10 May 2017
Africa is experiencing a period of strong economic growth, which in turn is accelerating the development and diversification of the health and care sector across the continent.
As levels of urbanisation and the working age population increase, the African health and care sector needs to adapt to new challenges (such as increased levels of non-communicable diseases), growing demand for healthcare (both in urban and remote areas) and the most efficient way to take advantage of new financial and technological solutions.
In this, our second insight into the growth of the healthcare industry in Africa, we look at some of the policies and mechanisms that incentivise private sector investment. You can find our first look at this burgeoning sector in our insight: Maximising the return on healthcare investment in Africa.
Between 2003 and 2013, industry sales per capita throughout Africa increased to US$16 billion and are projected to grow to US$60 billion sales per capita by 2020. While this figure is comparatively small when compared to global sales, the potential for growth is what attracts interest from the private sector. It has been predicted that pharmaceutical spending in Africa will reach US$43 billion by 2020.
Shoring up the local market
Many African governments recognise that a continued dependency on imported pharmaceuticals, (currently comprising an estimated 80% of all pharmaceuticals), is neither economically nor logistically viable. Through initiatives such as the Kenya Good Manufacturing Practice (GMP) Roadmap, Good Manufacturing Practices for the East African Community Medicines Regulatory Harmonisation, and the Pharmaceutical Manufacturing Plan for Africa, African governments have instead shown a commitment to, and allocated extensive resources for, the adoption and implementation of regulatory standards in domestic and regional pharmaceutical markets. This will begin to align these domestic and regional manufacturing processes of pharmaceuticals with international standards of Good Manufacturing Practice.
Implementing international standards of manufacturing enables domestically manufactured pharmaceuticals to be traded in confidence between countries that have similar manufacturing standards. However, implementation of good manufacturing practices is not a straightforward process and requires the alignment of domestic policies across various government departments such as health, commerce, trade, and industry.
In the case of member states in the East African Community (EAC) (who recently adopted the EAC-Medicines Regulatory Harmonisation Scheme), the process involves ratifying and harmonising medicine registration guidelines, requirements and procedures among member states into national law, thereby removing obstacles to a regional pharmaceutics trade. Once accomplished, however, adoption of these standards will make investing in the African healthcare industry a more attractive proposition for overseas companies.
The EAC also passed the following investor-friendly resolutions:
- to give preferential treatment to locally produced pharmaceutical products in government procurement, fostering the necessary demand for locally manufactured products and increased investments;
- to extend such preferential treatment to all members of the EAC;
- to introduce import restrictions on essential medicines;
- to develop networking research centres and build research synergies;
- to implement the recommendations of the World Trade Organisation (WTO) under their domestic laws and to implement the EAC Competition Policy to improve co-ordination; and
- to combat substandard, spurious, falsely labelled and counterfeit products.
Regional blocs in western Africa, the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC) have all launched initiatives with similar objectives. This produces an exciting reality in which three large regional blocs can trade freely and creates lively new opportunities for investment in the domestic market. The advent of tripartite blocs with equivalent standards of manufacturing and quality control fosters both domestic and continental trade as well as incentivising foreign investment.
Foreign private sector investment: the promise of riches
A focus on exporting as opposed to importing is an attractive proposition for foreign investors, due in part to the potential size of the African pharmaceutical market. As mentioned above, this market is projected to grow to US$60 billion by 2020 alongside a growing middle class and work force.
The International Finance Corporation (IFC) estimated that between 2006 and 2016, US$25 - $30 billion in healthcare/health sector investment was needed to meet demand in Africa.
The World Bank has reported that between 2005 and 2012, Africa acquired 70,000 new hospital beds, 16,000 doctors and 60,000 nurses. Coupled with existing infrastructure, this additional resource now totals one million hospital beds, 500,000 doctors and 1,250,000 nurses, suggesting that the greatest demand will be in the healthcare services, particularly in-patient services.
These demands are expected to be met by for-profit organisations, non-government organisations and social enterprises and companies are already getting involved: social enterprises have been set up in Nairobi by the Phillips Africa Innovation Hub, and Novartis has initiated an access Public-Private Partnership (PPP) with Kenya, Ethiopia and Rwanda. The non-governmental organisation (NGO), United States Pharmacopeia Convention, is working with sub-Saharan countries to promote the quality of medicines made by strengthening quality assurances and quality control.
The largest influx of investment so far has been focused on building and improving physical capacity in the form of hospitals and clinics and is an effective strategy to improve healthcare infrastructure. The IFC and its partners are currently the largest investors in private healthcare in Africa, and recently implemented a strategy to invest US$1 billion to assist economic development by encouraging growth of productive private enterprises in underdeveloped areas.
The IFC's funding initiative has seen the development of 44 such investment projects to date, including the Hygeia Hospital Group project in Nigeria and the MP Shah Hospital expansion and redevelopment project in Nairobi, Kenya.
As well as social enterprises and NGOs, some private sector investors have seen the potential and invested in the African Healthcare sector. In 2015, a Malaysian private hospital chain owned by the US investment firm Columbia Pacific Management announced its intention to set up in Nairobi, while the largest investment in East African retail pharmacy in 2016 was the acquisition of Goodlife Pharmacy by a UK private equity firm, Leapfrog.
Thinking of investing? Think PPP
In exchange for private sector technology, experience and innovation, African governments are supporting private sector investment through PPP structures, usually by providing land, assets and/or guaranteed revenue generation. This method is attractive for many private sector participants, particularly in countries or sectors which may not have an established track record of successful private sector investment.
In the case of the African continent, the use of PPPs in the development of critical infrastructure is on the rise, and this is mirrored in investments and advances in the health sector.
Gowling WLG has a team of PPP experts with years of experience spanning a large array of sectors, including healthcare. Its team of healthcare PPP lawyers is currently looking at various projects in the healthcare sector, including full-blown PPPs for hospital expansions and service provision. The firm also has excellent working relationships with the governments of several East African and sub-Saharan countries, which helps to streamline work done and ensure an efficient procurement and negotiation process.
While PPPs can be challenging, a renewed focus on the structure's ability to initiate collaborative working and efficiency gains in a variety of African markets means there is likely to be a number of opportunities to invest in Africa's healthcare sector in the near and intermediate future.
Whether assisting with the identification, evaluation or implementation of such opportunities, Gowling WLG's team of health and PPP experts are available to help.
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