Access to safe, effective, quality and affordable health products remains a challenge for half the African population, despite medicines and vaccines being the most effective tools for both preventing and treating diseases (Sustainable Development Goal 3.8). In fact, public health facilities often face severe shortages of medicines and vaccines as compared to private health facilities
One promising way to ensure health products reach more public health facilities and hospitals is through increased collaboration between ministries of health and private pharmaceutical distributors. However, private pharmaceutical distributors operating in low- and middle-income countries (LMICs) face real obstacles in regularly supplying large volumes of essential medicines for public health system customers.
What is Working Capital?
To address these issues, VillageReach is partnering with Africa-based distributors to strengthen their financial and operational capacity, through improved working capital management. Our goal is to increase private distributors’ collaboration with government to ensure health products are consistently available when and where they are needed, moving the continent toward universal health coverage.
Private Distributors in LMICs
Private pharmaceutical distributors are critical players in the health supply chain. They procure products from manufacturers, importers and other distributors and then store, sell and transport these products to both public and private hospitals, health facilities and pharmacies. However, recent benchmarking results from VillageReach and the Africa Pharmaceutical Distributors Association looked at 10 African countries and found only four countries used private distributors to routinely supply public hospitals and health facilities. Of the remaining six countries, two did not use private distributors at all, while the other four only used them during health emergencies or medicine stockouts.
For private distributors in Africa to operate effectively, they must work closely with clients—pharmacies, hospitals and health facilities— and government to understand demand trends, ensure inventory levels match actual needs and create an enabling environment for timely delivery. This collaboration helps prevent stockouts or overstocking, minimizes the risk of product expiration and reduces financial losses. Distributors must also maintain strong relationships with suppliers to adapt quickly to market changes, ensure uninterrupted operations and better align resources.
This entire operating cycle depends on working capital, which serves as the company’s financial engine. Working capital represents the total financial resources available for a private distributor to fulfill its role of making health products available. Therefore, success in working capital management requires synchronizing cash outflows (procurement and inventory funding) with cash inflows (sales revenue) while maintaining sustainable business practices.
Working capital management in LMICs
When working capital is well-managed, cash flows are strong, allowing private distributors to supply health products while investing and expanding their operations. When it is not, operations can be disrupted, reducing the private distributors’ ability to ensure product availability while maintaining financial viability.
Improving working capital management does more than optimize distributor operations; it strengthens the entire health supply chain by sustaining the availability of quality medicine, enhancing supply chain resilience and improving cost-effectiveness both for private distributors and for health facilities (public and private) and their patients.
However, working capital management is very challenging in LMICs.
- Africa-based distributors are often reliant on international pharmaceutical manufacturers that require payment prior to shipment, while health facilities (both public and private)—the primary clients of private distributors—often struggle to pay distributors on time.
- Parallel health supply chains managed by global health organizations reduce the public sector market size.
- Limited supply chain data visibility leads to unpredictable demand patterns that further complicate efforts to manage working capital.
- The limited availability or high cost of external financing pushes some distributors to focus on low-cash services, like warehousing, instead of focusing on procuring and supplying health products.
Improving working capital management
VillageReach launched a private distributor program, funded by the Gates Foundation and The Vitol Foundation, in the Democratic Republic of Congo (DRC) in 2021 to integrate private distributors into the public health supply chain. Recognizing the challenges private distributors face in managing their working capital, VillageReach began partnering with the DRC Federation of Essential Medicines Purchasing Centers (FEDECAME) in 2024 to address these challenges. FEDECAME and VillageReach identified for-profit and not-for-profit private distributors with World Health Organization Good Distribution Practices certification to develop tailored working capital improvement plans.
Our working capital technical assistance uses a comprehensive approach, combining:
- External factors: PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis and market dynamics analyses to contextualize distributors’ operating environments;
- Quantitative performance: Evaluation of working capital efficiency and liquidity metrics (i.e., current ratio, quick ratio, days payable outstanding, days sales outstanding, days inventory outstanding)
- Management practices: Assessment of internal working capital management practices, including policies, procedures, tools and roles and responsibilities.
Additionally, we aim to improve a distributors’ investment readiness, including supporting distributors in developing business and financing plans they can use to access affordable working capital. Our overall goal is to strengthen a private distributors’ capacity to procure and distribute essential medicines for DRC’s public health system eventually replicating this work in other African countries.
With the ability to sustain and grow their operations, private distributors can increase access to health products and strengthen health supply chains – ultimately ensuring everyone, everywhere, has the quality health care needed to thrive.
Learn more about VillageReach’s technical assistance in distributor working capital management , contact Anderson, Ti-Timi, Manager, Private Sector Engagement, anderson.ti-timi@villagereach.org