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JOHANNESBURG - Africa's growing middle class and the rising availability of generic drugs and low-cost insurance could offer big profits for private hospital groups from emerging markets such as South Africa and India.

South African companies such as Netcare and Lenmed, and Indian group Apollo Hospitals are tentatively expanding into the African healthcare market, which the World Bank says is worth nearly US$20 billion a year and growing.

But many analysts point to Africa's fast-growing middle class, and argue that hospital firms should learn from the aggressive expansion of drugmakers on the continent, and work with governments to develop profitable, low-cost private hospital models.
"There's a very high demand for health care services in Africa, especially private healthcare services," said Frost & Sullivan Research analyst Lizelle Wentzell.
Private hospital groups in South Africa and India are well placed to expand on the world's poorest continent because they already have some experience of operating lower-cost models.

"The potential (for growth in Africa) is very good," said Hari Prasad, chief executive officer of Apollo Hospitals, which is setting up private hospitals in Mauritius and Nigeria, targeting the growing medical tourism market.
Making money out of sick Africans may not sit well for some in the West, but many commentators argue it makes good business sense, while also meeting a pressing social need. Pharmaceutical companies have already made investments. The world's No.2 drugmaker, GlaxoSmithKline, has unveiled plans to invest US$97 million over 10 years to improve research, development and access to Aids drugs in Africa.
It also sealed a deal with South Africa's No.1 generic drug maker Aspen to sell generic drugs in the rest of Africa.
South African companies first started looking at expanding north after domestic hospitals noticed rising demand from patients travelling from neighbouring countries.

DEMAND FROM
NEIGHBOURS

"We saw opportunities in Mozambique. In our hospital in Lenasia, (South Africa), we get a lot of patients from Mozambique," said Prakash Devchand, chairman of unlisted private hospital firm Lenmed.

The International Finance Corporation, a private sector finance arm of the World Bank, said nearly US$20 billion is spent on healthcare a year in Africa and that could grow to around US$35 billion in 2016.
"There are definitely opportunities in Africa, no doubt about that. The healthcare in Africa can improve a long way from where it is," said Goodwill Chahwahwa, an analyst at Coronation Asset Management.

But while demand is there, companies recognise they need to find innovative ways of making private healthcare more affordable on a continent where millions still live in poverty. "There's a need for governments, NGOs and the private sector to partner and come up with models that work," Coronation's Chahwahwa said.
Some companies, such as South Africa's Medi-Clinic, say pushing into the rest of Africa is too risky, noting that even though demand for treatment in a continent scarred by conflict and disease is high, few can afford to pay for it.

But companies could mitigate risks by forming private-public partnerships with governments, often backed by foreign donors or multi-lateral institutions.
Africa's biggest private hospital firm Netcare is building a US$100 million hospital in Lesotho via private-public partnership with the southern African country's government and backed by the IFC and hope to roll out the model elsewhere.
"People get private healthcare treatment, paying public hospital fees ... that's the model we're hoping to use in other countries," said Victor Letlhakanyane, Netcare's director of stakeholder relations.

Netcare has approached governments in Swaziland, Zimbabwe, Central African Republic, Ghana and Zambia to roll out the model. "PPPs would be a very good option...it's probably less risky," said Frost & Sullivan's Wentzel.
Another key to success for private hospitals could be the development of more affordable health insurance.

At the moment, 50 per cent of Sub-Saharan Africa's total health expenditure is financed by out-of-pocket payments, according to the IFC.South Africa's Liberty Holdings, through its medical health insurance unit, plans to sign up 1,5 million customers over the next three years as it expands into Africa.
Liberty, which provides both premium and budget health insurance solutions, plans to launch its products in Botswana, the DRC, Ghana, Lesotho and Zimbabwe by end of 2009