Covid-19: Opportunity for Investment in South Africa’s healthcare sector
JOHANNESBURG – The coronavirus (Covid-19) outbreak has revealed both the strengths and weaknesses of South Africa’s healthcare system. On the other hand, the Covid-19 pandemic presents a greater opportunity to develop South Africa’s health sector value chain.
The South African government was able to massively increase the country’s short-term care capacity, providing emergency hospital services and conducting sporadic testing. Meanwhile, the outbreak exposed wide disparities in the quality of care between hospitals across regions.
This tragic Covid-19 pandemic and the lessons learned from managing the outbreak could profoundly shape the direction of South Africa’s healthcare market, which had been projected to be worth billions of rand.
“Fitch Solutions expect the South African healthcare market to increase at a CAGR of 4.7 percent over five years from 2017 to reach a value of $37 billion by 2022. They also expect a similar growth rate over the next decade to reach a value of $47.1 billion by 2027”.
Report by Africa Health further stated: “The South African medical device market will register a 9.1 percent CAGR between 2017-2018 according to a recent Fitch Solutions report. This significant growth will raise the market to $1.27 billion by 2018.”
Therefore, the anticipated year on year growth could be assumed to be at a minimum average of 5 percent to 6 percent for 2019/2020.
While higher healthcare spending was already expected as a long-term trend, the coronavirus pandemic may inspire structural upgrades and reforms to South Africa’s healthcare system. After the Covid-19 outbreak in China, the South African government should have already planned the industrial investment in areas where the healthcare system’s deficiencies were exposed, such as the Manufacturing of Medical Face Masks, Personal Protective Equipment (PPE’s), Gloves, Sanitizers, Ventilators, Test Kits et al.
This included promoting greater transparency, improving surveillance of infectious diseases, investing in public education, and creating disease reporting systems and disease control centres.
A substantial portion of medical device and lab equipment exports are sent to other parts of Africa, with 12 African nations featuring in its top 20 export destinations last year.
South Africa currently runs a two-tiered healthcare system, comprising of the public and the smaller, rapidly growing private sector. The country spent 9 percent of its gross domestic product (GDP) on healthcare in 2017, which is 4 percent higher than the World Health Organization's (WHO’s) recommended spending for a country of its socioeconomic status. Despite this high expenditure, health outcomes are still trailing in comparison with similar middle-income countries, mostly due to the inequities between the public and private sectors.
Africa Health Report further states that in terms of Medical Devices Production & Procurement: “Despite recent cutbacks, the government sector is still the major purchaser of healthcare equipment and supplies. While a form of national tendering exists, each province has its own tendering system. Public tertiary hospitals have had severe budget constraints imposed in recent years which has led to stagnation in the purchasing power of these facilities. The best prospects for advanced technology and equipment remain in the private sector."
Multinational medical device companies will aim to develop strategies that are in line with the country’s socio-economic policies to counter the increasing preference for local suppliers.
Local firms tend to be small or medium-sized businesses with less than 50 employees and often combine distribution activity with manufacturing. Multinational companies present in South Africa often operate in a joint venture capacity with local firms. Most South African manufacturers specialise companies dealing with electromedical equipment provide after-sales service, however, few distributors can offer adequate nationwide coverage. South Africa also serves as an important trade route, with many imported products destined for other countries in Southern Africa.
Each of the leading multinational companies has at least one representative office for sales, distribution and service, but there is little manufacturing activity, with only Fresenius doing so in Port Elizabeth. Major multinationals with no manufacturing presence are listed below with their respective representation in the market:
Becton Dickinson, Boston Scientific, Elekta, GE Healthcare, Johnson & Johnson, Medtronic, Philips, Siemens Health, Smith & Nephew, Stryker, Varian Medical Systems
A lasting presence in the South African market will require the appointment of a distributor. There are many of these in South Africa, most of which are members of the South African Medical Device Industry Association (SAMED). A limited number of distributors also manufacture.”
