Investing in healthcare infrastructure

20 October 2009

A series of multi-million-dollar government and private sector projects will help to improve healthcare standards across the Gulf, but the region still lags behind the West in spending terms.

After years of relative neglect, healthcare spending in the GCC will be transformed over the next two decades. Saudi investment bank NCB Capital predicts total healthcare investment in the region will grow fourfold from $15bn in 2008 to $60bn in 2025.

Currently, the six GCC states devote an average of just 2-4 per cent of their gross domestic product (GDP) to the health sector, compared with an average of 8 per cent of GDP in Europe and 15 per cent in the US.

As a result, investment in the Gulf’s healthcare sector – in particular its infrastructure – has fallen behind the development of the rest of the economy. Billions of dollars in investment is required to revamp ageing facilities and build new treatment centres to cope with increasing patient numbers.

Governments and the private sector are slowly responding to the challenge. US management consultant McKinsey & Company says in its GCC Healthcare 2025 report that with 500 hospitals in the GCC and 70,000 hospital beds, infrastructure has begun to reach levels comparable with benchmarks in developed countries.

The GCC has an average of 2.1 hospital beds and 1.4 doctors for every 1,000 people, compared with 2.0 doctors for every 1,000 people in Japan and 2.3 in the US.

Spending rises

Despite the progress that has been made, GCC countries still have much work to do to improve the standard of their healthcare facilities. The Gulf’s most populous country, Saudi Arabia, has started the transformation. In its budget for 2009, the kingdom has allocated SR52.3bn ($14bn) to its healthcare sector, about 11 per cent of the total, including the cost of building 86 hospitals with a combined total of 11,750 beds.

The amount of money spent on healthcare as a proportion of total government spending increased from 8 per cent in 2006 to 8.4 per cent in 2008. This is second only to the education sector in terms of state outlay, and the trend of increasing healthcare spending looks set to continue. NCB Capital predicts there is potential for private healthcare service providers to invest up to $20bn in new medical facilities in the kingdom by 2016.

The broader trend in the kingdom to widen access to healthcare through mandatory health -insurance also provides investment oppor-tunities. Saudi Arabia introduced medical insurance in early 2007 for expatriates working in companies with more than 500 staff. In the first half of 2009, it was expanded to cover all companies, and is likely to encourage further private participation.

NCB Capital says the kingdom has issued licences to 26 insurance companies over the past two years and is considering applications from 10 more.

Other incentives including interest-free loans and partnership deals are also being floated to make the healthcare industry more appealing to private investors.

In 2008, the Health Ministry announced plans to build the largest medical city in the Middle East, based in Mecca. King Abdullah Medical City will comprise three hospitals with a total of 1,500 beds, with the first phase of the facility to be built on an area of 850,000 square metres.

The Health Ministry also plans a series of smaller facilities across the country, outside the main cities of Riyadh and Jeddah.

Two local firms are building the $100m King Faisal Hospital at Taif Medical City, which has 500 beds and is due to be completed by the end of 2010. The Saudi German Hospital Group (SGHG) is planning to build a chain of smaller hospitals, each with 150 beds, to serve the
kingdom’s districts.

Up to four 50-bed hospitals located at Qurayyat, Hadeythat and Najran are also due to be completed by the end of 2009.

Governments across the region are now providing incentives to boost private sector partici-pation in healthcare services, foremost among them Qatar, Bahrain and the UAE.

In Abu Dhabi, much of the focus is on the construction of the $1.9bn Cleveland Clinic, a project backed by state-run investment vehicle Mubadala Development Company. The facility is the largest to be launched in Abu Dhabi.

Cleveland Clinic

Located on Sowwah Island, between Reem Island and the Mina Zayed area of Abu Dhabi Island, the clinic will be a 360-bed, 220,000-square-metre hospital. There will be a central utility plant and parking for 3,200 cars.

Six consortiums submitted technical bids in late September, with commercial bids due in late October. US-based Aecom is the engineer for the project, while local developer Aldar Properties is managing the construction on behalf of Mubadala.

Mubadala is also expected to tender a contract to build its planned Tawam hospital in Al-Ain by the end of 2010, but has yet to set a date for the tender.

Elsewhere in Abu Dhabi, the emergency ward at the public Al-Mafraq Hospital will be expanded, in partnership with Bumrungrad International Hospital. The cost of the expansion was originally estimated to be $544m but has since been revised to $817m, according to regional projects tracker MEED Projects.

An award for the engineering, procurement and construction (EPC) deal is expected in the fourth quarter of 2009, with building to start in the first quarter of 2010 and completion set for the end of 2013.

In neighbouring Dubai, the Dubai Health Authority has AED5bn ($1.4bn) worth of hospital projects planned or under way. In September, the authority invited contractors selected to prequalify for a contract to build its Al-Jalila Children’s Specialty Hospital, close to Dubai Creek on Oud Metha road. It plans to build the 200-bed hospital adjacent to the Al-Wasl Hospital. The hospital will have medical wards, surgeries, a 370-seat auditorium, underground parking for 200 cars and outside parking for 270 cars.

