MBA case study: fixing pharma in Gabon
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Gregory Rockson braced himself for a tough boardroom discussion in Accra, the Ghanaian capital, in January 2021, as he pitched an unusual plan to diversify his fast-growing business in a complex new direction.
The large majority of patients in Africa seek medicines and healthcare in private pharmacies and hospitals because state-backed systems are dysfunctional. Rockson had started his company, mPharma, as an alternative to ineffective official supply chains, offering political leaders a model for how to shake up the provision of public services and essential goods.
In a decade, he had grown his company from its base in Ghana into one of the continent’s leading providers of medicines through clever use of technology and working capital. Now, he was considering an innovative — and to some, counter-intuitive — expansion: into the public sector.
The idea was to manage Gabon’s National Pharmaceutical Office (OPN). The country’s $1.8bn sovereign wealth Strategic Investment Fund had decided to refocus investments domestically, including on social infrastructure. In a pioneering move, it was taking direct control of the struggling state medicines distribution agency from the ministry of health. But it needed technical help.
If Rockson’s hunch was right, a contract could tap into strong demand by delivering healthcare to those most in need, providing important social impact alongside sustainable profit growth. It offered scope for future ownership of the service and a model with applicability to many other countries.
“Africa’s central medical stores remind me of the telecoms sector in the 1990s,” Rockson says. “The same arguments were used then against restructuring: they are state responsibilities and divesting would damage national security. But, like telecoms, they have the potential to move from being a liability on the balance sheet of governments to a massive revenue-generating asset.”
Andrew Carruthers, who joined mPharma’s board after his venture capital group, Novastar, invested in 2018, recalls divided opinions. “We were concerned about resourcing — human and financial. We had just made an acquisition in Uganda and were thinking about another in Nigeria and franchising in Ethiopia. Greg is not the sort of guy to go slowly, and it only needed one of these things to blow up to cause problems.”
Carruthers adds: “You want to power up the state if they are benign because your reach goes exponential. But, often, there are very dysfunctional politics inside ministries. We felt a lot of diligence was needed. If you get the right contract with the right government and properly de-risk, it’s great. If they don’t pay, it can kill you. It’s binary.”
Many African countries use state-owned central medical stores such as Gabon’s OPN. But opacity, corruption, bureaucracy and cash flow constraints have led to high prices, expired medicines and “stock outs”, leaving patients without life-saving drugs — and driving those who can afford them to costlier private pharmacies, instead.
Even when governments delegate management to outside contractors, the situation is not stable. For example, Crown Agents ran Zambia’s Medical Stores earlier this century, but was replaced in a move towards “Zambianisation”, which has led to resurgent concerns over costs and shortages. Bonface Fundafunda, former Zambia Medical Stores chief executive, cautions that changes in governments can swiftly lead to a reversal of structures and outcomes.
Even so, Rockson persisted with his “academic interest” in reforming the public system. His appetite was whetted by a potential contract in the Democratic Republic of Congo, backed by the World Bank. That foundered on local political resistance, while a second failed because enthusiastic officials in the Central African Republic could not find funding.
Then, in 2019, Rockson received a call from Akim Daouda, then chief investment officer of Gabon’s sovereign wealth fund, who persuaded him to take a detour to Libreville, the capital, on his way back to Ghana from the UK.
Daouda described how persistent failures to deliver medicines on time or affordably meant the OPN had largely been displaced by commercial pharmacies. As for his counterparts elsewhere, one constraint on the adoption of new technology in government medicine supply systems was the lack of local and regional solutions, and a reluctance to hire global contractors.
Daouda saw scope for an overhaul, notably because the national social insurance scheme already covered the vast majority of the population. That provided a mechanism for reimbursement and pressure for reform, since it was being forced to pay the higher prices charged by for-profit providers. “Effectively, we had already privatised this sector,” Daouda says. “I thought we might as well take charge. We were not solving the national central drug office problem but we were creating a disequilibrium for the social security system.”
Senior officials did not fully support his plans. But, when the Covid-19 pandemic hit in 2020 and the OPN was unable to respond, mPharma stepped in to provide test kits and other medical equipment. That gave Rockson a taste of the system. As he would later discover, there was no IT system to benchmark performance, nor even emails for employees.
“The situation was really terrible,” he says. “Warehouses were not up to standard, the infrastructure was really poor, staff were very demoralised, with people just showing up to get their salaries.”
The intervention gave mPharma experience, a track record and direct access to the office of the Gabonese president. “We became known as the company you call at midnight and we’d be there. That built its reputation,” Rockson says.
Later that year, Daouda was promoted to chief executive of the wealth fund, and moved ahead with his plans. After taking control of OPN, he proposed a $5mn operational management contract with Rockson’s company to cover its costs in overseeing procurement and distribution. That limited the downside but also constrained mPharma since, to avoid any conflicts of interest, it would not be able to provide medicines itself.
As Rockson laid out the terms of the prospective arrangement to his board in 2021, he was tempted by the potential of the new adventure, while mindful of the limitations — including the essential role of his relationships with key decision makers led by Daouda. Now, he had to convince his directors.
To proceed would mean operating in a complex francophone country with which, as a Ghanaian, he was unfamiliar, in an inefficient sector he had avoided because of fierce vested interests that resist reform, with uncertainties over politics and patronage. It would also mean diverting scarce expert staff and resources from mPharma’s burgeoning activities elsewhere.
What would you do in his situation?
For a teaching note to accompany this case study, contact email@example.com
Andrew Jack is the FT’s global education editor
Prashant Yadav is a senior fellow at the Center for Global Development, affiliate professor at Insead and a lecturer at Harvard Medical School