New Year’s Resolution: Investing In African Healthcare And Fitness

By Kurt Davis Jr. AFKI Original Published: January 6, 2017, 7:57 am

 

In South Africa, Virgin Active has added up to 120 clubs since starting in 2001. Planet Fitness wants to double from 25 facilities on the continent to 50 over next five years. Even in smaller markets like Maputo, where population is about 1.3 million, brands like Pro Gym have grown to three facilities in five years.

This is the year you are going to hit home runs on your New Year’s goals. You are going to be healthy, grow your bank account, get fit and get smarter. Be motivated. Believe.

It is not that simple but if you stick to the plan, you will reap the benefits. Yes this article is for everyone, but may tilt a little more to the interests of those willing to invest the money.

Be healthy

There are significant opportunities for investing in healthcare and fitness in Africa. Investors talk about the sector in the same way we talk weight loss in the New Year. There is a lot of initial talk and hype but then interest slows when the daily grind gets tough. But this is 2017 and the numbers say it is time for action.

Africa’s population can be split into two sections in many countries – the young (under 25) and the ageing (above 60). The number of people in Africa over the age of 60 will grow by 64 percent by 2030, according to the United Nations. The World Bank puts the over-60 crowd at 2.7 billion by 2060, compared to approximately 860 million in 2016.

This ageing group wants to be ageless by spending their own money and finding support from their family. Spending on healthcare products is the new normal, particularly in the absence of sufficient government funding for public health services and products. The rising, largely young middle class also accounts for a significant portion of that spending with expectations to surpass their elders in lifespan and to enjoy life more than previous generations.

The economics behind this sector is not based on the HIV and AIDs crisis. The mushrooming in the sector derives instead from spending on preventative medicine and treatment of common sicknesses. Investors will find robust investment opportunities in pharmaceutical wholesalers and generic drug producers. Investors and real estate developers could find a way to develop physical or mobile healthcare facilities in partnership with cash-strapped countries. Improving health and creating better living requires investment.

Get fit and get smart

Fitness is a typical New Year’s goal for most people. Maybe it’s time investors capitalize on the spending interest in exercise and “looking cute” in Africa. Gyms are expensive across the African continent but consumers are willing to pay. In most cities from Victoria Island in Lagos, Nigeria to the malls in Maputo, Mozambique, gym memberships can be above $100 per month. Zumba classes are abundant, yoga classes are everywhere, and biking and running are an ever-growing trend. Putting cash into the facilities for these types of activities is lucrative. Scalability is still a concern but branding across borders and within regions is necessary for growth.

Getting smarter about getting fit is all about facilities, aka real estate and regional expansion. Investing and developing real estate is not easy across the continent. In some countries, you cannot buy land and must depend on the security of 99-year leases. In other countries, it is the quality of developers that can frustrate your success or extend the development period. That said, it’s hard to ignore the growing number of fee-paying gym and fitness class attendees and students. They’re paying higher fees than those paid in more mature markets. Why not invest in getting fit and getting smart?

 

Grow your bank account

 

Like many individuals going financially into the New Year, things can only get better. The same can be said of the African financial sector. The returns on financial institutions look bleak in the current African state of affairs, but the banking sector remains a significant asset and opportunity to place cash. The calculating and sophisticated investors in this space will see the opportunity. First, the banking sector still dominates the financial landscape in most countries and accounts for the biggest share of assets in most countries. Non-banking assets (pension funds) account for more than 50 percent of financial assets only in Lesotho, Namibia, South Africa and Swaziland.

Secondly, foreign-owned subsidiaries dominate the share of assets across all countries, including the most fragile states such as Guinea, Guinea-Bissau, and Madagascar. One of the biggest subsidiaries is on the market. Barclays is looking to sell down its interest in its African subsidiary Barclays Africa. State-owned banks have a sizable presence in some countries including Ethiopia, Rwanda, and Sierra Leone, but are already seeing a change in their space.

Third, numerous officials want to decrease the cash nature of their societies for various reasons. For example, Nigerian officials are looking to grow the reserves in their banking system, boost their foreign reserves (many Nigerians hold money in U.S. dollars), and combat money laundering within the system (especially if it can help in the fight against terrorism). Mozambique, on the other hand, simply wants to boost the money held in its banks. The sector remains fragile due not only to the government’s gaffe with its debt borrowing and the subsequent hit on the country’s reputation but also to the slower-than-expected timeline in getting its gas exports online (expected in 2021).

Regardless the motivation, more cash in banks is more opportunity for strategic lending to consumers and corporate players.

Fourth, African banks are not (and may never be) about physical infrastructure. The opportunity is fintech. All that said, many financial institutions are struggling to roll out the mobile and virtual infrastructure to grow their share of the financial sector. Many fintech applications are not limitless growth opportunities unless merged into the larger banking sector. In Africa, banks and investors should know the banking sector becomes lifeless without the applications and mobile platforms that underpin finance on the continent.

Putting more money in your account this year may appear hard at first but the long-term benefits are important to keep in mind. That goes for individuals and investors alike.

Kurt Davis Jr. is an investment banker with private equity experience in emerging economies focusing on the natural resources and energy sectors. He earned a law degree in tax and commercial law at the University of Virginia’s School of Law and a master’s of business administration in finance, entrepreneurship and operations from the University of Chicago. He can be reached at kurt.davis.jr@gmail.com.

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