Why pharma investors are looking at Africa ‘with new eyes’
By Alison Buckholtz
Q&A with Frannie Léautier, CEO, SouthBridge Investments
Frannie Léautier is CEO of SouthBridge Investments, a pan-African investment bank. She is based in Kigali, Rwanda. Here, she shares her observations on investors’ renewed interest in building pharmaceutical hubs in Africa, how government incentives encourage companies to establish operations, and the role of manufacturing in strengthening national health systems.
How has Covid-19 changed investors’ ideas about the need for local pharmaceutical manufacturing in Africa?
The disruption of the supply chains as a result of Covid had implications on the pharma and health sector in Africa over and above the direct effects of Covid. Africa, as of today, imports almost all of its generic medicines. So when there’s a disruption to that supply chain, all the generics are delayed or cannot enter the market. You can’t get very basic things that are urgently needed, like oxygen, or intravenous fluids. It’s important to manufacture these locally, because when you have a blip in the surge of demand, then it’s impossible to meet the needs of the healthcare system, even in normal times. Since Covid, a lot of thinking has gone on about the demand side of things at the country level, but also among investors, who want to bridge the gap for normal pharmaceutical products. Investment trends reflect this … Investors are looking at Africa with new eyes.
What’s important to investors when they’re considering pharma manufacturing in Africa?
First of all, investors look at the cost of manufacturing, because some studies show that because of electricity shortages and some logistics constraints, the cost of manufacturing in Africa still remains high. But as those bottlenecks are being addressed on the infrastructure energy side, the costs are coming down. Investors also consider Africa’s growing population, the working age, and the rising incomes, which make the whole market for pharmaceutical products a very important one.
Another argument I see from investors is that there’s a certain group of maladies that are highly concentrated in Africa – and therefore, to serve those treatments, you are better placed to be where the demand is. I’m talking specifically about malaria, tuberculosis, HIV and AIDS, as well as all the issues around waterborne diseases. So there is a degree of specialisation of the demand for certain pharmaceutical products. It makes sense, therefore, to manufacture closer to the demand – within the countries with the people who need those treatments.
The final piece investors consider is the growth in lifestyle-related diseases like diabetes and hypertension. To treat these types of diseases, which require continuous medication, we have to import medications, even though it makes sense to manufacture them in place.
These three arguments in favour of investment go over and beyond the Covid crisis. But the Covid crisis has just made them more visible, and therefore made the market more visible for investors.
How will regulations need to evolve if there is more in-country pharma manufacturing?
Today, in the informal markets, a lot of medications are being sold without the proper certification. Since they are not quality-controlled, there is a risk. However, with local manufacturing, and the appropriate regulation and certification, some of the illegal profit on counterfeit medication and pharmaceutical products could be curbed. That’s another element in favour of local manufacturing – it could be regulated and certified much more easily, diminishing the illegal pharmaceutical trade.
How do government incentives influence companies and investors?
I think government incentives have been shown to be very important during the Covid crisis, where they opened up opportunities for investors to come in, to invest in manufacturing and pharmaceutical products. We’ve seen a very positive partnership between the public sector and private investors. Incentives are also key for “signaling,” indicating that we are open for business. When demand data comes, it makes it possible for the investors to know the market size. Usually, with these incentive structures, the regulatory regime becomes transparent, and therefore investors can also get information about that.
Another role of incentives is in being able to specialise, because again, studies have been done and people can refer to the data. Through regional markets, you can have specialisation, with centres for production of certain types of products. It’s not necessary for every country to make everything. This paves the way for a local or regional procurement market, which is very good because it gives the volume needed for investors to come in with these specialisations across different geographies. Government incentives drive all of these things.
Have you seen evidence that local manufacturing can contribute to stronger local health systems?
Yes, there are some examples that have really impressed me. If you look at sickle cell anemia, where the incidence in Africa is much higher than other parts of the world, you find that the people who are working on the research side – the medical doctors, the nurses, the practitioners – were able to link up to the treatment side. There’s a positive cycle, where you go from detection and diagnosis to research and development to treatment. This creates an ecosystem of experts who work together on different dimensions of the problem. The missing link in all of that is the manufacturing side. If you can tighten that link, and improve the medical products that are available, you attract qualified doctors and nurses. Then more people come down for treatment, so you have longitudinal studies that offer results. Manufacturing has been very important in all the countries that have succeeded in building pharmaceutical centres of excellence – it has helped them retain talent. So it’s absolutely critical.
This article was first published by the IFC. See original here.