allows contracts to be concluded in languages other than Arabic and contains certain exceptions concerning competition and public procurement law. Since the UAE also intends to increasingly rely on PPPs in the future, the advancing privatization of the healthcare sector in the region will increasingly transform the role of governments from provider to regulator in the coming years.

SAGIA License: 100% Ownership Possible for Foreigners

In March 2019, SAGIA (Saudi Arabian General Investment Authority) announced its intention to allow foreign companies to build and operate private healthcare facilities without the participation of a Saudi partner, with the exception of clinics and pharmacies. This was previously not possible in this broad form as foreign investors were only allowed to invest in and operate large hospitals.

Mega-project NEOM

Major projects such as the planned mega-city NEOM on the Red Sea, whose development will most likely gain speed due to the successful IPO of Saudi Aramco last year and the resulting government revenues, also offer enormous opportunities for foreign companies in the health care industry, as the medical infrastructure for a new city of millions must be built from scratch. There will also be opportunities for developing and promoting innovation in the healthcare sector.

Conclusion and outlook

Today, foreign companies from the healthcare industry have good opportunities to engage the UAE and Saudi Arabia markets. On one hand, this is due to the cost and modernization pressure exerted by their governments. On the other hand, it is also their ambition to increase the attractiveness of their health system and to treat patients from the entire region which are crucial in becoming a leading hub for medical tourism.

As the UAE, in particular, is known for promoting innovative and disruptive technologies and solutions – including digitalization and the further development of artificial intelligence – in the healthcare sector, there are opportunities for the development, implementation, and establishment of such technologies and solutions.

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