Great opportunities on the Cape of Good Hope

Total sales of medical technology in South Africa are increasing annually at a rate of around 7% and are estimated to reach approximately US$ 800 million in 2011. This puts South Africa in the top thirty markets worldwide. Around 90% of its medical technology requirements have to be imported, with German companies among the leading suppliers of these products. According to market experts, high demand is set to continue beyond 2011, with orthopaedic technology, prostheses and dental instruments offering the biggest growth opportunities.
Along with the private healthcare sector, until now the main customer for medical technology, government institutions are increasingly coming to the fore. Government hospitals are in urgent need of modernisation, with the government planning to spend around 25.7 billion rand (approximately EUR 2.6 billion; average exchange rate June 2011: EUR 1 = R 9.76) by 2012 as part of the Hospital Revitalisation Programme.

It has further high sums in mind for 2012/13 (R 692 million) and 2013/14 (R 2.28 billion). A significant proportion of this money will be spent on primary health clinics. Four larger government hospitals will also be extensively modernised (George Mukhari in Pretoria, Chris Hani Baragwanath in Soweto, King Edward VIII in Durban and Nelson Mandela Academic in Umthata).

There are currently no plans to build new hospitals in the private healthcare sector. The three leading hospital operators, Netcare, Mediclinic and Life, regularly update their equipment, however, normally opting for the best technology available. Netcare and Mediclinic already operate at international level (Switzerland, United Arab Emirates, Namibia). Takeovers of private clinics in South Africa are likely and on the back of this, South Africa would become a major sales platform for medical technology products for the entire region.

Public private partnerships (PPP) are still a relatively new trend in South Africa. Government hospitals are increasingly focusing on primary patient care, while expensive specialist services are more likely to be offered by private hospitals. In order to give patients at least partial access to these expensive services, more PPPs are being set up, under which the state sector buys a stake in private clinic capacities. Specific medical services in government hospitals will also be taken over by the private sector. The public and private healthcare sectors differ widely in their demand behaviour when it comes to purchasing medical technology. The government hospital sector tenders for equipment and is almost exclusively geared to price. With around 100,000 hospital beds, it is certainly the largest client in the country in terms of quantity, but supplier profit margins are low. The Department of Health (DoH), which is responsible for government institutions, is increasingly buying products from India or the People’s Republic of China. However, Western countries are still in the frame when it comes to high-tech systems. According to industry experts, there is virtually no demand for second-hand medical technology in South Africa.

In contrast to the private sector, modernisation is slower in government hospitals. In the primary care sector, the main demand is for inexpensive equipment that is reliable and low-maintenance. Recent years have seen the introduction of more and more digital technology, and old x-ray systems have also been replaced by new ones. Teleradiology and telepathology are playing a bigger role, especially in rural areas. Business with government hospitals is made more arduous in some cases by the incompetence of contact partners.

South Africa’s private hospitals are among the best equipped in the world and generally buy good quality, high-end medical technology. Apart from cost, quality and service are also key factors. The service life of medical technology equipment is often relatively short, needing continuous investment in their modernisation. Doctors working in private hospitals often have a big say in the procurement of medical technology. They are not employees, but rent space in private clinics and use the equipment available. Health insurance funds, especially the three big providers Discovery, Medscheme and Momentum, also have a growing say in acquisitions, although so far this is mainly confined to medical consumer goods. Only around 10% of domestic requirement for medical technology is manufactured in South Africa. Local firms are mainly SMEs that often also act as distributors for foreign manufacturers. They generally focus on the production of simple medical technology without any high-tech components. Such firms include Adcock Ingram Critical Care (syringes, etc.), Brittan Healthcare (electromedical and consumer goods), Elite Surgical Supplies (orthopaedics), Makro Medical (diagnostic tests), Meditek-hemco (hospital furniture) and Omnimed (gloves, syringes). In South Africa multi-national suppliers of medical technology often enter into joint ventures with local firms.

Germany is the second biggest supplier
South African imports of selected medical technology products rose to US$ 901.2 million in 2010, up 7% on the previous year. According to the latest available figures, Germany’s market share was nearly 14% in 2007, making it the second biggest supplier after the US.
Products to FDA, EU or MHLW standards should have no importation problems. South Africa itself has no uniform regulation for medical technology. The South African Medical Device Industry Association (SAMED) is campaigning for the creation of a Medical Devices Agency to act as regulator. Licences are currently not required for importing medical equipment into South Africa, provided it is not sold in conjunction with drugs. The DoH announced the introduction of a licensing law before September 2011. The big companies are lobbying the government to introduce licensing, thereby guaranteeing a certain minimum product quality. However, the industry is also insisting that medical technology already approved in the EU or the US should not be subject to further testing in South Africa. The fear is that otherwise the licensing process could drag on as it is doing in other sectors. Public tender procedures are not always transparent. It is often unclear which agency can spend money on medical equipment. Tender procedures are organised by the DoH and the provinces, although internationally their tender processes and standards are regarded as outdated. The government gives preference to SMEs and local companies with Black Economic Empowerment (BEE) status in adjudicating tenders. This status can only be acquired by companies that transfer ownership to blacks, meet a quota for black employees (including management), buy goods from BEE-compliant companies or are otherwise socially committed to black employees and communities.

The Pan African Health and Africa Health Trade Fairs in Johannesburg are only the second choice for sector representatives. Individual events and conferences arranged by organisations in the healthcare sector are much more productive, the reason being that far more doctors attend these than either of the trade fairs. The trade journal “Medical Chronicle” contains an annual list of these conferences, one of the largest being the HASA Conference 2011 (HASA= Hospital Association of South Africa, www.hasa.co.za).
Carsten Ehlers, Germany Trade & Invest, Bonn/Johannesburg

German Summary
Gute Chancen am Kap der Guten Hoffnung: Der Gesamtumsatz mit Medizintechnik in Südafrika wächst jährlich mit rund 7% und wird für 2011 auf rund 800 Mio. US$ geschätzt. Damit gehört Südafrika zu den 30 größten Absatzmärkten weltweit. Etwa 90% des Bedarfs an Medizintechnik muss importiert werden. Deutsche Unternehmen zählen zu den führenden Lieferanten von Branchenprodukten. Nach Angaben von Marktkennern dürfte die hohe Nachfrage auch über das Jahr 2011 hinaus anhalten. Orthopädietechnik und Prothesen sowie zahnmedizinische Instrumente haben die größten Wachstumschancen. Der deutschsprachige Beitrag ist nachzulesen auf www.meditec-international.com/medi0611sa