This year the investment dream that disruptor Quinton Zunga has built has suffered its most difficult 12 months since it launched in 2013. This is a time to pause for thought and reflection for an entrepreneur who was used to the Midas touch in the African investment game. His company RH Managers is listed in South Africa and Rwanda. The private equity firm founded by investment banker Zunga has R5bn ($270m) under management and has raised $1.5bn from investors. It is a black-owned and black-managed operation in South Africa’s lucrative white-dominated healthcare industry.
These days, Zunga is gathering investment for a business that is poised to make a vast amount of money from the implementation of South Africa’s controversial National Health Insurance policy. This scheme in the making has ruffled many feathers, before it has even started due to the nature of its plans to take healthcare to the masses.
This is part of the company’s mission to gather investment to help close South Africa’s yawning infrastructure gap. Once, South Africa, the most industrialised country on the continent, boasted the finest infrastructure. In the last decade, or so, the investment needed to maintain it has fallen away, as tough economic times persist and government coffers empty.
Its 10th year of operation has been one of the hardest for RH Managers, as it faced losses and debt for the first time. Despite riding the rough times of Covid-19, the company results for the first half of the year, presented in June, were Zunga’s first set of disappointing numbers.
“We didn’t have the best of years this year – the first loss since the inception of the company. That was the escalation in operating costs. We did have a lot of costs running our hospitals,” Zunga said at the time.
The numbers saw a reduction in fair value by about R50m ($2.7m) of the RH manager’s prime asset – African Healthcare. Also for the first time a debt provision appeared on the balance sheet to the tune of R100m ($5.3m) to cover the losses created by everything from rising costs to a miners’ strike.
Load-shedding strikes again
Electricity, or the lack of it, was the root of one of the biggest increases in cost. Zunga reckons that power cuts increased his costs by between 5% and 10% in the last year. The company had run expensive generators at his hospitals to see them through the dark hours.
As the year draws to a close, Zunga’s managers are working hard to cut these costs. “We have been refitting solar and energy efficient lighting and better waste management, trying to reduce costs and make facilities greener,” says Zunga.
On the mining front, a strike by workers cost the company dearly. Many of the 35 private hospitals that Zunga is invested in are in mining areas. “During the strike the miner numbers using our hospitals fell. It is as simple as that. Thankfully, there is now a new wage agreement in place so we are unlikely to see another strike for some time.”
The company also benefited by selling off the GENRIC insurance company to South African insurance giant Old Mutual. “This gave us cash to help us deal with our issues,” Zunga says.
Zunga claims that the full-year figures will see much better results.
In the new year, Zunga will concentrate on the launch of his new R2bn ($106m) social impact investment fund. He claims he already has investor pledges for around half of this money.
Investment in healthcare
“I think right now the interest in investing in healthcare is stronger. Obviously there is the National Health Insurance scheme also that is creating a bit more excitement,” he says. The NHI is going to be one of the big election issues when South Africa goes to the polls in April. It is likely to be a vote winner for the ruling ANC as the party tries to cling onto power.
Healthcare for the masses has long been an issue in South Africa.
For many years the country has had a two-tier system, in which around 9m wealthy South Africans pay high fees for world-class healthcare and exclusive access to around 200 hospitals across the country. The other estimated 50m South Africans have to take their chances in underfunded and understaffed public hospitals, where the queues are long.
The NHI bill – passed by Parliament in June – plans to even things out and improve care for those who can’t afford it.
The merits of NHI depend upon who you talk to. The bill, which will be implemented in stages, proposes to pool public and private resources and to limit private medical aid companies, such as Discovery Health, to offering cover only for services not reimbursable by the NHI fund.
Over the years, doctors and private health companies alike have told me that they fear NHI spells chaos.
There are concerns that government bureaucracy may struggle to achieve the same level of efficiency in administering healthcare as do private enterprises.
Zunga, who stands to profit from investing in new hospitals to make the scheme work, disagrees.
“It should create a massive increase in capacity and locations – and it will make everyone a consumer. I am expecting volumes to follow through,” he says.
“I am a big proponent of NHI. It will change South Africa dramatically… Currently private healthcare provides for about 15% to 20% of the population. NHI will cover everyone.”
Zunga believes the system can be made fit for purpose. “I think the likes of Discovery will have a bigger issue with the funding model, but it will change infrastructure. There will be more building as we expand the health ecosystem. We plan to build eight to 10 hospitals that will pull in about 200 to 300 doctors and health professionals,” he says.
It is not as simple as it sounds. To build in South Africa, Zunga will have to navigate a web of approvals and red tape, but he is bullish as the polls approach.
“The elections should focus on the core basis of people getting service provision and health is part of it. The government has impetus to get things done and this is going to be a big part of the election.”
From backwoods Zimbabwe to the big banks
Election fever and multi-million-dollar investments are a world away from the green and mountainous Eastern Highlands of Zimbabwe where Zunga was born more than 40 years ago in a newly-independent nation.
In the sleepy town of Mutare, on the border with Mozambique, Zunga’s father was a retailer of sugar and his mother was a nurse. He was the eldest of three children in a rural middle-class family.
Like most bright youngsters of the day he headed to the capital, Harare, to take advantage of President Robert Mugabe’s post-independence expansion of higher education. At the University of Zimbabwe he earned a degree in computer science and business. Barclays Bank recruited him onto its graduate training programme in Harare.
When Barclays moved back into South Africa, in the early years of this century, Zunga went too, with a wealth of investment banking experience under his belt. He joined Absa Capital in South Africa, but didn’t stay long; before moving on to be a director at Bank of America Merrill Lynch.
Zunga found transformation to be too slow in the South African financial sector. “New black graduates get frustrated because the old guard wants to slow-climb the ladder, while the new guys want things done much quicker,” he says.
“So you find the younger guys sticking around for five years – and they leave, and the old guard is still there. So there’s a bottleneck at the top.”
Try, try again
Just over 10 years ago, Zunga took the risk of starting up on his own by founding RH Managers. He is seen in the business as a shrewd investor with a keen eye for an opportunity. “I think seeing the opportunity is the key. If entrepreneurs can spot the opportunity, they can look at ways to take advantage of it. If it doesn’t work one way, try another,” he says.
“They need to find a niche and an issue to be solved. It is not going to be fast – and you had better be ready to go through the ups and downs.”
In 2024, Zunga is also launching a healthcare infrastructure fund for East and West Africa. He says it has a target of more than $100m.
“It will close next year. The African Development Bank has committed to support it, and we have also got interest from an international corporate investor. We can build the book from there,” he says from Johannesburg.
Zunga feels the new fund is going to be a hard sell to conservative investors outside of South Africa, but he sees it as a long-term project hunting for scarce capital.
“The bottleneck is capital. There are a lot of licences and ideas. It’s a special type of risk. You needed a special vehicle because the banks don’t do trial and error. So you can have an idea and a deal – but you can’t find funding,” he says.
“Healthcare infrastructure is not appealing to a lot of international funders. They are cautious and need a little bit more marketing to win them over.
“I think they are not too sure of greenfield developments. Obviously with greenfield investments the returns are a bit slower, so it takes a little bit more time to get them across the line. Fundraising is a process, you are always adding on to what you have.”
It is a slow process at that. At the very least Zunga appears to have the patience to see it through.
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