Minus 40 – When Efficacy Is Crucial – RACA JournalAngelique Labuschagne
Minus 40 has been locally manufacturing fridges for over 40 years, working hard to up the quality of particularly the medical cold chain in South Africa and beyond.
Minus 40 was founded in 1975 by a truly innovative South African farmer who recognised that the (amazingly late) introduction of television into South Africa would change the way in which rural communities met their energy needs.
Until then, remote dwellings, farms, and game lodges needing lighting, refrigeration, and cooking facilities, had relied heavily on paraffin and bottled gas. Access to the world of television prompted a switch to diesel-powered generators for primary household energy.
The original innovative products produced by Minus 40 was a range of refrigerators and freezers that incorporated eutectic tanks to ‘store cold’ when power was unavailable. Typically, the household generator would operate for four hours in the evening to provide power for lights and television. The Minus 40 Coldsaver range was designed to absorb sufficient ‘cold’ in this short timeframe to remain at the desired temperature until the next operating period the next day.
As more rural households connected to the Eskom grid, the demand for Minus 40 domestic fridges declined and new applications were sought, leading to the development of other products. Because of reliability and low energy usage, many users in the rural areas still opted for the Minus 40 fridges after being connected to Eskom power, but this was not a growing market.
“The only way to survive is to balance imports with local manufacturing. It’s a high-risk game for anyone who is purely local manufacturing or purely importing.”
Today, the company’s marketing and sales strategy is based on developing product solutions for specific target markets and the needs of those market sectors. With South Africa as the company’s home base, the greater African continent is where the major growth opportunities lie for Minus 40′s solutions.
Minus 40 boasts a dedicated sales team based in both Cape Town and Johannesburg, with own and contracted service technicians who specialise in its product range to serve the southern African market. Sales representatives also regularly visit sub-Saharan African countries to support customers and agents.
A long-established dealer network extending throughout South Africa, Namibia, Zambia, Zimbabwe, Kenya, Uganda, Tanzania, Nigeria, Botswana, and Ghana conducts after-sales servicing.
Local vs imported
There has been a history of problems with the efficacy of fridges being supplied to the local medical industry, driven by price rather than function, explains Michael Werner, managing director of Minus 40. And even today, there is still a strong desire to import medical products, as these are perceived to be of higher quality, which isn’t necessarily true.
After the initial run-in with substandard product, the Department of Health (DOH) approached Minus 40 in the late 1990s to start replacing very expensive imported units that didn’t necessarily have the service support behind them. Since then, the company has worked with the DOH, among others, to develop the appropriate vaccine fridges to manage the cold chain to global best practice standards.
Although there is still motivation to go local, driven by the government to localise and keep the money in the country, there is also a big concern with fridge manufacturers supplying beverage coolers and domestic coolers into the market instead of specially designed medical fridges. This all comes down to price. “We have been driven by price in this sector for too long,” explains Werner, “resulting in recipients at risk of receiving medicines with poor efficacy. This is a major problem across Africa, with many research documents by NGOs highlighting this problem.”
The Pharmacies Act of 2015 is attempting to address this issue; however, compliance is still a challenge across both public and private sector health care providers.
Because of this new Act and the history of quality concerns, though, increasingly more public sector clients in particular insist on World Health Organisation (WHO) certification for medical refrigeration products. This is where the dilemma comes in, as there is currently only one manufacturer locally who manufactures WHO-certified fridges, but their products are incredibly expensive.
“Why aren’t we going the WHO-certification route yet? Because the capability to get these fridges certified in this country isn’t there,” explains Werner. If you go externally to certify these fridges, it will cost between R500 000 and R750 000 per fridge to get them initially certified, and then an undefined annual recertification cost. It takes about six weeks to certify a fridge and that is assuming it passes all the tests. “So for us, the biggest challenge right now is getting government to support the investment into local testing facilities to do the certification cheaper.” This is a lot easier said than done, as at the CSIR in 2017, Treasury would not approve the budget for this to be done.
This means that manufacturers still have to go overseas to do this testing. “It’s really a catch-22 situation,” says Werner. “Because if you go overseas to do the test, that cost has to be amortised in the cost of the product that you’re supplying into the market. So, do you supply cost-effectively to the local market with good products, or do you go the WHO-certified route but have to double your price? That’s where we are at the moment. We require more government support and incentive to produce more sophisticated medical equipment locally.”
“South Africa is increasingly losing our skills base. That then plays into the hands of the foreign suppliers. There is no incentive to develop the local industry,” he says.
The other challenge you have in South Africa is that the industry is very small. For true medical refrigeration in terms of the pharmaceutical cold chain, Werner estimates the market to be only about R30-million a year (for both private and government sectors). “If there was more compliance to legislation, it would probably be double that size,” explains Werner. “The worst offenders are the private sector, who still uses beverage coolers and domestic fridges to store the medicine. There is greater compliance in the public sector.”
