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4.1 KSA Model of Economic Flow and Development

The flow of resources in KSA economy is presented in Figure 13. Drawn from the above discussion, GDP is driven by 2 main pillars of economic development; oil and non-oil sectors. Foreign Direct Investment (FDI) plays a very important role in the growth potential and stability of the KSA economy; quite a sizeable portion of healthcare expenditure is made up of pharmaceuticals and almost all of these drugs are imported from foreign countries in the form of FDIs. FDI is motivated by four critical elements; GDP, GDP growth rate, Privatization and,

Import and Export rates. A positive relationship exists between GDP and GDP growth rate but the inverse is true for privatization and balance of payments; an economy highly sensitive to trade. This essentially emanates from the fact that the non-oil sector of KSA has failed to attract as much FDI as attracted by the oil sector. To create a more self-reliant and sustainable economy certain adjustment need to be made by redirecting FDI into import substitute and export promoting sectors.

Figure 14. KSA Model of Economic Flow

Source: Gulf Writers

Value Added by the Oil Sector Value Added by Non-Oil Sector

Gross Domestic Product

Payment Abroad Net Domestic

Production Income from

Abroad

Gross National Product

Salaries and Wages after

payments abroad Profits after Payment Abroad

National Income

Savings Consumption

Expenditure

Financial Investment Productive

Investment Consumer Demand

Total Domestic Demand

Total Domestic Supply

Imports Non-Exported Domestic Output

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Necessary Conditions for Growth

According to the Global Competitive Index (GCI) 2013-2014, KSA is ranked 20th with a Score of 5.1, among 148 countries. A reduction in rank from 17th in 2011-2012 and 18th in 2012-2013 is

observed. Described as being in a transition from factor driven to efficiency driven economy, KSA is ranked 14 in terms of basic requirements or factor driven economy, 27th in terms of efficiency driven economy, and 29th in terms of innovation and sophistication driven economy. Health and primary education falls under basic requirements and is ranked 53rd out of 148 countries. Comparable to other countries that are also in the transition to efficiency driven economy KSA show a much higher performance (Figure 15).

There is the need to improve higher level education and training (ranked 48; score 4.7) as well as labour market efficiency (ranked 70; score 4.3). Other areas which need attention include technology readiness (ranked 41; score 4.6), health and primary education, financial market

development and business sophistication. Despite high ranking in macroeconomic environment (ranked 4; score 6.7), some problems continue to impede the smooth flow of doing business in Saudi Arabia. Details and scores used for the Global Competitive Index (2013-2014) are presented in Exhibit 1.0.

Figure 15. Stage of KSA Economic Development – Global Competitiveness Index (2014)

Source: World Economic Forum (2013)

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Most problematic factors for doing business

Restrictive labour regulations are the main hindrance to investors who would want to do or find business in KSA. Other countries in the GCC also experience such restrictive labour regulations,

unrestricted labour sector, and lack of application of minimum wage policies leading to influx of unskilled expatriates. Other qualified expatriates tend to work far below their statutory wage requirements. The second challenge is the inadequacy of educated workforce, followed by inefficient government bureaucracy, lack of access to financing, poor work ethics in national labour force, and high tax rates. Other minor problems include the insufficient capacity to innovate, corruption, tax regulations, inadequate supply of infrastructure and inflation. Aside these problems, the government is quite consistent and stable in policy application. Crime and

theft is on the minimum; also general public health remain in good condition.

5.0 Healthcare Expenditure

Comparison of KSA GDP contribution to healthcare, healthcare expenditure per capita, and other healthcare financing exponential with other countries help comprehend figures in much better. A look at the relationship between population and healthcare exponentials of countries in the GCC

region show that KSA holds about 60% of the total population and healthcare financing respectively. Based on population and GDP projections for 2014 and percentage of GDP contribution to health expenditure for 2011, Figure 17 outlines GCC countries and their

respective percentage of GCC population and GCC healthcare expenditure. KSA holds 60% of GCC population and about 63% of total GCC healthcare expenditure. At the close of at the third quarter of 2012, KSA controlled close to 75% of healthcare in the GCC that year with a budget of US$ 13.5 billion which excluded another amount of US$ 4.3 billion for the large healthcare cities projects initiated across the country. An amount of US$18 billion was invested into healthcare by the government for 2012 alone; adding private healthcare and other healthcare

Figure 16. Most Problematic areas for doing business in KSA (2014)

Source: World Economic Forum (2013)