East Africa’s Pharmaceuticals Industry Ripe For Consolidation

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Written by Frank Mutulu

A signboard board of a white cross with a green halo greets you as you enter Mwiki, a dusty borough in the flanks of Nairobi, Kenya’s capital.

This is the logo for Haltons, a retail pharmacy chain that serves the low and middle income market, and has ambitions to be Africa’s equivalent of Boots or Walgreens, the largest pharmacy chains in the world.

While Halton may not be large, it is part of a recent multi-million dollar investment that has shown just how big the pharmaceuticals business is in Africa.

Haltons made news in late 2013 when it attracted funding from Fanisi Capital, a $50 million private equity fund, which has the backing of large Direct Foreign Investments (DFIs) such as the Norwegian Investment Fund for Developing Countries (Norfund).

The deal amount was not disclosed but the Private Equity (PE) firm invests up to $3 million per company.

Data in Africa is scarce and scanty but professionals and the limited government information give pointers as to how much the industry is worth.

Figures from the State Bureau of Statistics indicate that Kenya imported some $450 million worth of drugs in 2013.

“Half of the national health budget goes to buying drugs,” Dr David Kasanga, a registered pharmacist operating Sears Pharmacy in Nairobi told AFKInsider.

Adding that all the large pharma including those that make generics, have offices in Nairobi.

The Pharmacy and Poisons Board, the industry regulator says that officially there are some 5,000 registered pharmacies but unofficially the figure could be as much as 20,000, many of which are rogue operators.

While such a market may prove unattractive to most companies due to the uneven playing ground, other investors see it as an opportunity to come in and make a make a killing.

Investors such as PE firms recognise that there is demand for drugs and other cosmetic products and consumers would prefer to shop from structured branded outlets which they trust.

Growing Drugs Demand

The bet is that as they set up stores, they will gain market share and thereby increase revenues and profits.

“The sector has evolved rapidly over the last decade, with increased consumption of pharmaceutical and personal care products in formal retail channels being driven by increased access, exposure and appreciation of the health benefits of quality products and brands.

Our investment will further fill the gap between the consumer demand and market supply, with the aim of building the business into a world-class pharmacy retail chain of regional scale,” said Catalyst Principal Partners’ managing director, Biniam Yohannes in a statement seen by AFKInsider.

Catalyst, a PE firm, followed in the steps of Fanisi when it bought into Mimosa Pharmacy, a retail chain in August.

The deal amount was also not disclosed but it too invests millions of dollars in firms. The investment criteria is to sink between $5 and $20 million per company.

This bullishness is also in the upstream side of the business.

Fanisi invested in Sophar, one of Rwanda’s largest drug wholesalers and gave similar reasons for its investment.

“Sophar’s core business involves the importation and marketing of branded pharmaceutical drugs within the Rwandan market. With a unique semi-cooperative structure and successful business model shareholders are the main customers – the company is set on the path of faster growth in product range, geographic reach and distribution capability,” said Fanisi at the time.

The expansion plan will see Sophar increase its product range to 9,000 from the current 300, over the next few years and set up outlets in other parts of the country.