Another challenge is keeping products relevant to technology. “One advantage of an imported product is that the global medical manufacturers have a much bigger scale for developing the products, making the control systems more IT-orientated.” However, what these imported units are missing is robustness. The products being developed might be very high-tech, but they are being developed for first-world environments. “Third-world environments like South Africa generally have more ‘dirty’ electricity in terms of surges and so on and people look after assets in a more robust manner — we design our local fridges with this in mind,” explains Werner. Which is why the local fridges often outlast the high-tech imports.
Then there is the challenge of keeping up with the Montreal Protocol and the phase out of certain refrigerants globally. Minus 40 products currently run predominantly on R134a and R407. With the phase down of HFCS already underway in Europe, this means that it is becoming harder (and more expensive) to obtain these refrigerants. Not to mention that if they were to apply for WHO-certification, they would have to develop units that run on refrigerants like R290 or R600a instead.
Also, because of the low demand in the local market, the volumes simply do not allow the automation of the factory and the installation of large manufacturing machines. Minus 40 currently employs 21 factory workers and the entire process is very manual. The advantage of this is that it gives them a lot of flexibility to customise a product for a customer, though.
“The challenge going forward for us would be to outsource,” he says. “We simply can’t afford to employ resources ourselves anymore, unless they are highly utilised and productive. The recognition agreement is not conducive to employment.”
“South Africa is increasingly losing our skills base. That then plays into the hands of the foreign suppliers. There is no incentive to develop the local industry.”
As such, Minus 40 is not planning on employing any more people in the immediate future. Because of the Metal and Engineering Industries Bargaining Council (MEIBC), they are forced to pay the highest rates in the country. The problem is that the central bargaining is really geared for the large-scale metal industries in Gauteng, but it means that smaller companies like Minus 40 get no say in the matter. “I think there are employment opportunities, but they’re not in-house anymore,” says Werner. “The trend will increasingly be to outsource. Formal sector employment will reduce and informal contracted in (not hours worked, but products produced) employment will take its place. The textile industry has been doing this for a couple of years already and it is a model that works very well. It is far more cost-effective.”
Another hurdle is B-BBEE and the fact that it is very expensive to maintain, not to mention that the latest scorecard makes it very difficult to get an acceptable rating without diluting company share value, explains Werner. “I try to look at the positive side of things and although it means a lot of paperwork for us, it also means that it’s becoming increasingly difficult for new business to be established — hitting our competition. And this is one of the reasons why imported goods are so attractive.”
“This instability in South Africa regarding legislation and the continuously changing B-BBEE methodology is very expensive,” explains Werner. The audits are a costly exercise as you have to bring in specialist consultants and independent auditors. Then there is also the indirect cost of the working hours it takes to complete all the forms and get everything in order.
Why go local?
So why choose a locally manufactured product over an import? The single biggest driver is price. But the overall winner will be your service reputation, explains Werner. We have very robust handling of equipment in Africa, which means that sophisticated pieces of kit would not last very long in Africa unless it was serviced properly and supported.
Minus 40 does not only provide the product, but enters a three- to five-year service contract with their clients to ensure the product lasts and is properly looked after. What is the point of spending a lot of money on importing a fridge that has no backup for repairs and service? It will just end up costing you more in the end anyway.
Future of local manufacturing?
As mentioned, Werner is an optimist and he believes things will turn around. But for now, the picture is bleak, as government and organised labour seem to be driving businesses out and local manufacturing is becoming less and less, with unemployment soaring.
“The country is becoming increasingly impoverished. But life has a wonderful way of balancing things out. They are stifling competition through these practises they are putting in place. I also recognise that everything that’s being said in the media isn’t really what is happening. Reality also sets in that things like economic transformation will have to be done rationally at an affordable pace. People still need to feed their families and hence, need to be employed.”
The advantage of the economic environment going negative, though, is that the rand starts weakening, giving local manufacturers like Minus 40 the opportunity to price products at a higher level to cover all the additional costs government is placing on business.
The only way to survive, according to Werner, is to balance imports with local manufacturing. “It’s a high-risk game for anyone who is purely local manufacturing or purely importing,” he says.
“We are now finally beginning to see the economic consequences of maladministration over the last five years. It will take a long time to fix; this doesn’t happen overnight. But I’m positive that things will turn around,” he adds.
“An advantage of local skills development and having medical refrigeration technology capability in South Africa is demonstrated by the innovative work done by Minus 40 with other South African entrepreneurs, to develop human milk banks for a major medical company in South Africa. These human milk bank solutions are now recognised by global experts as leading-edge technology that costs less than half of what the imported equivalent equipment costs. The medical company is now rolling out nine of these milk banks across South Africa and they incorporate specially developed milk bank freezers and fridges that have tight temperature parameters, even during the automatic defrost cycles. These units are monitored for performance compliance independently and have advanced data recording and alarm functions should control parameters be exceeded at any time, hence protecting precious product like human milk and colostrum that are critical for premature babies in particular,” he concludes.