Mergers the right prescription for health enterprises in Kenya

The West has been the top revenue earner for health industry firms, but the tide is changing and Africa will be a major gainer. PHOTO | FILE  

By EDWARD OMETE

In Summary

• As a local health entrepreneur, the question is where your organisation will be aligned in this new era.

"In 15 years, the health industry will be what the German automobile industry has been in the past." These opening remarks from a presentation by a vice president of one of the biggest global medical products manufacturer and distributor reaffirms what we have consistently been saying: health care is happening.

But the remarks are followed by a caveat: “The investors must know which sectors the growth will come from and where the maximum returns will be.”

Figures for the German health industry suggest that even for a highly industrialised nation like theirs, manufacturing and similar sectors are slowly ceding ground and will have been surpassed by healthcare in terms of direct and indirect contribution to the economy soon if it hasn’t happened.

For a long time, the West has been the top revenue earner for such firms. However “emerging markets” as Africa, Latin America and similar regions are called, is where future growth in revenue will come from.

Of course the GDP and per capita expenditure in Kenya will not rise fast enough to match the figures in developed world. But affordability is not permanent because economic situations change.

The recognition that the health segment’s growth will plateau in the next two decades or so in terms of revenue in the West is a dawning reality for many firms.

If it is in terms of equipment almost all hospitals are saturated with equipment, uninsured patients in such markets are low vis-a-vis emerging markets as is the use of “high end” medicines.

Consumption of medicine is driven by large population and illness, both are high in emerging markets. Due to declining populations, many nations in the West are faced with issues like aging group whose health needs are almost catered for and at high cost.

The steady rise in cost of healthcare is making margins lower by the day for managers of these systems. Previously unregulated areas are now facing the introduction of cost reduction strategies to rein in these costs.

Financial muscle

The outcome is that it is becoming less profitable and by extension less inviting for players in these systems. In the case of Germany with a population growth rate almost half of Kenya’s and a much higher life expectancy, high operational costs, wages an infrastructural costs are a reality. In the long run, therefore, these traditional revenue generation strongholds are also going to be affected.

For big companies, strategies to stay alive include looking outside and expanding to pave the way for entry elsewhere. Reconsolidation is the first step that is happening via acquisition of strategic future collaborators, spinning off new entities all aligned within their “next” play.

One of the common ways is acquisitions around core operations; equipment makers will soon also start financing and distribution. As a local health entrepreneur, the question is where your organisation will be aligned in this new era. For some exit preparations are necessary for a bevy of suitors that must start trooping in soon.

The reality is that without financial muscle we cannot compete with the new entrants, thus mergers between local entities should start.

Email: info@healthinfo.co.ke; Twitter: @healthinfoK