Even though there was newly revised preferential procurement regulations had the intention to make it harder for foreign companies to win government tenders, making local companies more competitive. Tenders that were meant to support the government’s broader objectives, favouring small, medium and micro enterprises (SMMEs), which complement the government’s aims of employment creation and income generation has not beard fruits because larger companies tend to be price competitive than SMMEs.
As South Africa strives to improve its healthcare capacity, there will be substantial opportunities for producers of medical devices, hygiene products, and other healthcare amenities. Opportunities will not be limited to traditional medical companies, but also educational institutions and digital disruptors.
People’s Daily in China reported that: “China has exported medical supplies with total worth of 10.2 billion yuan since March 1, this includes test kits, masks, and ventilators. It further lists quantities per product as follows, 3.86 billion masks, 37.52 million protective suits, 2.41 million infrared thermometers, 16 000 ventilators, 2.84 million test kits, 8.41 million googles.”
Health & Medical Industrialisation Development through the partnership between National Treasury with regards to transversal contracts (minimum 10 years and above), Industrial Development Corporation (IDC), Development Bank of Southern Africa (DBSA), National Empowerment Fund (NEF) and Public Investment Corporation (PIC) should be accelerated. It cannot be business as usual that majority of this medical devices should be imported from China, Europe and other countries. There are key considerations that this Development Funding Institutions (DFIs) should consider:
- Their Investment & credit mandate should urgently be reviewed to suit the current Covid-19 pandemic era. Meaning easy access of funding, create innovate bridging finance, working capital facilities & equity investments, etc. This cannot be business as usual.
- FDIs must assist existing clients with the payment risks, replenish capital to pay bills and wages, and share banks risks in serving SMME’s.
- Scale-up strategic and coordinated liquidity models, DFIs should increase their exposure significantly. They should help manufactures not just to survive the crisis but also to grow. They should do so, however, with a deep understanding of the needs and challenges of the borrowers they will be supporting.
- Expedite deal processing times, since mentioned that it is not business as usual for the DFIs. Therefore DFIs must advance reforms and internal processes for expediting credit and investments approvals and disbursements.
It is a fact and reality that COVID-19 pandemic represents an unprecedented crisis throughout the world. DFI leaders should therefore act fast to implement the necessary steps to help avert the worst economic consequences of the catastrophe we face and shape aid to invest & develop our health sector with financing packages that alleviate the inefficiencies than exacerbate the underlying economic inequalities that have plagued us.
In a media statement “Africa’s largest internet group, Naspers donates R1.5bn to fight Covid-19” states:
“Naspers has committed R 1,5 billion in emergency aid to the government’s response to the Covid-19 crisis. The group will contribute R500 million to the Solidarity Response Fund announced by the President last week. In addition, Naspers will buy R1 billion worth of personal protective equipment and other medical supplies in China – in partnership with the Chinese government and Tencent – to support South Africa’s health workers and fly it to South Africa as soon as possible.”
The question that arise from this good gesture donation is that, the majority of the money donated which is R1 billion will be spent in companies based in China, sadly not in South Africa? This is rather an embarrassment to our local industrial development as it stands and very big missed opportunities for South African SMME value chain.
The Manufacturing USA confirms that: “The US Department of Commerce’s National Institute of Standards and Technology (NIST) has opened a funding opportunity for rapid, high-impact projects that support the nation’s response to the Covid-19 pandemic. Using funds appropriated by the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by President Trump on March 27, 2020, NIST will award these grants through the NIST Manufacturing USA National Emergency Assistance Program with no requirements for cost matching.
"Funding will be awarded to eligible Manufacturing USA institutes, a network of 14 public-private partnerships that work with academic and private sector manufacturing organizations on research and development and manufacturing skills training. Each institute focuses on a particular advanced manufacturing speciality such as fabrication, 3D manufacturing of advanced functional fabrics.”
The novel coronavirus disease, Covid-19, is having a direct and indirect impact on the design and manufacture of medical device, equipment, and implants. Medical manufacturers should be tasked with ramping up production to help address the pandemic. This could, unfortunately, be achieved with the cooperation of the Economic cluster in government.
