June 3, 2014

Africa’s lack of quality affordable healthcare services and goods is luring investments from foreign investors eager to tap one of the best-performing sectors in the continent.

So far multinational corporations and private equity firms have invested or are planning to invest millions of dollars in pharmaceutical companies, community health services and health education services and business that would provide access to medicine, healthcare, health insurance products and education.

Many of these companies, either alone or in joint ventures with African partners, government or NGOs, are seizing opportunities that are being offered through public-private partnerships such as the United States Agency for International Development and the Global Fund to expand business and have social impact in Africa.

McKinsey Global Institute estimates that industries in Africa together could generate as much as $2.6 trillion in revenue annually by 2020, or $1 trillion more than today. The annual flow of foreign direct investment into Africa has increased from $9 billion in 2000 to $62 billion in 2008—relative to GDP, almost as large as the flow into China. While Africa’s resource sectors have drawn the most new foreign capital, it has also flowed into other sectors as well as a broad range of countries, according to McKinsey and Company.

GlaxoSmithKline and Barclay Group, both U.K. companies, recently announced together they would spend up to $11.27 million (£7 million) over the next three years to help build a cost-effective private sector medicine supply chain, establish small enterprise health outlets, test an affordable micro health insurance product and embed healthcare education in existing financial community networks in Zambia.

This type of innovative partnership or investment in the healthcare sector has the potential to develop sustainable private sector solutions that complement government efforts to improve essential medical supplies and healthcare for underserved communities in Africa.

“We are very pleased to support the Barclays GSK Program which aligns well with priorities in the Zambian National Health Strategic Plan,” said Joseph Kasonde, Zambia Minister of Health.

Designed and directly tied to investment activities that can generate significant social and economic impacts, this investment is refocusing or reorienting corporate social responsibility in Africa through impact investing in areas such as healthcare. The investments offer promising opportunities for companies because they can increase their value as well as make them recognizable as socially responsible.

Also, they are quickly replacing the corporate-sponsored community “feel good” events such as beauty pageants and sports events that were once hailed by businesses as being social responsibility on the continent.

“Sustainable economic development and the growth of our businesses in Africa is intrinsically linked to the well-being of the communities in which we operate: healthy communities lead to healthy markets,” said Antony Jenkins, Barclays Group chief executive officer. “We want to use our core business activities to address societal challenges systematically but we know we can’t achieve this alone. We are extremely pleased to be working with GSK.”

Government officials, NGOs and company executives are taking note. Donor nations, which for many years have sought to help Africa’s healthcare industry through aid, have put a new emphasis on investing in healthcare companies, services and technologies that would yield greater social economic returns.

Unlike other sectors, investment in the healthcare sector offers dual returns to investors: On one hand is the long- or short-term economic return that yields liquidity. On the other hand the social aspect has been used as a tool for gaining the social license, the unwritten social contract to operate; especially with investments in the extractive industry sector.

Private equity firm, The Abraaj Group early last month announced it has invested in Steripharma, a Moroccan pharmaceutical products manufacturer and marketer company, with the aim of making “significant impact on the local supply chain, with socio-economic benefits related to community healthcare, employment and business development.”

“A consistent theme throughout Africa is the unavailability of quality healthcare goods and services at accessible price points,” said Shakir Merali, managing director at The Abraaj Group. “This deficit presents an opportunity to invest in solid companies to build scale, increase affordability and achieve world class quality. By doing so, a wide community of consumers touched by these products or services benefit, while robust commercial returns ensure that these businesses remain sustainable and attractive as investment opportunities in the long-term. This type of dual return is what we aim to achieve with our investing strategy for the healthcare sector on the continent.”

The widespread adoption of new mobile applications and medical software and technology such as SoftTech Health, KUZA Doctor have also given a boost to Africa’s booming healthcare industry, fueled by demands by the emerging middle class.

Domestic players are also getting in on the game. Last month, South African pharmaceutical company, the Aspen Group paid $1.13 billion ( £0.7 billion) for GlaxoSmithKline’s thrombosis brands: Arixtra, Fraxiparine and the Notre-Dame de Bondeville manufacturing site, giving it access to global established brands.

Global management consulting, technology services and outsourcing firm Accenture, along with Accenture Foundations, this month announced it had awarded a $1.4 million grant to African Medical and Research Foundation, a not-for-profit organization headquartered in Nairobi, to help AMREF develop a pilot mobile health training program for community health workers in Kenya, bringing Accenture’s direct support to AMREF to more than $4.3 million since 2005.

The pilot program is a cross-sector partnership with Vodafone Group and Safaricom, Vodafone’s affiliate in Kenya.

Vodafone and Safaricom are providing scalability and mobile solution expertise with technology partner Mezzanine and the Kenyan Ministry of Health, which will provide regulatory advice and access to community health workers. The M-PESA Foundation, the charitable trust funded by revenue generated from Vodafone’s mobile money transfer service M-PESA, will provide funding of up to $600,000.

The pilot will build on Vodafone’s mhealth portfolio, which increases access to healthcare services through its customer reach and scalable mobile health solutions that are developed with its network of global partnerships.

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