A recent article on Reuters reported on how pharmaceutical companies’ approach to Africa is changing, with the suppliers seeing new opportunities for treating chronic diseases afflicting the growing middle class rather than firefighting infection and breakouts. This is a major shift for the industry, whose main role has been supplying drugs for infectious diseases such as malaria and HIV in Africa, often on a humanitarian basis.[hidepost=9][/hidepost]
According to Intercontinental Medical Statistics (IMS) data, pharmaceutical spending in Africa is expected to reach USD30bn by 2016, driven by an average growth of 10.6% per year that is second only to Asia and the same as Latin America. The growth will be fuelled by increasing economic wealth and demand for treatment for chronic diseases in a more urban, middle-class population.
According to the World Bank, non-communicable diseases, like heart disease, lung disorders, diabetes and cancer, are expected to account for 46% of all deaths in sub-Saharan Africa by 2030, up from 28% in 2008.
Overall, spending is expected to double to USD45bn by 2020. Though Asia and Latin America are much larger markets, they are expected to mature sooner whilst Africa is expected to continue growing over the next decade and therefore act as a hedge against slowing long-term growth in established emerging markets.
“We’re thinking hard about what happens when those emerging markets start to slow because they are not going to continue growing at the rate that they’re growing forever, and a place where we’re putting a lot of our attention is Africa,” said Novartis chief executive, Joe Jimenez.
European companies, in particular, are looking to invest early in the region where they have historic ties, even shrugging off current conflicts. Sanofi for example, the French drug manufacturer with the largest share of sales in Africa, is pushing ahead with a third factory in Algeria despite the recent outbreak of violence in that country.
“Africa is becoming an extremely interesting market and we will continue to expand our commercial presence there,” said Sanofi’s chief executive Chris Viehbacher.
In our view, the growth potential from Africa’s middle class is highly visible to European manufacturers, especially given their willingness to absorb the risk of political conflicts, bureaucratic and regulatory challenges, corruption and competition from generics, all of which are compounded further by the risk associated with any change in strategy.
We believe this development reinforces investors’ expectations of Africa’s growth and furthermore, increases interest for companies such as Adcock Ingram’s Ayrton Drugs in Ghana, GlaxoSmithKline Nigeria and Neimeth International.
Imara is an investment banking and asset management group renowned for its knowledge of African markets.