CAPE TOWN, South Africa, April 2 /PRNewswire/ --
The global financial crisis, which had its origins in developed countries, is finally spreading to the developing corners of the world. Although African economies initially appeared insulated from this global turmoil, most African economies have started to feel the pinch in 2009.
Whilst some sectors such as mining are already hard-hit, the full impact of the crisis on certain sectors will largely depend on its duration and depth. This applies particularly to the healthcare sector, which has been impacted to varying degrees across the continent.
The effects of the economic downturn trickle into the healthcare sector via two basic channels: rising health costs and constrained healthcare resources, notes Frost Sullivan healthcare analyst Ishe Zingoni. For manufacturers of medical products, these are the two fundamental impediments to growth. In typical African economies, the first of these two factors responds much faster to general economic downturns than the latter.
The majority of African currencies have fallen drastically against the US dollar as commodity prices have tumbled. The consequences of this have been higher import costs and a proportionate rise in the cost of health products in local currencies.
Given that close to 95 percent of all medical device products in Africa are imported, this is restricting the uptake of these products, Zingoni notes. Although a significant 30 percent of pharmaceutical drugs are manufactured locally, the need to import raw materials certainly means it is still the end-users that will ultimately bear the brunt of cost increases.
The second crucial factor impacting on the African healthcare industry is the lower levels of healthcare resources available. For some African countries, foreign aid contributes more than half of their total healthcare expenditure. With most donor countries deep in recession, it remains uncertain whether donors will be able to honour their pledged contributions.
This uncertainty has seen the Global Fund slash its last round of grants by 10 percent in December 2008, Zingoni explains. The Global Fund now requires recipients to scale back expenditures through procuring cheaper alternatives. Thus, in this recession, Frost Sullivan expects generic drugs to continue to increase their market share at the expense of branded drug products.
Although most donor countries have committed to keeping their promises, and the World Bank has also promised to triple healthcare aid in 2009, it remains clear that these pledges will remain subject to the duration and depth of this crisis.
As the effect of the crisis has been particularly harsh on the mining sector, it has also impacted on medical aid schemes in Africa. These schemes cater mostly for the mining sector and are now faced with dwindling membership bases as massive layoffs occur across the region.
In South Africa, cash-strapped members of medical schemes are also migrating from comprehensive cover to less expensive packages, Zingoni adds. The market share of generics has also surged ahead of branded drug products, as patients seek to avoid co-payments.
However, Zingoni emphasises that, despite these challenges, there is a golden lining for the continent's healthcare sector.
It is important to realise that the apparent lag of the impact of this crisis in Africa can be utilised to the continent's advantage, says Zingoni. It gives countries, and companies, time to weather the storm before the global economy begins to recover.
Despite governments facing budget deficits, if they can pursue some level of deficit spending, this can ease the impact of export losses. Botswana is one country that is determined to carry through its healthcare programmes via deficit spending. This is enabled by the healthy foreign exchange coffers the country has accumulated over the years.
Given that World Bank, IMF and other multi-lateral organisations have pledged to increase support to Africa through this recession period, such assistance will also enable other countries to implement the same strategies without necessarily precipitating inflationary pressures.
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Patrick Cairns, Corporate Communications - Africa, of Frost Sullivan, +27-18-468-2315, email@example.com. Photo: http://www.newscom.com/cgi-bin/prnh/20081117/FSLOGO