The total built-up area is 105,000 square metres, with facilities including units for mental health, rehabilitation, oncology, nephrology and a heart centre. Piling work on the AED1bn, 200-bed paediatrics hospital within the grounds of Al-Wasl Hospital started in June.

Meanwhile, a project consultancy deal for a 240-bed cancer centre, the Rashid Cancer Centre on the Rashid Hospital campus in Dubai, is also due to be awarded soon.

The Dubai Health Authority authority is also planning a new accident and emergency hospital, the 300-bed Al-Maktoum Hospital, on Emirates Road. US architect Perkins Eastman will tender the AED1.6bn construction contract in October 2009, with an expected three-year building period.

The Dubai Health Authority forecasts the emirate will require a total of 6,000 hospital beds by 2010, almost double the current number. About 3,500 beds are currently avail-able to patients but a much-needed boost will come from Dubai Healthcare City, a multi-billion-dollar project being managed by government-run developer Tatweer.

Dubai Healthcare City will be located near Dubai Creek Park and developed in several phases covering an area of about 1.3 square kilo-metres. The project will be implemented in collaboration with the Dubai Department of Health & Medical Services, and the Health Ministry.

However, the project has recently stalled. In January 2009, Tatweer instructed the contractor, the local Al-Basti & Muktha, to stop work on two mixed-use towers as part of a freeze on several high-profile construction projects in the emirate.

Building work on the Canal Point Hospital at Jumeirah Lake Towers was halted the same month after the client, the local Istithmar Real Estate, cancelled the AED500m construction contract with the local Al-Naboodah Consulting. The project involved the construction of a 200-bed hospital in an eight-storey building with two basement levels.

Elsewhere in the UAE, the Public Works Ministry awarded the local MCM Group an AED800m contract in April to build the Sheikh Khalifa Specialist Hospital in the emirate of Ras al-Khaimah.

In Kuwait, the Central Tenders Committee awarded the main construction contract for Jaber al-Ahmed al-Sabah Hospital, one of the largest building projects undertaken in Kuwait, in September. The KD304m ($1.1bn) deal was won by a joint venture of Arab Kuwait Contractors Company and Egypt’s Arab Contractors (Osman Ahmed Osman & Company).

Falling costs

The ministry originally tendered the contract in 2008, when a joint venture of South Korea’s Posco Engineering & Construction and the local Syed Hamid Behbehani & Sons submitted a low bid of KD319m. The ministry approved the -venture’s bid in Feb-ruary this year but decided to retender the contract to take into account the fall in construction costs since last year.

The facility is due to open in 2013. With 1,010 general practice beds and 158 specialist trauma beds, it is the largest public hospital project in the region.

Kuwaitplans to do much more to meet consumer demand by building up to eight more hospitals by 2016. This will double the number of general and specialist hospital beds in the country at a cost of $3.5bn.

Elsewhere in the GCC, Bahrain is developing two vast medical complexes to provide services to foreign nationals as well as its own people. The Bahrain Health Oasis, a project being -developed by the state and the Royal College of Surgeons in Ireland (RCSI), is -moving ahead, while Dilmunia, a $1.6bn -private health resort, is being developed by Ithmaar Development Company, a subsidiary of the local Ithmaar Bank.

Bahrainis also building a new public hospital. The $130m King Hamad General Hospital is scheduled to open in late 2010 in the Muharraq area and will take some of the pressure off the 900-bed Salmaniya Medical Complex.

In Qatar, much of the project activity revolves around the $2.4bn Sidra Medical & Research Centre at Education City. The facility is being funded by a $7.9bn endowment from the Qatar Foundation for Education, Science & Community Development.

The hospital will initially house 412 beds, but with the infrastructure to expand to 550 at a later date. The clinical focus of the facility will be on obstetrics, gynaecology and paedi-atrics, although Sidra will also offer select medical surgical services for adults, including organ transplants.

Oman has modest plans compared with the rest of the Gulf states, with the Health Ministry building a cardiac centre at Sultan Qaboos Hospital at Salalah.

However, NCB Capital says with the Omani government planning to implement a health insurance scheme by the end of 2009, the sultanate’s private healthcare sector could become the focus of private investment in the next five years.

Healthcare systems in the Gulf are experiencing rapid change as new hospitals and -primary healthcare centres are built across the six GCC member states.

However, healthcare spending in the region still lags that in the West by about 50 per cent in relative terms. The average per capita GCC spending on healthcare is $600 a year compared with $1,200 a year in East Asia and $6,500 in the US.

With Gulf governments allocating significant sums to upgrading healthcare infrastructure, as well as encouraging private sector participation in both building and managing new hospitals, the region’s healthcare sector has progressed a long way over the past few years towards meeting the changing needs of its growing populations.

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