Can South Africa build a competitive medical equipment manufacturing Industry?

The cost of manufacturing, supplying, and maintaining medical equipment ultimately impacts the cost of accessible healthcare. Research and development into more advanced equipment and treatments is also becoming more challenging and demanding, while it increases the number of treatments that were previously non-existent.

Nobel Laureate Paul Krugman, in his 2009 book titled “The Conscience of a Liberal”, posited that technological developments can generate substantial healthcare benefits, at a higher cost emanating from research and development as well as investments in innovations which do extend the quality and duration of average life. This raises the question of whether advanced but expensive medical equipment should be imported and/or locally manufactured to meet the demand. The answer lies in balancing imports, local manufacturing, and technology partnerships

Can South Africa move from importing medical equipment to manufacturing hi-tech equipment?

South Africa has a proven ability to develop treatments, deploy world-class medical technologies, and build clinical capabilities.

The Lodox low-dose digital X-ray scanner and the advanced Nuclear Medicine Research Infrastructure (NuMeRI) are examples of the pockets of genuine technological excellence that exist in the country.

This, however, does not cover all the equipment South Africa needs; persistent challenges with supply-chain disruptions and the maintenance of imported equipment highlight the ever-present risks of continued dependence on foreign suppliers. Investing in local manufacturing would therefore enable South Africa to leverage its scientific and engineering capabilities, reduce costs and equipment downtime, and develop a globally competitive industry capable of supplying both domestically and across Africa.

The additional health benefits flowing from new innovations, alongside the demographics of an increasing and proportionally older population, favour healthy and resilient sales growth, as shown here, with the dip in 2020 resulting from the COVID lockdown.

The Who Owns Whom report on the manufacture and supply of medical, surgical and orthopaedic equipment in SA

points out that South Africa remains highly dependent on imports for medical, surgical and orthopaedic equipment. Given recent geopolitical shifts, this may lead governments to double down on autonomy and secure their own supply chains. This line of thinking is not encouraged in a globalised world; continued imports and trade in needed equipment must be pursued with a preference for diversification and the availability of alternatives as a balanced approach.

The merit of developing strategic economic autonomy

Governments understandably want to develop domestic capability in strategic sectors. Medical equipment is critically important, as supply chain disruptions can negatively affect healthcare. However, it is not doable for everything needed. ASML is a Netherlands company with an established near-monopoly worldwide in Extreme UV lithography machines, but depends on an international ecosystem of specialised US-produced components for its machinery, illustrating how trade remains the engine room of successful businesses.

On the face of it, a less complex issue, but nonetheless equally profoundly economically impactful, is the example of the US, a country that is self-sufficient in oil production; it exports light sweet crude and imports heavy Canadian crude because its refineries are built to refine heavy crude, and conversion would not make economic sense as a trade-off.

These examples clarify that autonomy in favour of trade is costly and may be difficult to achieve. The cost of research and development and investments in sophisticated equipment is enormous, and realising a return on investment takes time; if it is not obtained, investors may divert their capital elsewhere. Like it or not, trade drives continued growth and prosperity worldwide.

The opportunity for South Africa’s medical equipment

The economics of high-end medical technology are not straightforward. Without investment in research and development, the world, including South Africa, would not have equipment such as PET/CT scanners, a functional imaging tool that uses a safe radioactive substance called a radiotracer to measure important bodily functions, such as blood flow, oxygen use, and cellular metabolism; it costs about R60m per unit. Nor would we have CT (Computed Tomography) equipment, which uses specialised X-ray equipment to create detailed, high-resolution cross-sectional 3D images of the body’s physical structure, size, and shape. Nor would we have a linear accelerator for radiotherapy, which costs R70m a piece in South Africa.

These lifesaving technologies have greatly improved our ability to diagnose and treat disease, extending life expectancy. While there is a compelling case to consider local manufacturing, it would be unrealistic to think that the South African government can resolve the issue of funding all the research and development and subsequent investment in manufacturing and then compete with established medical device manufacturers in export markets necessary to achieve the numbers that would secure sufficient return on investment.

The opportunity lies in building a competitive medical device manufacturing sector around intermediate-complexity technologies, specialised products, components, consumables and technologies adapted to African healthcare conditions.

South Africa already has medical technology companies with export potential

The country’s private sector is demonstrating that this approach can work. According to the Who Owns Whom report on the manufacture and supply of medical, surgical and orthopaedic equipment in South Africa, companies such as CapeRay and Southern Implants illustrate the potential of South African medical technology manufacturing. Their products have a significant presence in European markets.

CapeRay manufactures the Aceso integrated full-field digital mammography and automated breast ultrasound system, enabling simultaneous acquisition of both image sets.

Southern Implants, which manufactures dental prosthetics, has also developed an international market for its products.

The goal should not be isolation from global markets, but a stronger domestic niche market medical equipment manufacturing industry with export capability, supported by government to contribute to healthcare resilience, industrial development, skilled employment, technology transfer, and reduced exposure to international supply-chain disruptions