Foreign Investors Grab Opportunities in Kenya’s Sectors, Untenable by State

Foreign Investors Grab Opportunities in Kenya’s Sectors, Untenable by State

Nicholas Sowden, a Nebraska native, serial entrepreneur and co-founder of Penda Health, recently opened the company’s second clinic after a successful launch of the Kitengela-based pilot in February 2012. Kitengela is a rapidly growing city in the outskirts of Kenya’s capital, which absorbs Nairobi’s exploding population.

Penda Health’s original model aimed at providing low and middle income women with family planning and reproductive health services, but revised their blueprint to treat the entire family so as to attract more women.

Sowden, is neither a doctor nor a healthcare expert, but of rare breed of entrepreneurs who are finding gems in markets that on the outside appear hopeless — however, upon taking a closer look, offer entrepreneurs a wide canvas to paint a profitable future.

The health sector, he says, is underserved yet there are customers more than willing to pay for quality service at the right cost.

“Middle class Kenya spends over one billion dollars a year on outpatient healthcare alone and typically are very unsatisfied with their current options,” Sowden told AFKInsider.

According to International Finance Corporation (IFC), Kenya’s healthcare spending is increasing by 8 percent annually, while healthcare insurance is double that at a 16 percent annual growth. These numbers are attracting a diverse number of firms.

“Everyone from micro insurers to Safaricom (Kenya’s telecommunications giant) is trying to hit it big with micro health insurance that targets this market. There is definitely an opportunity for someone to emerge as the ‘Equity Bank of the healthcare industry’,” said Sowden.

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Equity Bank, East Africa’s largest bank by customer numbers, grew by making banking affordable to the low end of the market that was vastly underserved yet has proven to be highly profitable.

Penda Health plans to have a chain of clinics in the region by opening a new branch in Kenya every month and subsequently expanding into and penetrating the wider East African region.

Sowden has taken a long detour from selling solar panels — business that initially brought him to Africa. Two years later, he speaks fluent Swahili and Sheng, what has become the lingua franca of Kenyan youth. He says that investors are noticing as Penda Health journeys to create a chain of clinics in East Africa.

Penda Health received the BiD Network Global Entrepreneur of the Year award in 2012.

Foreign investors — ranging from venture capitalists who want to invest in start-ups to large investment firms wishing to expand local firms that are already profitable — have noticed opportunities in sectors where the state can no longer sustain.

A 2012 survey by consultancy firm Deloitte revealed that healthcare industry in East Africa attracted the highest interest amongst private equity funds.

“Health care drew the largest number of deals, with diverse investments made in hospitals and specialist clinics, a health insurance company, a medical supply company and a pharmaceutical manufacturer,” the survey read.

Deloitte’s survey also found that compared to 20 private equity deals in 2011, five deals worth an estimated total of eight million dollars in 2012 were in health.

Singapore-based Richard Chandler Corporation bought Kenya’s LiveWell Health Clinics, August 2012 while Altira Group bought an equity stake in Kenya’s Resolution Insurance worth $2.4 million in 2011.

LiveWell targets the low end of the market while Resolution caters to both the low and middle class market.

German private equity fund African Development Corporation is planning to invest a further $3 million in Resolution Insurance, which will acquire a 23.4 percent stake. The IFC recently invested $4 million for a 20 percent stake in AAR, a Kenyan-based healthcare provider.

AAR will use the money to fund its regional expansion that includes buying and constructing hospitals in Kenya, Uganda and Tanzania. AAR also intends to buy two medium-sized hospitals, open four clinics each in Uganda, Tanzania and Kenya, upgrade two existing clinics and invest in an IT platform which is meant to increase efficiency.

Similar equity and debt investments are evident in the Kenyan education sector which suffers a similar fate as the country’s health industry. State sponsored services have declined at a time when quality demand from a growing middle class is heightening.

“The public sector on both health and education is decent but struggles due to funding, support with teachers and doctors repatriating for better pay and support to the developed world [are apparent],” said Ayisi Makatiani, director of Fanisi Capital, which makes private equity and venture capital investments in health, education and ICT sectors.

Makatiani added that apart from a middle class that is willing to pay a premium on quality, the basic infrastructure is already available for an investor interested in the education sector.

“For education, it is the good institutions and teachers that we have especially at the earlier end of private education; elementary to secondary. We are not there yet for university education since universities require more than human resource investment,” Makatiani continued.

“It requires capital investment in research, PhDs and practical application. We will therefore take some time before we get internationally ranked medical, engineering and business schools,” he said.

Fanisi Capital owns the Hillcrest International Schools, a preparatory elementary and high school based on the British curriculum.

GEMS Cambridge International Schools opened a Nairobi branch in 2012, the first in Africa. GEMS operates schools in in Europe, Africa, North America, Asia and the Middle East. The private education company is in partnership with companies including Xerox and Microsoft.