Use of technology in China during the Covid-19, we noted that, In addition to digital apps, the Chinese government and private firms are using hard technology in innovative ways to combat the coronavirus. Businesses and local governments have deployed drones to spray disinfectants, transport medical samples, conduct tests, and deliver consumer goods. For example, Shenzhen’s MicroMultiCopter used its drones to carry medical samples and to conduct thermal imaging tests.
After coronavirus containment measures interrupted ferry services that provided consumer goods to the island community of Anxin, the e-commerce giant JD sent drones to deliver goods instead.
Some Chinese hospitals are also trialling the use of robots to assist medical workers. Wuhan’s Hongshan Sports Center, a so-called Smart Field Hospital, is using robots and IoT – enabled technology to monitor patients’ temperatures, vital signs, heart rates, and other indicators. Robots are also being used in hospitals and hotels to deliver food and medicine, thereby reducing human interaction and the risk of the virus spreading.
South Africa’s healthcare sector should become an area of priority for government attention in the coming period sooner than later. The outbreak of the coronavirus, however, should add an urgency. While the outbreak highlighted the multitude of South Africa’s social achievements and systemic strengths, it also exposed numerous gaps in the delivery of care especially with regards to technology.
In a media statement of New Development Bank (NDB) dated 3 April 2020: “The New Development Bank successfully issued a 3-year RMB Coronavirus Combating Bond in the China Interbank Bond Market. The Bank raised RMB 5 bln, garnered interest from a high-quality diversified investor base both onshore in mainland China, as well as offshore. The bond was priced at the lower end of the announced pricing range, and the transaction represents the largest-ever RMB-denominated bond as well as the first RMB-denominated Coronavirus Combating Bond issued by multilateral development bank in China.
"The aim of this bond issue is to support the Chinese Government in the financing of public health expenditure in Hubei, Guangdong and Henan provinces that are hit the hardest by Covid-19. The proceeds of the bond will be fully utilised to finance the RMB 7 billion Emergency Assistance Program Loan to the People’s Republic of China approved by the Board of Directors of the Bank on March 19, 2020. This loan will contribute in a material fashion to improving the resilience of the public health sector in the three provinces.
“Since the outbreak of the Novel Coronavirus in December 2019, the lives of people and the economy have been heavily impacted,” said Leslie Maasdorp, NDB Vice President and CFO. NDB is fully committed to supporting our member countries during this period of crisis to fight the spread of Covid-19 and stand ready to provide the necessary financing to this objective.”
In an Interview on eNCA on the April 5, 2020, at 9am, it was therefore confirmed by the Deputy Minister of Finance David Masondo and NDB vice president and CFO Leslie Maasdorp that there are discussions between NDB and National Treasury to explore possible Emergency Assistance Program Loan.
As and when the loan has been finalised, which NDB can conclude soonest as per Maasdorp, It will therefore be prudent for National Treasury to consider part of the funds to be allocated to a Health Manufacturing Development Fund which will stimulate & accelerate the local Industrial Development in the Health Sector.
- Covid-19 pandemic is a global pandemic that is already having tangible effects on the Health Manufacturing sector.
- In addition to its potential health effects, Covid-19 pandemic threatens to profoundly affect the livelihoods of poor workers who depend on manufacturing for job creation.
- Given that we focus on the poorest of the poor for jobs, we fear that the impact of Covid-19 pandemic on our beneficiary groups is likely to be especially pronounced.
- Investments in Health Manufacturing programmes can help people become more self-reliant, mitigate the impact of severe events, increase their livelihood prosperity, ensure more sustainability, and create greater resilience in this fragile economy.
- Economic growth in Health Manufacturing is more effective at reducing poverty similar as in agriculture as key sectors. Investments in small-scale health manufacturing sector can help revive health & medical devices production and create jobs following a crisis and enable jobs to be created.
George Sebulela is president of South African United Business Confederation (SAUBC) and president of African Entrepreneurs Council (AEC). He writes in his personal capacity.