Major pharmaceutical companies are increasingly looking to harness Africa’s opportunity, lured by an emerging middle class across the continent’s growing urban centers.

Although the total size of the African market is still small compared to other global regions, analysts say that the continent’s big cities hold the key to unlocking the industry’s lucrative potential.

In such areas, increasing individual wealth, coupled with a stronger health system infrastructure and a rising demand for drugs treating chronic diseases, are driving demand for pharmaceuticals, say analysts.

“Urban centers have the highest concentration of the segments of the population that are more likely to be relatively wealthy, more likely to be educated and also possibly more likely to suffer from the chronic diseases of affluence that are becoming increasingly important in Africa,” says Sarah Rickwood, director of Thought Leadership at IMS Health.

According to a recent IMS report, called “Africa: A ripe opportunity,” pharmaceutical spending on the continent is expected to reach $30 billion in 2016, up from about $18 billion now. By 2020, the market could represent a $45 billion opportunity for drug makers, spurred in part by robust economic growth and demographic changes.

This can only be good news for people like Rudzani Modau, owner of Mangalani Pharmacy in Soweto, just outside Johannesburg in South Africa.

“The pharmaceutical business is growing and it will grow,” says Modau. “It’s the next big thing in Africa.”

Modau says his profits have soared over the last decade. “We have a lot of potential in Africa,” he adds.

According to the World Health Organization (WHO), Africa is home to 11% of the world’s population, yet accounts for 24% of the global disease burden.

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China’s interest in Africa is no secret. A lesser documented story is that of India and Australia’s interest in the continent.

A recent article in The Economist noted that foreign direct investment in Africa hit $46 billion in 2012, up from $15 billion in 2002. The bulk of deals are in infrastructure and transportation, with China as a majority investor, but straight-forward M&A is also playing a role.

This M&A activity accounts for why, as per mergermarket, India and Australia (but not China) are Asia’s largest African rain-makers, in terms of number of deals.

India’s draw to Africa is obvious,” said Managing Partner Cyril Shroff of Indian law-firm Amarchand & Mangaldas & Suresh A Shroff & Co. Amarchand, which is working on three Indo-African deals, has a dedicated team scouting African opportunities and building relationships.

“Africa has been witnessing demographic growth coupled with rising purchasing power,” Shroff said. “Culturally, there are similarities and a long history between Indians and Africans,” he added.

In fact, Africa’s largest inbound M&A transaction to date by an Asian player was Indian. Three years ago, Bharti Airtel paid $10.7 billion for Kuwaiti firm Zain’s African assets. Since then Bharti has said it would invest heavily in Africa, including in Malawi and Uganda, to ramp up its portfolio. On the consumer front, Godrej Consumer Products, which has already made acquisitions in Kenya, Nigeria, and South Africa, has said it will continue to seek African deals in the household and personal care segment, as has peer Dabur India.

“While there is not yet a critical mass of Indian acquirers, several corporates are deeply conscious of the African opportunity and could seek to enter those markets – once they stabilize their domestic operations,” Shroff continued.

Africa’s lure for Australia, meanwhile, lies mainly in the mining and energy sectors. The largest deal to date was in February, when Rio Tinto picked up an additional 37% stake in South Africa’s Richards Bay Minerals, which produces iron and zircon, for $1.7 billion. The majority of other deals, while smaller in size, fall in the same sector and sometimes extend to auxiliary sectors such as Sedgman’s AUD $104 million acquisition of mining services company last November.

Countries that will continue to lure investors include South Africa, already the largest recipient of Asian capital and which stands in its own league, despite recent mining and labor woes. Other countries that will drive interest, partly due to their natural resources, include Angola, Mozambique, and Nigeria.

One of the caveats, dealmakers said, is that target countries have diverse levels of political stability and sovereign risk. Another warning would be with regards to limited or alternative deal-making knowledge such as alternative financing and structures, public market deals, share swaps, tax issues and cultural differences during negotiations.

Despite obstacles, India Inc clearly has Africa on its mind. Deals will be done, albeit slowly, in consumer, financial services, telecommunications and natural resources. The Australian story — in the wake of the death knell arguably sounding for its mining industry given falling commodity prices, high labor costs and reduced capital expenditure by miners — is less rosy.

But one thing is clear — inbound African deals are here to stay. Beckoning Asian investors is its wealth of natural resources, tempting demographics, stabilizing politics and improving social-economic conditions.

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Angola, where a 27-year civil war ended in 2002, is rebuilding with the help of Chinese loans backed by oil output of more than 1.7 million barrels a day from offshore fields operated by companies such as Total SA (FP) and Chevron Corp. (CVX)

The government’s decision on Feb. 5 to cut the prices of bigger apartments to a maximum of $190,000 from $200,000 and smaller ones to $70,000 from $125,000 sparked a flood of applications. Before that about 30,000 units in five suburbs of Luanda, home to more than five million people, stood empty for more than a year because Angolans couldn’t afford them.

The government paid $3.54 billion for Beijing-based Citic Construction Co. Ltd. to build 115 apartment blocks in the first 900-hectare phase of Kilamba, 20 kilometers (12 miles) south of Luanda.

“Eleven years after the end of Angola’s civil war, we are seeing the beginnings of an emerging middle class in Luanda,” Lucy Corkin, a sovereign risk analyst at Rand Merchant Bank in Johannesburg, said March 7 in an e-mail. “The challenge is that Angola’s social and physical infrastructure is currently not yet properly equipped to deal with their demands in terms of goods and services.”

Luanda is plagued by power outages several times a day and almost constant traffic jams around dusty and garbage-strewn slums. The nation is trying to build up agriculture to reduce imports and feed a country that was the world’s fourth-largest coffee producer before independence in 1975.

[…]

Angola is the fifth-biggest diamond producer by value, and its per capita income of $5,681 ranks seventh in sub-Saharan Africa, ahead of countries such as Nigeria and Kenya, according to the International Monetary Fund. The United Nations said in 2011 that 54 percent of its people still live on less than $1.25 a day.

Angola forecasts 7.1 percent economic growth this year after 7.4 percent last year and an average expansion of 9.2 percent over the past five years, according to government budget documents. The country depends on oil for approximately 40 percent of its total output and 70 percent of government revenue, according to the IMF.

[…]

Luanda is Africa’s most expensive city for expatriates to live in and the second-costliest in the world, according to Mercer’s annual cost of living survey.

It cost $15,000 a month to rent a four-bedroom executive house in the city’s Miramar and Ingombata areas last year, according to London-based real estate broker Knight Frank LLP. In the Nigerian capital, Abuja, and Lagos, the main commercial hub, a prime property went for an average $10,000 a month.

Rent for an unfurnished, two bedroom apartment in Luanda was $6,500 a month, according to Mercer. That compares with $4,424 in London, $4,500 in New York and $4,848 in Tokyo.