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Taking world-class healthcare into Africa

A real opportunity for South African medical companies

Article by Griffin Advisors

According to the International Finance Corporation (IFC), the total value of Africa’s healthcare industry in 2016 is USD 70-billion. The pharmaceutical sector alone is worth just over USD 20-billion, and according to a McKinsey & Company report is expected to grow to between USD 40-billion to USD 65-billion by 2020. In spite of this, decades of under-investment in the health sector has left many countries in Africa with insufficient infrastructure (properly equipped and functioning hospitals and clinics), professional skills (specialists, doctors and nursing staff) and drugs and medicines to provide adequate healthcare to their citizens. This impacts on two levels: the poor who are wholly reliant on government facilities receive limited or no primary healthcare whilst people who can afford healthcare from private practioners cannot receive it because it is not available. It is of little surprise that WHO (World Health Organisation) healthcare indicators show Sub Saharan Africa lagging significantly behind other regions and falling well short of global averages. Adult and infant mortality remains high whilst life expectancy, despite improving over the past decade, is alarmingly low in certain countries.

The IFC estimates that around 60 per cent of health care financing in Africa comes from private sources and about 50 per cent of total health expenditure goes to private providers. In respect to public funding, governments in sub Saharan Africa spend on average 6 per cent of GDP on healthcare. While some countries provide more funding, for example Lesotho (11 per cent), Namibia (9 per cent) and Uganda (7 per cent) there is overall a shortfall in funding to address the ‘healthcare deficit’. This not only puts a strain on existing services but places a premium on quality healthcare delivery because of the scarcity of supply. For patients that can find local specialist services, the costs can be astronomical – sometimes as much as four times higher than the accepted reference price. This vacuum or skills shortage has created excessive demand for almost all specialists, including anaesthesiologists, gastroenterologists, nephrologists, neurosurgeons, orthopaedic surgeons, plastic surgeons and urologists.

For wealthy individuals in Africa there is sometimes little option but to look abroad for consultation and treatment. It is not uncommon for expatriates, foreign contract workers, members of the diplomatic community and high net-worth individuals to travel to the USA, UAE, UK and South Africa for medical procedures. This has created an opportunity, most notably in East and West Africa, to establish ‘health hubs’ where world-class oncology, cardiology and maternity centres as well as specialist facilities such X-ray and MRI (magnetic resonance imaging) units could be set up. Furthermore, there is an opportunity to set up ‘one-stop specialist practices’. For example, sports medicine practices that would house an orthopaedic surgeon, a podiatrist and team of physiotherapists under one roof allowing for seamless consultation, diagnosis and treatment. Access to such facilities would attract not only locals but USD-paying patients (‘medical tourists’) from the region. Currently, only South Africa can be regarded as a medical tourism destination in Africa.

Affordability of healthcare is arguably the single biggest problem in terms of extending medical services to all citizens. At present, most Africans have limited or no access to social protection schemes and pay for medicines out of pocket. This situation is set to change however with the launch over the next few years of national health schemes in several African countries. No doubt this will be a game-changer for the entire industry. Already, major drug manufacturers are looking to ramp-up production in anticipation of all citizens being able to afford drugs and treatment, and purchase medication in correct dosages. Multinationals supplying generic pharmaceuticals are best placed to exploit this opportunity but will need to decide whether to export into these markets or take a longer term view by establishing local manufacturing facilities, either in joint venture with local companies or independently. Anticipated growth in the health insurance industry clearly represents an opportunity for South African insurance providers to develop mass-market health insurance products to accommodate all levels of society, including people that are ‘unbanked’ but willing to make payments and transfers using ‘mobile money’ systems.

To extend the reach of healthcare and hasten its delivery more and more African governments are looking at eHealth solutions. Telemedicine for example allows for real-time remote diagnosis which is particularly useful in treating patients in distant rural communities. In addition, remote patient monitoring through mobile technology can eliminate the need for outpatient visits and allow healthcare professionals in different locations to exchange information and discuss patient cases. Given the technological expertise available in South Africa, there are numerous opportunities to adopt and export ICT-based healthcare solutions into the rest of Africa, for example the delivery of chronic medication by drones.

The weak Rand will certainly benefit South African exporters of healthcare services and products. Given generic medicines in low-income countries are only available in about 58 per cent of facilities and on average cost 2.5 times more than the international reference price, the ability to undercut suppliers is a distinct advantage, particularly when bidding for large government tenders where margins are thin. This applies not only to drugs but also medical equipment and consumables. South African companies are well placed to exploit this opportunity by providing medical supplies and equipment that is affordable and appropriate for conditions in Africa.

South African companies would be well-advised to track bilateral initiatives in Africa, for example the US President’s Emergency Plan for AIDS Relief (PEPFAR) for which framework agreements have been established with sixteen African countries. Moreover, there are a number of private equity funds that are mandated to invest exclusively in the healthcare sector in Africa. In terms of healthcare infrastructure in Africa there is growing support for the construction, operation and management of hospitals and clinics through public private partnerships (PPPs). An example of this is the construction and operation by a Netcare-led consortium of a new national referral hospital in Maseru, Lesotho.

In many respects healthcare provision remains an untapped market in Africa and will remain so for as long as there is a scarcity of first-rate facilities and practitioners. The challenge for South African medical companies is to reach the millions of individuals that can afford and are willing to pay for world-class healthcare. The African healthcare industry is currently attracting the attention of international investors. Fidel Jonah, Executive Director at Griffin Advisors, states that South African companies are best suited to take advantage of this opportunity; however they should be prepared to tweak their business models and strategies to make them country and client-specific.

Griffin Advisors has identified the healthcare sector as a key area of focus and has the necessary knowledge in country execution capability and networks to advise and assist healthcare companies and practitioners seeking to expand into the rest of the continent.